Future Skills Action Plan for Scotland: evidence and analysis annex

An evidence paper to accompany Scotland’s Future Skills action plan.

Challenges Faced by Scotland’s Labour Market

Quality of work

37. Creating jobs that are fulfilling, secure and well-paid is a key component of the Scottish Government’s Economic and Labour Market strategies. Beyond headline labour market indicators, the quality of work in our economy can be informed by sector trends, pay levels, whether someone works full time or part time, opportunities for progression, levels of job satisfaction and other metrics. Quality of work can impact upon the inclusive growth outcomes of participation and people;

Participation Outcome

Inequality of opportunity to access work is addressed and jobs are fulfilling, secure and well-paid.

People Outcome

Scotland’s population is healthy and skilled and economic benefits are spread more widely, with lower levels of inequality.

38. The 2008 financial crash and recession had a clear impact on some of these quality of work indicators. In the aftermath of the recession, full time work decreased and part time work increased as workers’ hours were reduced by employers and employment opportunities across the economy fell. Hours based underemployment (percentage of people in employment aged 16+ who want to work more hours) rose by 3 percentage points between 2008 and 2010 to 10%. Underemployment has since steadily fallen to 7.4% in 2018 but is still slightly above the pre-recession average.[33]

39. The proportion of Scotland’s workforce in full time work in 2018 (72.7%) also remains below the pre-recession level (75.2%, 2007) and has declined over the past 2 years.[34] Underemployment – very closely correlated with the ratio of part time work to full time work – fell over the past 2 years whereas the part time/full time ratio rose. That the part time/full time ratio remains elevated whereas underemployment has returned relatively close to the pre-recession trend suggests an element of the increased proportion of part time work in our economy over this period has been voluntary.

40. Data on skills based underemployment also shows a relatively high level of under-utilisation of graduate skills. The 2016 figure for graduate skills under-utilisation ranges from 40.8% of graduates (five or more years after graduating) working in non-graduate roles based on the Annual Population Survey, compared to 28% of first degree leavers entering ‘non-professional’ roles based on Higher Education Statistics Agency surveys.[35]

41. Latest data for April to June 2019 shows there is a slightly lower proportion of people working on zero hours contracts in Scotland than in the UK as a whole (2.6% vs 2.7%).[36] However, this is an increase of 0.2 percentage points from the year before (2.4%). Although zero hours contracts can in some circumstances be appropriate for both employers and employees, in recognition that some zero hours contracts can be exploitative, the Scottish Government through the Scottish Business Pledge encourages businesses to only use zero hours contracts when appropriate i.e. when linked to seasonal work. The Resolution Foundation concludes that “a number of surveys have found that the majority of those employed on such contracts are satisfied. [1] Consistently, however, ZHC workers have been more likely than non-ZHC workers to say they face difficulties, whether that be a desire for more hours [2] or notice further in advance of their shifts [3].”[37]

42. Scotland starts from a relatively strong earnings baseline relative to the rest of the UK, but until recently HMRC Pay as You Earn (PAYE) data showed Scotland to have among the lowest growth in average earnings of any UK region.[38] For Jan-Mar 2019 however, average PAYE earnings in Scotland grew more quickly over the year than the UK as a whole (4.8% vs 4.2%). Despite this, most earnings measures when adjusted for inflation show earnings in Scotland have yet to recover to pre-recession levels.[39]

43. Slow wage growth is reflected in the latest poverty data that shows in-work poverty in Scotland is increasing. Data for 2015-18, showed 60% of working-age adults in Scotland living in relative poverty after housing costs lived in working households - the highest on record.[40] In-work poverty is also a major driver of child poverty - with the proportion of children in Scotland in relative poverty also slowly rising.[41]

Demographic change

Population Outcome

Scotland has a sustainable working age population.

44. Scotland’s population growth has traditionally been slower than the UK as a whole, and this is expected to continue. NRS projections for 2016-2041 estimate Scotland’s population will grow at less than half the rate of the UK (5.3% vs 11.1%) – driven by relatively lower rates of births and inwards net migration.[42]

45. Scotland’s population is ageing and this is expected to become more pronounced in future. Between 2016-2041, Scotland’s working age population is only expected to grow by 1% compared with 8% in the UK. Over the same period, Scotland’s population of over 75’s is expected to rise by 79%.[43]

46. This ageing of the population presents challenges to the supply of labour in our economy with further implications for fiscal sustainability. This is a particular challenge for rural Scotland where lower levels of population growth, higher levels of out-migration of young people, and a more dispersed population can exacerbate these challenges.

47. Workers are also expected to remain in the labour market for longer. An older workforce presents opportunities to Scotland’s economy as older employees can bring a wealth of skills and experience to employers. Research has shown that older workers (aged 51+) demonstrate high levels of job-related knowledge and skills, resilience in times of difficulty and can be regarded as particularly loyal to their employers relative to other age groups.[44]

48. As Scotland’s workforce ages the need to provide retraining and upskilling opportunities for older workers will rise substantially. An appetite for learning, including lifelong learning, for all age groups has so far failed to materialise in the UK in the past 20 years where training has been concentrated at school-level, while there has been a decrease in training for people aged 25+. In the UK, skills policy has been aimed towards developing generic skills, such as numeracy and literacy skills, and ensuring people are equipped with skills they need for their current jobs.[45]

49. A renewed focus on lifelong learning is a key message of the OECD Employment Outlook (2019): “…countries should focus on putting in place comprehensive adult learning strategies – to prevent skills depreciation and to facilitate transitions across jobs. Adult learning systems will also need to be strengthened and adapted to provide all workers with adequate opportunities for retraining throughout their careers”.[46]

Structural shifts in the labour market

Productivity Outcome

Businesses are competitive and economic growth is resilient and sustainable.

50. There has been a major structural shift in Scotland’s labour market over the past 40 years as employment in traditional industries such as manufacturing, agriculture and mining has been replaced by increased employment in the service sectors. The “hollowing out” effect has led to falling numbers employed in middle income work and higher levels of both high and low paid employment.[47]

51. More recently there has been strong growth of employment in occupations defined as medium to high skill levels, with all of the net increase in employment since 2007 categorised as medium-high or highly skilled. However, some research suggests this does not necessarily reflect an increase in better paid, more highly skilled work – average real earnings growth in Scotland has been slow – and that job title inflation has resulted in some jobs being re-categorised from lower skill levels to higher.[48] There are also jobs that now require a higher level of qualification than in the past (e.g. since 2013, nurses in the UK have required a degree where before a diploma was the minimum requirement), this may be exaggerating the extent of high-skill job growth in our economy.

52. Changes in employment by skills level is reflected in the sectoral pattern of employment in our economy – with declines in employment in traditional industries – manufacturing, agriculture and mining, replaced by increased employment in business services and finance.

53. Further, analysis by the OECD shows that employment growth in OECD countries and the UK between 2010-2017 has been driven by sectors with below average productivity and average wages.[49]

54. And although Scotland’s productivity has grown more strongly than the UK as a whole in recent years, this has been driven by a larger fall in jobs and hours worked in Scotland’s economy than the UK’s during the recession and weaker recovery in the years since.[50] Scotland’s productivity ranked against its OECD competitors has remained in 16th position for the past decade.

Inequalities between regions and groups

People Outcome

Scotland’s population is healthy and skilled and economic benefits are spread more widely, with lower levels of inequality.

Place Outcome

Communities across Scotland have the natural and physical resources to ensure they are strong and sustainable.

55. In Scotland and the UK, there are persistent gender, disability and ethnicity related gaps in labour market outcomes. These inequalities can originate long before people enter the labour market.

56. In 2018, the gap between the employment rates of men and women was 7.7 percentage points, between disabled and non-disabled people it was 35.5 percentage points, and between white people and people from minority ethnic groups, it was 19.7 percentage points – the largest gap on record.[51]

57. There are also significant gaps in pay. There has been progress in reducing the gender pay gap in Scotland (measured by median full time hourly earnings), falling from 18.4% in 1997 to 5.7% in 2018. People from minority ethnic groups also tend to earn less than white people, the indicative gap for 2014-2016 based upon full time hourly pay was 6.3%.[52] For disabled people, the pay gap compared with non-disabled people in 2017 was 8.0% (median hourly earnings for full-time employees), a fall from 15.4% in 2016.[53]

58. The Scottish Government’s analysis of the Gender Pay Gap concluded that statistical studies consistently find occupational segregation (men and women tend to do different jobs) to be one of the largest components of the gender pay gap. Recent research found occupational segregation accounted for 22% of the 2013/14 Gender Pay Gap in Scotland – the largest driver of any variable.[54]

59. Occupational segregation is an issue for our education and skills systems. There is evidence that hostile school environments and stereotyping can perpetuate segregation in education subject choices (e.g. under-representation of women in STEM fields) and contribute to inequalities in labour market outcomes[55] for women, disabled people and people from minority ethnic groups. Where these characteristics intersect, people can face multiple disadvantage in the labour market. The Scottish Government’s Action Plans on the Gender Pay Gap, Disability Employment Gap and Race Equality outline actions the Scottish Government will take to reduce skills segregation and the impact it has on inequalities in our labour market.

60. Similarly, disabled people face a range of barriers to employment. They are more likely than non-disabled people to work part time and hours-based underemployment for disabled people is consistently higher than for non-disabled people. They earn less on average and are under-represented in better paid occupations but we know that increasing the skills levels of disabled people can make a difference. Having a degree boosts the employment rate of disabled people by 27 percentage points (the employment rate of disabled people with a degree is more than 27 percentage points higher than those without) whereas the difference for non-disabled people is 6.6 percentage points.[56]

61. There are also large variations in labour market outcomes across regions of Scotland – largely unchanged over time. In 2018 the gap between the highest (Orkney Islands) and lowest (Glasgow City) local authority employment rates was 23.2 percentage points – an increase of 0.4 percentage points from the year before. In every year since 2004, the lowest employment rate of any local authority in Scotland has either been Glasgow, Dundee or North Ayrshire.

62. While there has been significant progress in improving the attainment of qualifications across Scotland, regional disparities in qualifications and skills levels persist.

63. The proportion of Scotland’s working age population with a degree or professional level qualification has increased from 16.8% in 2004 to 29.6% in 2018. In 2004, while the best performing local authority, Edinburgh, had 32.4% of its working age population holding a degree or professional level qualification, compared to 8.0% for West Dunbartonshire – the lowest of any local authority and a gap of 24.4 percentage points. In 2018, the gap between the highest and lowest local authorities (Edinburgh and Shetland) had widened to 39.1 percentage points (50.7% vs 11.6%). This gap will be influenced by migration patterns, prevalence of students, average age and the relative strength and diversity of local economies. However, this shows that in some areas of Scotland, people can be more than four times as likely to hold a degree or professional qualification than others.[57]

64. There is also regional disparity at the other end of the spectrum although there are signs of progress over the past 15 years. For adults aged 16-64 holding low or no qualifications (SCQF Level 4 and below), in 2004 the highest and lowest local authorities were East Dunbartonshire (9.9%) and North Lanarkshire (28.3%). While these two local authorities remained as highest and lowest in 2018, the gap had fallen from 18.4 percentage points to 12.2 (5.9% vs 18.1%).


Email: Dominic.Mellan@gov.scot

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