Scottish Labour Market Trends [March 2018]

Over the past couple of years Scotland’s labour market has performed much better than the data for economic growth might suggest. Unemployment remains relatively low by historical standards and there are 10,000 fewer people unemployed in Scotland than this time last year. Nevertheless, the labour market data released last month show something of a fall-back in Scotland’s labour market performance over the final 3 months of 2017. Employment fell by 20,000 whilst unemployment rose by 14,000. The fall in Scotland’s employment rate over the quarter contrasts with the UK as a whole where employment rose. It is possible that these data represent the first indication that weak economic growth in Scotland is beginning to feed through to the labour market. But given the volatility in the Scottish series, it is too early to tell whether this increase in unemployment is a one-off or the beginning of a trend. The data over the coming months will tell us more about the direction of travel. The big challenge to the Scottish economy remains weak productivity. The latest data for Scotland released last month provide no sign of improvements in productivity growth. In a recent blog we showed that Scotland’s relatively better productivity performance than the UK in recent years – despite weaker economic growth in Scotland – was the consequence of relatively weaker growth in the number of jobs and hours worked than the UK as a whole. With weak economic growth and a relatively robust labour market, Scotland’s productivity growth is on track to remain relatively sluggish. Of course, Scotland is not alone in suffering from poor productivity growth. It is a challenge facing the UK and many other advanced economies. Brexit aside, boosting productivity is the single most critical economic challenge facing policymakers in Scotland and in the UK. Without faster productivity growth, wages are likely to continue to be squeezed. Later in this report, in an article by Stuart McIntyre, some of the key metrics on productivity growth are reviewed for Scotland, as well as some for the UK as a whole. The aim is to illustrate ‘what we know’, as a means to illustrate what we need to know more about. A number of underlying causes of productivity weakness have been suggested. While some of these have been well rehearsed, this article provides a brief overview of the key elements of these arguments.

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