A Review of Local Economic and Employment Development Policy Approaches in OECD Countries

OECD Local Economic and Employment Development (LEED) Programme A Review of Local Economic and Employment Development Policy Approaches in OECD Countries Part II: Policy Transferability to Wales 2 –PART II: POLICY TRANSFERABILITY TO WALES Contact details OECD Centre for Entrepreneurship, SMEs and Local Development (CFE) 2 rue Andre-Pascal, 75775 cedex 16, Paris, France www.oecd.org/cfe CFE‟s Local Economic and Employment development programme www.oecd.org/cfe/leed OECD contact people for this report: Jonathan Potter, Senior Economist, OECD LEED Programme [email protected] Marco Marchese, Policy Analyst, OECD LEED Programme [email protected] A REVIEW OF LOCAL ECONOMC AND EMPLOYMENT DEVELOPMENT POLICY APPROACHES IN OECD COUNTRIES –© OECD 2008 PART II: POLICY TRANSFERABILITY TO WALES – 3 NOTE ON THE REPORT SERIES This report forms part of a series of four reports from the project carried out by the OECD with collaboration from the Welsh Assembly Government (WAG) “A Review of Local Economic and Employment Development Policy Approaches in OECD countries”. The review has intended to provide WAG with a set of policy options and learning models to consider in the design of future development policies and strategies. The full set of reports is as follows: Executive Summary & Synthesis of Findings Part I: Policy Audits Part II: Policy Transferability to Wales Part III: Case Studies of Regional Economic Development Approaches This report presents the results of Part II, which investigates the transferability to Wales of the twenty interventions analysed in the “policy audit” part of the review. A REVIEW OF LOCAL ECONOMC AND EMPLOYMENT DEVELOPMENT POLICY APPROACHES IN OECD COUNTRIES –© OECD 2008 PART II: POLICY TRANSFERABILITY TO WALES – 5 ACKNOWLEDGEMENTS This project was led by Jonathan Potter and Marco Marchese of the OECD Local Economic and Employment Development Programme. The work was undertaken in collaboration with the Welsh Assembly Government. The OECD Secretariat gratefully acknowledges the contributions of the Welsh Assembly Government Steering Group for this project and the advice of the members of the Welsh Assembly Government Economic Research Advisory Panel. The project Steering Group members were: Jonathan Price, Chief Economist Gareth Morgan, Head of Economic Research Gareth Edwards, Economic Advice Division Neill Paul, First Ministers Office Kevin Griffiths, Education Division Julian Revell, Statistics Division Jarlath Costello, Economics and Transport Division James Price and Tracey Burke of the Welsh Assembly Government Secretariat provided further useful support. A REVIEW OF LOCAL ECONOMC AND EMPLOYMENT DEVELOPMENT POLICY APPROACHES IN OECD COUNTRIES –© OECD 2008 TABLE OF CONTENTS – 7 TABLE OF CONTENTS LABOUR MARKET PARTICIPATION AND REGENERATION POLICY TRANSFERABILITY TO WALES ........................................................................................................ 8 1. Introduction ................................................................................................................................... 8 2. Policy Challenges for Wales ......................................................................................................... 8 3. Policy gaps in the current approach of WAG .............................................................................. 14 4. Policy options to address Wales‟ challenges ............................................................................... 18 5. The potential role of the reviewed initiatives in filling the gaps ................................................. 21 6. Conclusions and Policy Recommendations ................................................................................. 31 References........................................................................................................................................... 33 BUSINESS PRODUCTIVITY POLICY TRANSFERABILITY TO WALES ..................................... 37 1. Introduction..................................................................................................................................... 37 2. Business productivity policy challenge for Wales .......................................................................... 37 3. Overview of possible policy gaps in the current approach: governance, process and policies ...... 45 4. Potential policy options to address Wales‟s challenges .................................................................. 47 5. Potential role of reviewed initiatives in filling gaps and other lessons offered .............................. 51 5. Conclusions and policy recommendations ..................................................................................... 72 References........................................................................................................................................... 74 Acknowledgements ............................................................................................................................. 77 A REVIEW OF LOCAL ECONOMC AND EMPLOYMENT DEVELOPMENT POLICY APPROACHES IN OECD COUNTRIES –© OECD 2008 8 – PART II: TRANSFERABILITY PAPERS LABOUR MARKET PARTICIPATION AND REGENERATION POLICY TRANSFERABILITY TO WALES Prof. P.J. Sloane WELMERC, School of Business and Economics, Swansea University. 1. Introduction This paper is written in the context of a coalition government1 in the Welsh Assembly which is committed to full employment (defined as an employment rate of 80%) based on quality jobs.2 At the outset it should be noted that not all activities relevant to the subject matter of this report have been devolved to the Welsh Assembly. Though the Assembly has powers relating to education and training it does not have responsibility for employment issues. It should also be emphasised that the Welsh Assembly has introduced many new policies and strategies and has recently integrated bodies such as Education and Learning Wales (ELWa) and the Welsh Development Agency into Government Departments. This report considers the transferability of ten policy audits focusing on specific policy interventions in different OECD countries in the fields of labour market participation, skills development and economic and physical regeneration. First, it considers the main policy challenges for Wales in relation to the labour market. It then examines evidence of policy gaps in the current approach of the Welsh Assembly Government. This leads on to an assessment of the policy options that might be considered in relation to the challenges facing Wales. The next section attempts to consider the potential role of the reviewed initiatives in filling these gaps. A final section draws conclusions and makes some policy recommendations. 2. Policy Challenges for Wales During its first term, beginning in 1999, the Welsh Assembly Government (WAG) set out the key challenges facing Wales and set targets for improvements in A Winning Wales (2002), a national economic development strategy. The principle aim was to close the Gross Domestic Product (GDP) gap between Wales and the rest of the UK.3 For the next ten years the targets were to raise employment initially by 135 000, improve enterprise and innovation, raise skill levels and improve information and communications technology. It was believed that skilled, good quality and well paid jobs would assist in this process, but it was also recognised that the Welsh economy was highly dependent on the performance of the economy elsewhere in the UK. Further flesh was put on these aims in Wales: A Better Country and Wales: A Vibrant Economy (2005). The latter recognised that there had been improvements in employment, unemployment, real earnings and economic growth in Wales compared to 1999, but also noted that economic inactivity remained high and was not confined to certain areas such as the Heads of the Valleys where long term illness was at a high level. Gaps in the provision of childcare and in transport deterred some from entering work. Some emphasis was placed on regeneration projects supported by the EU Structural Funds programmes and WAG “Communities First” initiatives which attempt to regenerate deprived communities. A REVIEW OF LOCAL ECONOMC AND EMPLOYMENT DEVELOPMENT POLICY APPROACHES IN OECD COUNTRIES –© OECD 2008 TABLE OF CONTENTS – 9 UK-wide policies such as Pathways to Work pilots and the Welsh Want2Work initiative, also supported by EU Structural Funds, were designed to encourage those on incapacity benefits to enter the workforce.4 Building on New Deal: Local Solutions Meeting Individual Needs, by the UK Department of Work and Pension (June 2004), outlined a fivefold strategy for Britain as a whole, incorporating macro-economic stability, flexible labour markets, tax and benefit policies to make work pay, education, skills and training policies to produce a more productive labour force and active labour market policies to prevent long-term unemployment and inactivity. Since 1997 employment had increased by 1.9 million, with higher employment rates than the OECD average for all major groups, and with an average cost per unemployed person, as a ratio of GDP, below the OECD average. Research had also identified the absence of a large city or urban area, with a consequential lack of agglomeration economies, as a factor underlying the lower earnings found in Wales5; but appropriate policies to alleviate this problem were far from obvious. Business growth has been supported by WAG‟s Innovation Action Plan which supports innovation

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