Scottish Labour Market Trends [November 2016]

Fraser of Allander Institute; (2016) Scottish Labour Market Trends [November 2016]. University of Strathclyde, Glasgow.

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On key indicators, Scotland’s labour market continues to hold up well despite a challenging economic environment. Employment for example, remains close to record highs. Since the mid-2000s, there has been a rise in the number of women in the labour force, reflecting, in part, progress in knocking down barriers to equality of economic opportunity. Youth unemployment, having risen substantially during the first years of the decade, has fallen back. However, on other indicators, performance is more mixed. Employment in the Scottish economy fell slightly this quarter (by 12,000), and Scotland’s employment rate remains lower than for the UK as a whole. The proportion of people working full-time and the number of hours worked on average has fallen. So in effect, whilst close to record numbers of people may be in work, as a whole they are working fewer hours (often not of their own choosing). Relatively slow growth in the overall economy combined with high employment has damaged productivity. And on wider indicators, such as wage growth, underemployment, and job security, performance has been weak. Over the last year, unemployment fell by 38,000 to 4.7% (for all those aged 16-64) – and back to rates close to those witnessed pre-2008. However, the recent fall in unemployment appears to stem not from people finding work, but from a fall in the number of people actively looking for work. If this reflects an increase in ‘discouraged’ workers then it is a concern. At the very least, it undermines comments by politicians who measure success solely by changes in unemployment and not the overall health of the labour market. Labour market conditions have weakened in the areas most exposed to the slowdown in oil and gas – Aberdeen and Aberdeenshire. – although their rates of unemployment typically remain below the Scottish average. Most forward indicators – at least at the UK level – suggest that the outlook for 2017 and 2018 is weaker than it was just 6 months ago. Arguably, the most significant development over the next few months is likely to be rising inflation. The Bank of England forecast that prices will rise sharply in the months ahead reducing real incomes and fuelling wage demands. With heightened economic uncertainty and ongoing fiscal restraint in the public sector, the near-time outlook for people in work is likely to be just as important an issue for policymakers as the prospects for those still seeking work.