Cause for Optimism in Relationship of Welsh Economy to Rest of Country; PROFESSOR James Foreman-Peck, Head of Welsh Economic Research at Cardiff Business School, Assesses Whether Current Measures of Gross Domestic Product Give a True Indication of the State of the Economy

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Byline: James Foreman-Peck

THE Welsh Assembly Government attaches a great deal of importance to the income gap with the rest of the United Kingdom. One of its economic policy targets is to reduce it. They measure the gap with gross domestic product (GDP) per head of the population. So it is particularly unfortunate that these figures are not yet available for Wales for the years 2000-2002. Those for 1997-1999 are still ``provisional.''

Moreover, there are possible errors in the`` non-provisional'' numbers back to 1989.

This is the more surprising since internationally comparable figures are now available for most other countries in the world for 2001.

For instance from the Organisation for Economic Cooperation and Development. Even when GDP figures for Wales are eventually produced, they will not be as useful as these. They will not tell us how much can be bought with this income. We could assume that prices are identical in Wales to the average for the rest of the United Kingdom. But an official study by the Office of National Statistics for the year 2000 shows that Wales is a cheaper place to live, even without taking into account house prices.

Full-time earnings in Wales have the advantage of being available more promptly and telling us directly about a measure of no less interest than GDP.

Of course not everybody is employed full time, the survey also excludes the self-employed and there are other forms of income apart from wages and salaries, like profit, rents, interest and state be-nefits. When unemployment rises, a larger portion of Welsh income comes from unemployment benefit. In addition, income per head of population depends on how many in the population are not earning.

But these points are of interest in themselves. Why should not all these change be broadly in line in recent years with the rest of the United Kingdom? Then if this is a good approximation, relative earnings changes will tell us something about what has happened to the GDP gap. …