Scottish Labour Market Trends [February 2017]

Fraser of Allander Institute, Scottish Centre for Employment Research; (2017) Scottish Labour Market Trends [February 2017]. University of Strathclyde, Glasgow.

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Since our last publication in November, we have continued to see a mixed bag of economic statistics for Scotland. Over the final 3-months of 2016, employment rose by 8,000. However, there was also a rise in unemployment of 6,000. With a workforce of over 2.6 million, we would caution against reading too much into such small changes. Greater insight can come from looking at trends over a longer time-period. And here some interesting results emerge. Overall, Scottish employment and unemployment rates are not too far from their best ever rates. Scotland’s employment rate peaked at 74.9% in 2007, whilst unemployment hit a series low of 4.0% in early 2008. The current rates of 73.6% and 4.9% respectively, are not too far away. But there are now 20,000 fewer people in employment in Scotland than a year ago. And whilst there are also 27,000 fewer people unemployed, this has been driven by an increase of nearly 60,000 in the number of people classified as economically inactive. As we highlight in the report, there has been a rise in the number of people reporting their reason for not looking for work as being ‘longterm sick’. In addition, it would appear that the UK has bounced back more strongly from the financial crisis than Scotland. Within Scotland, there is also evidence of significant divergences by region. Under the most recent data, around half of all local authority areas have not made up the jobs lost as a result of the financial crisis. With £11bn of devolved income tax revenues now dependent upon how well the Scottish labour market performs, just doing enough is not sufficient. The new fiscal framework is centred upon relative Scot-UK economic performance, which makes closing the gap with the UK crucial. The longer the fragility in the Scottish economy continues, the more important it is for both governments to set out clear policy actions to boost growth and create jobs. New strategy documents, action plans, agency reviews and ambitions for ‘inclusive growth’ can only take you so far. One area where government can make a difference is in the quality of the labour market data for Scotland. A call for improvements in the quality of economic statistics may (!) sound boring, but the current uncertainties around the numbers – even for headline employment and unemployment – are so large that they must always be taken with a pinch of salt. For example, the 95% ‘confidence interval’ for Scotland’s unemployment rate – i.e. the range within which we can be 95% certain that the ‘true’ value lies within – is ± 0.8 percentage points. So in other words, the current unemployment rate in Scotland could lie anywhere between 5.7% and 4.1%! This makes identifying any changes from quarterto- quarter fraught with difficulty. If the Scottish (and UK) governments are serious about understanding long-term labour market issues – and devising appropriate policy responses – then it is essential that the quality of the statistics be improved.