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SCOTLAND'S SOCIAL CARE LABOUR MARKET

SECTION 6 DEMOGRAPHIC TRENDS; IMPLICATIONS FOR LABOUR SUPPLY AND LABOUR DEMAND

47. Demographic change will have implications on both labour supply and the service demand that feeds into labour demand. Demographic change thus potentially inflicts a double barrelled effect on the sector. The following section provides a discussion of the demographic impact of an ageing population on the workforce and looks at the implications of projected demographic change on a subset of social work service users and staffing assuming that all other factors remain constant. This holds policy impacts and other society trends constant. The composition of future labour supply is also considered. Potential pools of future employees will increasingly include an ageing workforce. There may be a greater role for the semi-retired, carers currently in the informal sector, and use of the fresh talent initiative. ¹² Future recruitment may also involve potential entry of employees from shrinking sectors and access for unemployed to be trained into the sector. ¹³

48. Demographic change has been a factor that has affected labour markets even before the rise of industrialised economies, however specific academic and recent attention has been brought to impeding "time bomb" effects. Borsch-Supan (2003) outline that there will not only be an impact on the financing of public retirement income provision through changes in the support ratio but demographic change will also bring about structural change in the markets for labour, goods, services and capital. ¹⁴ He concludes that in the case of Germany labour productivity will have to increase along with higher capital intensity in order to compensate for the impact of population ageing on domestic production. As the ratio of working age people to total consumers in the economy falls, the productivity of this relatively smaller pool of labour would have to rise in order to compensate for this.

49. Ermisch (1995) highlights the impact of labour force ageing on productivity, pay, rates of innovation, mobility, and career progression; he concludes however that even if these factors are dramatically related to age, the average impact for the overall workforce would be small. There is still however an argument that if consumption per person is to be sustained/maximised that more investment in education and training is needed in response to an ageing labour force in order to increase human capital and therefore productivity of the available labour market pool. This assumes that qualifications increases the productivity of the workforce.

50. The following section discusses the effect that projected demographic change could have specifically on a public sector labour market which may not "clear" in the short-run. ¹⁵ In this sector a shift in the age structure will not only impact in terms of labour supply but also through labour demand.

51. An overview of projections of demographic change produced by the Government Actuarial Department (GAD) is analysed with respect to the possible impacts on future labour supply and labour demand. It is concluded that demographic change will have a gradual but multi-faceted impact on sub sectors within social care. The actual impact may however differ from what would be expected in a perfectly competitive labour market because of labour market rigidities. Additionally, age specific characteristics and related productivity may impact on the labour market. In the short run it is concluded however that policy "development impacts" are likely to have a more intense impact on the labour market and may counteract the projected impacts of demographic change specifically in relation to labour demand.

OVERVIEW OF PROJECTED DEMOGRAPHIC TRENDS

52. Demographic change will have implications for workforce and service delivery challenges within the public sector. The ageing population however will not have a "time bomb" effect at a national level but will rather be gradual and will depend on changes in fertility rates, death rates, and net migration rates. Projection trends at the Scotland level are discussed below which are then fed into implied impacts for projections in service user numbers and workforce implications.

53. The Scotland Census (2001) is used as the baseline data source for the age composition of the current population and this is aged each year. When combined with assumptions on fertility, mortality and immigration, projections on demographic change can be produced. The overall population level is therefore determined by the former years population size plus the number of births and numbers of immigrants per year minus the number of deaths and emigrants per year. ¹⁶ For the change in size of different age bands the assumptions used for net immigration and deaths will vary in reality.

PRINCIPLE POPULATION PROJECTIONS

Figure 6.1
SCOTLAND'S DECLINING POPULATION (Principle Projection 2002-2027)

54. Figure 6.1 graphs the overall projected decline in Scotland's population level that the Government Actuarial Department's principle assumptions would infer. The base figure of 5.055 million in 2002, would fall steadily to 4.854 million by 2027. It is however changes in the age structure of the population that will have an impact on labour demand through service user population and on labour supply through the size and composition of the available labour force.

55. Figure 6.2 gives a breakdown of the projected trends in the population size by those that fall under the categories of Children (Under 16), those of working age 16-64(male)/59(female), and those in retirement (65(male)/60(female)). ¹⁷ Population numbers of those of working age, and children are forecast to fall. In contrast the numbers of those of pension age is forecast to rise by 47,000 (4.95) by 2007 and 240,000 (25.3%) by 2027. This will result in a rise in the dependency ratio defined as the ratio of those in pension age to those in working age.

Figure 6.2
Projected numbers of Children, Working Age and Pension Age Population in Scotland

Source: Government Actuarial Department

56. Figure 6.3 decomposes the projected aggregate decline in Scotland's population into narrower age bands. The 0-14 and 30-44 age bands decline immediately however the 15-29 age group does not start its decline until around 2012. The 45-59 age group will rise over the next 15 years but will then start to stagnate and fall. There is a marked increase in the 60-74 and 75 and over age bands. The 75 and over age group is projected to rise from 364,000 in 2002 to 387,000 in 2007 and 585,000 in 2027.

Figure 6.3
PROJECTED AGE COMPOSITION OF POPULATION

LABOUR DEMAND

57. Demographic change has varying potential impacts on different sub sectors within the social care labour market. The following analysis looks at the implications for labour demand in children's services and home care for the elderly assuming that all other impacts on the labour market are held constant. There are a variety of effects on the number of service users such as morbidity rates, labour participation and this will in turn depend on the health of the population as well as its age. The following sections single out the effects of demographic change, and highlight labour market rigidities and the time lags that may prevent automatic labour market clearing.

LIMITATIONS

58. The implications of demographic change are only considered in certain service types for illustration. Service user numbers as a proportion of corresponding service user population is assumed fixed along with staff per service user ratios. It is unrealistic however that these will remain constant. Examples of factors that may affect the proportions of looked after children include policy changes, divergent demographic trends (different socio-economic groups may have higher / lower fertility rates), levels of deprivation (that will vary across regions), levels of drugs use by parents, and changing family structures/patterns. Additionally the staffing ratio will also be affected by policy changes and in particular may increase if workload not associated with the number of looked after children increases, for example in the form of preventative work. The following analysis therefore should be interpreted with caution as these other potential impacts are not taken into account.

SERVICE USER POPULATION: CHILDREN

59. The numbers of children is forecast to drop by 73000 (7.6%) by 2007 and 190000 (20%) by 2027. Current pressures in children's services should therefore naturally decline unless the proportion of children born into "at risk" homes increases, or if preventative work increases.

Figure 6.4

60. In 2002/03 there were 11,388 looked after children in Scotland, representing a 1.06% service user ratio of the 0-17 year old population. ¹⁸ Assuming all other factors remain unchanged so that this ratio remains stable , demographic projections would imply a projected fall in service users of 2268 by 2027. This would also have implication for staffing demand. In 2002 there were 6550 (5708 WTE + 842 Vacs) children's social care staff posts within local authorities representing an overall average staff ratio of 0.575 per looked after child. Assuming all other factors remain unchanged such that this ratio remains stable would imply that demographic projections would result in a fall in staff posts of 1289 by 2027.

61. Demographic trends should therefore help ease labour market pressures in local authority children's services over the long term. However changes in the service user ratio or staff ratio increases may counteract this. Specifically, changes in policy are likely to have a greater impact in the short run on the labour market than demographic change as demonstrated in the rising numbers of staff in Children's services departments despite the population trend of falling numbers of children.

62. There are a number of other reasons why workforce numbers may not actually decrease. Economies of scale and minimum staffing requirements may mean that falls in employee numbers do not have a fixed linear relationship to falls in numbers of service users. Fundamentally, the proxy of numbers of looked after children as an output measure does not reflect the work of Children's Social Work Services. Increased preventative work may actually decrease numbers of looked after children, but require increased staffing levels in order to do this.

63. Clearly there are a number of factors affecting the implications of demographic projections on the labour market. Divergent demographic trends of socio-economic groups may have an effect on workloads of social work departments as a higher rate of fertility amongst more vulnerable groups will affect demand. Regional differences in both service user rates and demographic trends are also potentially more informative for planning at a local level.

64. Potential changes in the assumed ratios that are kept fixed in the above analysis may actually outweigh the effects of demographic trends on the labour market. Policy changes for example that require more staff in children's services are likely to have a "shock" effect on the labour market. External "society" changes on the other hand, in a similar manner to demographic change will have a more gradual effect. These include changes in local deprivation levels, levels of drugs use by parents, and changing family structures.

65. Figure 6.6 looks at the trend in the service user ratio since the 1970's. Over this time span there has been a general downward trend from the peak of 1.3% in 1974. In the last two years however the ratio has slightly increased. ¹⁹

66. With regard to staffing Figure 6.7 displays the quite rapid expansion in the staff post to Looked After Child Ratio over the period for which data is available (2001-2003). This partly may reflect increased local authority budgets and growth may not be sustained in the long-term. However it is clear that the public sector has a key role in determining levels of activity within the sector and further rises in the staffing ratio may act to mitigate the labour demand effects of long term demographic change and may do so in the nature of "shock" pulse reactions to policy agendas and finance expansion effects.

67. In summary, demographic trends should help ease labour market pressures in local authority children's services over the long term. However increases in the Service User Ratio or Staff Ratio increases may counteract this. Specifically, changes in policy which can affect these ratios very rapidly, are likely to have greater impact in the short run on the labour market than the gradual impact of demographic change.

Figure 6.5
Looked After Children Trends

Figure 6.6
Service User Ratio for Looked After Children

Figure 6.7
Labour intensity proxy

SERVICE USER POPULATION (OVER 75's)

68. Demographic trends will impact numbers of service users in different age categories. The base population of 364,000 Over 75's is projected to increase to 585,000 by 2027. As an example, the impact of this is discussed in relation to Home care services provided and purchased by local authorities. The number of Home Care Clients over the age of 75 stood at 43,615 in 2002. This represents a service user ratio of 11.98% of the Base Population. The implied impact therefore is an increase of 26,480 service users of home care by 2027.

Figure 6.8
Rising service user base population

69. Again, the assumed service user ratio may be changing over time and Service Delivery/Policy changes will also affect this along with Health and Morbidity levels amongst the elderly. The staff to Service User ratio is dependent on the labour intensity of services needed which may be lower than that in respect to Children's services departments. Workforce figures directly related to the over 75's are not available in order to assess this directly. ²⁰

LABOUR SUPPLY

70. Two issues could affect future labour supply; firstly a potential fall in the stock of labour and secondly ageing of the available labour. The number of people in the working age population in Scotland is forecast to dip by 14,000 (0.4%) by 2007, and 265,000 (8.4%) by 2027. In 2006, the working age population starts to dip below 2002 levels and has decreased by 1% by 2019 after which the decline intensifies. The size of the labour force is however also dependent on other factors such as the labour force economic activity rate. ²¹ In Scotland this currently stands at 78.8% which is the average UK rate. ²² Economic activity rates however vary depending on age and the rate for those near to and over the retirement age are lower than this average ²³. Older age groups are likely to have lower activity rates, but the activity rates of this group and those past retirement age may be increasing over time. With an ageing of the labour supply stock, unless the labour force participation rate, specifically for those near and beyond retirement age, was to increase, then we would expect a relatively small overall fall in the labour supply and the number of people employed.

Figure 6.9

71. The following table gives the current economic activity rates, and employment rates for all industries in Scotland for different age bands. Economic activity rates peak in the age group 35-49 but then start to fall. The economic activity rate of those over the age of retirement has increased from 6.1% in Dec-Feb 2000. Age specific data is available on economic activity rates and employment rates by using the LFS 2002 and Scotland Census 2002, which is plotted in the following two graphs and demonstrates the age trends graphically.

Figure 6.10

Source: LFS Dec-Feb 2004

Figure 6.11

Source: Labour Force Survey 2002, Scotland Census 2002

Figure 6.12

Source: Labour Force Survey 2002, Scotland Census 2002

72. In 2001 684,000 working age people who were not students were not in work in 2001, of which 332,000 wanted to work. Of the 332,000 that wanted to work, 196,000 are classified as inactive as they left their jobs more than 12 months ago. Of this figure, 79,000 are long term sick, 72,000 have caring responsibilities and 45,000 were inactive for other reasons. Of the 353,000 remaining jobless who do not want to work, 100,000 have caring responsibilities, 174000 are long term sick/disabled, 43,000 retired and 35,000 specify other reasons. ²⁴

73. It is evident that for a substantial number of those people who are classified "inactive" are actually involved to some degree in the informal caring sector through caring responsibilities. Potentially, if the 72000 who have caring responsibility but are termed inactive but who want to work entered the workforce then there may be a shift to some degree of their caring responsibilities into the formal market. Therefore changes in the national labour force participation may affect the social care labour market in two ways - firstly the potential pool of labour supply may increase (those who already have caring responsibilities are likely to have skills but perhaps not the formal qualifications applicable to the sector). Secondly, however caring responsibilities may then to some degree transfer to the formal market, leading to increased labour demand. It is unlikely however that the latter effect would outweigh the former due to potential "economies of scale" provision within the formal social care market.

74. Although the size of the labour force is dependent on participation rates and retirement trends the rate of employment expansion in the Social Care sector is limited by the available demographically determined labour force pool. The percentage of public sector employment in Scotland is traditionally already higher than England. In 2002, direct public sector employees in Scotland stood at 27% compared to 23% in England. Sustained increases in employment in public sector and public financed private social care would lead to "crowding out" in the economy. ²⁵ (Explain crowding out) This adds greater pressure for future service user expansion to be met by productivity increases and service delivery initiatives as opposed to the expansion of the workforce. Another solution would be to aim to attract "inactive workers" into the sector. Politically and/or financially the rate of employment expansion in Social Care sector may be limited.

75. It is clear that demographic change will have an impact on the age composition of the potential future labour supply available to meet future replacement and expansion demand in the sector. The current age composition of the social care workforce is older than the national workforce however data suggests that for the overall sector there are no significant retirement bulges that would imply that replacement demand will impact smoothly over time ( See Section 1). A potential growing future labour source is therefore older working groups, including those in retirement age. The need to "attract, retain, motivate and leverage workers of all ages and various backgrounds" has therefore been highlighted ²⁶. The productivity of different age groups may however vary, and different skills/work experience mixes will also have an impact on the labour market.

SKILLS MISMATCH AND AGE SPECIFIC PRODUCTIVITY

76. The actual labour supply pool available to the social care sector will be influenced by the skills composition of the overall national labour force and this in turn may be linked to its age composition. Specific professional groups within social care are more likely to suffer from recruitment difficulties as there is a lagged time period in the qualification and training of labour supply in response to increases in labour demand. The lower-skilled component of the sector may increasingly be subject to a similar lag effect as recent legislation for the registration and qualification requirements for social care staff is phased in over the next decade.

77. A change in the age structure of the labour market pool could potentially affect labour productivity if it varies across age. Evidence of this is mixed; Borsch-Supan (2003) comments that "productivity tends to be a highly individual and sector specific factor" ²⁷. Additionally, wages are not an ideal proxy for assessing productivity across the life cycle career, as pay may be subject to "seniority" increases that are proportionally above respective productivity increases. He concludes however that the evidence suggests that "the potential productivity effects induced by the age structure of the working population are much smaller than the loss of production arising as a result of the fall in the relative size of the economically active population" ²⁸ Wright (2004) highlights that older workers may not be perfect substitutes for young workers. If young and old workers are complementary in the production/output process then the relative productivity of each group will be affected by the overall age composition of the workforce. This in turn will affect relative wages and earning but if wages do not adjust relative long-run unemployment rates would not adjust.

SECTION SUMMARY

78. In the context of a expanding social care labour market there are current vacancy problems in certain areas of the sector, specifically in Children's Services. Long term demographic impacts however would suggest that there may be a shift in labour demand pressures to old age care although this may be a gradual process. There would be an expectation of the proportion of workforce in "older" Client groups to increase. Trends need to be monitored as uncertainty is greater the more into the future the projection is made and there will be regional labour market differences. Assumptions behind projections may also change or may be improved to give more accurate projections. Although the trends of demographic change will impact on numbers of service users and labour demand it is likely that this is a slow enough process for the market to adjust and clear. In the short-run therefore labour market disequilibria is more likely to be caused by policy "development impacts".

79. Even if the labour market were theoretically to "clear" labour market problems may still arise. Firstly the rise in the dependency ratio would put pressure on productivity to rise across all sectors to maintain consumption per head of population. The age composition of the labour supply may also bring about additional impacts on the market. Age specific characteristics in productivity and implications on productivity from the mix of old and young workers are possible issues.

SECTION 7 CONCLUSIONS

80. Social care has seen significant expansion in terms of employment, together with increased local authority total expenditure. Trends suggest that this increased finance may also be the driver behind significant independent sector growth as the percentage of expenditure spent on third party payments by local authorities has increased. The role of public sector finance in independent sector growth is likely to have implications for monitoring and steering the sector from a national level. It is clear however that patterns of service delivery through the public, private and voluntary sectors is not uniform and varies greatly between regions. National trends however identify a proportional shift in the composition of employment in the sector towards the private and voluntary sectors.

81. The rate of finance growth experienced over the last few years however may not be sustained and there may be pressures to meet increases in future service demand if labour markets remain tight. There is evidence for example in the children's services sub-sector that even though there has been a trend decline in the base population of children in Scotland that the ratio of local authority staff posts to looked after children has however increased.

82. The role of policy decisions, and new legislation is identified as a key driver in determining labour demand. Within local authorities the data available suggests that labour demand has been rising faster than supply, helping to explain the current vacancy situation. This may also be the case for the private and voluntary sectors although time trend data is not currently available to assess this or to identify labour market flows. Vacancies seem to be rooted in rapid expansion in the whole sector but it is not possible to identify the degree of churn (employees moving between jobs but staying in the sector) and separating this from complete exit from the sector. It is clear however that "shortages" are linked to public sector demand issues, not just labour supply. The rate of growth of service provision and finance in the sector seem to be the main factor that underlies current labour market disequilibria. Employment levels in the whole sector have been increasing but with a time lag effect. This would indicate that retention may not be a problem for the sector as a whole as there is no dip in overall sector employment levels. At a regional or organisational level, recruitment and retention will be an issue as loss of staff will affect service provision within that context, even if the staff member moves to another job within the sector.

83. In the long-run it is anticipated that labour market expansion pressures will shift to older client services as the underlying demographic trends in Scotland are characterised by an ageing population. This however is likely to be a gradual process over time. In the short-run, other changes within the sector that often stem from changing statutory requirements, or other policy factors that affect service intensity, are likely to have a more dramatic impact on the labour market. Additionally, societal changes such as drug use, and poverty levels are feeding into social care labour demand but it is difficult to assess the extent of this affect or how fast the changes are. The latest Local Authority data suggests that the growth in the gap between numbers of posts and numbers of posts filled is starting to ease, however if further policy "development impacts" hit the sector then demand and supply may not realign in the near future. Forthcoming changes within the sector that are likely to impact the labour market include qualification and registration requirements, anti-social behaviour legislation, the mental health act, and the social work review. The ability of labour supply to react to the changes in composition and extent of demand will not be instantaneous and a forward looking approach to workforce planning is required at a national, regional and organisational level.

Workforce planning challenges over the next decade

• Further feed through impacts of Regulation of Care Act on Labour Demand
• Staffing demand impacts of the Mental Health Act, Anti-Social Behaviour Bill, Working Time Directive and various other legislation
• Expansion of services in face of tighter labour markets
• Labour market impacts of Registration and Up-skilling process
• Labour market impacts from 21st Century Social Work Review - a fundamental assessment of the composition of statutory based demand
• Reducing bureaucracy but increasing "engagement" in sector
• Increasing national drives but allowing for regional flexibility

84. The social care sector does not yet have a well-developed structure of integrated analysis or workforce planning at a national level. This is largely because the social care sector is a complex mixed economy making it more difficult to monitor, evaluate and influence from a national or regional plane. Although employment in the sector is split between the private, voluntary and statutory sectors, the public sector is a significant source of finance in the overall sector. The links between public finance and independent provision are however lost in the complex web of service delivery and levers available at a national level are limited. This makes workforce planning at a national level more difficult. Current trends towards integrated services may also make it more difficult to analyse all these sectors, however as data systems improve this will be made easier, at the same time as reducing duplication in requests from different agencies.

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