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2. SOCIO-ECONOMIC BACKGROUND

This section provides an evidence base to inform the development of the new ESF Programme in Highlands & Islands Scotland for the period 2007 to 2013. It contains:

• analysis of the main relevant features - and trends - of the region;
• identification of the region's main needs with particular emphasis on key spatial variations within the region; and
• a summary analysis of key issues at the end of each thematic section: this will identify a series of clear challenges/needs that will feed directly into Chapters 3 and 4.

The analysis is carried out under several headings:

• general background on the eligible area, which sets the context for the region's economy and labour market;
• employment and employability, focusing on the size of the workforce (and the barriers to different groups being able to participate in the labour market);
• workforce skills, covering the skills issues relating to different groups in the workforce; and
• lifelong learning, covering the region's capacity for addressing the employment and skills development challenges through training and lifelong learning.

The analysis is not meant to be a comprehensive review of the Scottish labour market and economy, but focuses on those areas which feature the most significant human capital and employment challenges to the region. In addition, it concentrates on those areas which are eligible within the Structural Funds regulations and reflect the priorities of the Community Strategic Guidelines. Where specialised sources of data/research are used, these are cited in the text with the full references listed in the annex. General sources of statistics used in the analysis include: the Scottish Economic Statistics series, the Scottish Economic Report and the General Register Office for Scotland ( GROS).

2.1 General Background

Population

General

The population of the Highlands & Islands area in 2001 rose to 361,625, a slight increase from 1991, compared to a 0.4% decline in Scotland as a whole. However, this hid a degree of variation, with more fragile areas losing population and areas around relatively prosperous towns and settlements gaining population.

Table 1: Population change by area in the Highlands & Islands (1991-2001_

Source: Census results from GROS and ONS. Original 1991 data revisions.

Figure 1 below illustrates that the general pattern of change during the 1990s was one of concentration of population around the larger settlements, while the more remote and fragile areas continued to suffer from out migration. This pattern is most evident around the Inverness area where the city of Inverness has drawn people in from the surrounding rural areas, but it is also clearly replicated in Orkney, Shetland, the Western Isles and Argyll. The Western Isles experienced significant population loss over this period, with some 18 of the 31 wards witnessing a loss of more than 10%. The changes in the East Ross area are dominated by neighbouring Inverness, while in Lochaber the lack of available land for housing around Fort William may have influenced the general decline in population.

The Highlands & Islands area population of 361,625 gives a population density of 9.3 people per km ² (based on a geographic area of 39,050 km). The population density for the rest of the region, excluding the city of Inverness, falls to 7.8 people per km ². This compares to the Scottish average of 64.8 and the UK figure of 242.4. Low population density leads to additional costs in the provision of goods and services due to a lack of economies of scale and a corresponding enterprise base - something recognised in previous Cohesion policy vis-à-vis Objective 6.

A further factor in the Highlands & Islands is the extent of the island-based population. In 2001, the inhabited islands had a combined population of 99,494 people living on 90 islands, some 23% of the total Highlands & Islands population. The rate of population decline has been more significant on the islands with smaller populations. Thus, while islands with a population of more than 5,000 in 2001 experienced an overall population increase of 3% since 1961, islands with populations of less than 500 experienced an overall fall of 20% in population over the same period. Depopulation, particularly in fragile areas, has been shown to have an adverse effect on community confidence and service sustainability.

Figure 1: Population change in the Highlands & Islands (1991-2001)

Source: Census 2001 wards, GROS.

Age Structure

The population of the Highlands & Islands area is slightly older than the Scottish average, with a trend towards an ageing population. The percentage of the population aged 44 years or less has decreased in the Highlands & Islands from 61.7% in 1991 to 56% in 2001. This is slightly lower than the rate for Scotland, which was 59.7% in 2001 (62.3% in 1991).

The percentage of the population aged 65 years or older in the Highlands & Islands has increased slightly, from 15.9% in 1991 to 17.2% in 2001. This compares to 16% for Scotland in 2001 (15.4% in 1991). The pattern of demographic change across the Highlands & Islands, coupled with a trend towards an ageing population, is bringing fresh challenges to the Highlands & Islands area. Out-migration is also a constraint on economic growth with the Highlands & Islands witnessing an under representation of people aged 18-30 years and out-migrants tending to have higher levels of training/qualifications.

Migration

Some areas of the Highlands & Islands have experienced growth in the number of in-migrants. Given the relevance of population change to economic, social and cultural development, it is very important to understand the demographics, characteristics and motivations of the migrant population. Highlands & Islands Enterprise commissioned research to look at the in-migration patterns in remote parts of Highlands & Islands that experienced population growth during the 1980s and 1990s. Of the 600 in-migrants questioned, some 80% had moved from outwith the Highlands & Islands, 48% from England or Wales and 5% originated from outside the UK. The vast majority had strong personal connections to the area, their move driven by quality of life features and a long term aspiration to undertake the move.

Population growth, coupled with sustainable economic development, will provide a good environment for people to live, work, study and visit the Highlands & Islands. Recently published mid-year estimates show that all Local Authorities within the Highlands & Islands area, with the exception of Argyll & Bute, have experienced positive population growth year on year. However, some areas are still relatively fragile and have experienced severe economic shocks, including a reduction in employment due to large scale closures.

Inward migration to the region from the rest of Scotland shows that on average, some 4,393 people moved each year (2002-04) from the rest of Scotland to the region each year. Some 65% of these in-migrants were below 35 years and were most likely to be university leavers returning to the area to take up their first job and young families looking for a better quality of life. Migration from England and Wales shows that the region remains attractive to the older categories aged 65 years onwards. This has future resource implications on the demand for service provision for the elderly.

Analysis of out-migration from the region to the rest of Scotland over this period shows that 72% of out-migrants were aged under 35 years, with a significant number falling in the 15-19 age category, mainly school leavers attending university outwith the area.

Migratory patterns between Local Authorities indicates a high level of movement between the Highland mainland and neighbouring Local Authorities with net gains in the Western Isles, Orkney and Shetland - although these regions have experienced population loss overall - and net losses in Perth and Kinross, Aberdeenshire and Moray. In general there was a net outflow to urban authorities, perhaps due to young people attending university and not returning to the area having completed their studies.

The number of overseas inward migrants rose from 225 in 2001/02 to 1,630 in 2004/05, a much greater rate of increase than for the rest of Scotland and the UK overall. The distribution of migrants in the Highland area has been consistent over this time, with the city of Inverness accounting for some 40% of the total.

Most registrations were in the 18-24 (45%) and 25-34 (37%) age groups with slightly more men than women moving to the area. The number of unemployed people in Highland fell steadily during this period at the rate of about 300 per year, providing a possible link that inward migration is meeting shortages in the labour market. Evidence across the Highlands & Islands indicates that overseas in-migrants have flourished in manufacturing jobs, working in fish processing factories and tourism related industries.

There was a significant change in country of origin over the 2001-05 period with overseas migrants from the EU, Australasia and the Americas being replaced by migrants from the accession states (namely Poland, Latvia, Slovakia, Czech Republic, Lithuania, Hungary, Estonia and Slovenia). There were 335 inward migrants from the accession states in 2003/04 (45% of the annual total) and 955 in 2004/05 (58%). Poland is the main country of origin, with some 68% of the total in-migration from accession states.

Productivity

Earnings

Absolute earnings in the Highlands & Islands have risen hugely over the last 25 years as a result of the general growth and diversification of the economy. However, in relative terms, the region's position has worsened slightly over the last couple of years compared to the national average - incomes levels for 2004 were around 91% of the Scottish average and 85% of the UK average (as illustrated in the table below).

Table 2: Earnings in the Highlands & Islands

Source: Annual Survey of Hours and Earnings, ONS, 2005a.

Lower earnings are as a result of a range of factors including a low share of national employment in high paying sectors, a lack of private sector head offices and the out-migration of young people. The large number of people employed in the tourism sector, typified by low wages, is also a major contributor.

Low average wages can represent a high proportion of part-time and/or low-paid and low-skilled employment. Using Annual Survey of Hours and Earnings, the annual average gross wage in 2005 for Highlands & Islands employed residents varied between £16,000 and £19,000 across the region's local authorities. In contrast, the Scottish average was £21,200.

Seasonal employment is widespread in rural localities, and an indicator of multiple job holding. Futureskills Scotland (2005) Skills in the Highlands & Islands of Scotland 2004 report found:

• 28% of the Highlands & Islands employment varies seasonally, compared to Scotland's 23%.
• Double the proportion of workplaces in the Highlands & Islands had more than half of their workforce employed on temporary or short-term contracts than the Scotland average.

Gross Value Added

GVA per full-time employee is also lower in the Highlands & Islands than in Scotland, indicating lower levels of productivity. Figures are influenced by small firms dominating the economy, higher costs of production and corresponding lower value outputs. Table 3 below highlights the decline in GVA per head in the Highlands & Islands and Scotland relative to the UK average over the six-year period from 1997-2003.

Table 3: Trends in GVA in the Highlands & Islands (1997-2003)

Source: ONS, 2005a.

As highlighted in the following table, the GVA level for Shetland and Orkney continued to decline significantly relative to the UK between 1997 and 2003, reflecting changes in the oil industry. Orkney experienced a 17% decrease in the GVA per head over the six-year period. Lochaber, Skye & Lochalsh and Argyll & the Islands area also experienced a decline relative to the UK average.

Table 4: GVA trends in the Highlands & Islands (1997-2003)

Source: ONS, 2005a.

Key messages

• While population increased in the region as a whole, there have been significant variations, with some communities having experienced substantial declines (particularly in the islands). There is also a trend towards an aging population, more so than in other parts of Scotland and the out-migration of young people from the region.
• Low population density and a dispersed settlement pattern underlines the peripheral and rural nature of much of the region.
• In terms of earnings, while levels have improved over time, the Highlands & Islands continues to perform below Scottish and UK averages.
• Overall, the region has relatively lower productivity than Scotland and the UK, with some parts of the region displaying particularly low rates.

2.2 Employment and Employability

Employment

Figure 2 illustrates the distribution of employment by sector for Highlands & Islands and Scotland for 2003.

Figure 2: Employment by sector

Source: 2003 Annual Business Inquiry.

The public administration, education and health sector is the largest employer in the Highlands & Islands with 31.9%, followed by the distribution, hotels and restaurants sector with 27.7%. Agriculture, forestry and fishing and construction are other sectors that provide a larger percentage of employment in the Highlands & Islands than in Scotland.

The primary sectors continue to be in decline but they are still a prominent economic driver, particularly in more remote mainland areas and island groupings. Many small rural communities are still heavily reliant on crofting, fishing and agriculture as the mainstay of the local economy.

Table 5 shows key labour market indicators for the EU-25, EU-15, the UK, Scotland and the Highlands & Islands.

Table 5: Headline statistics on employment and unemployment

'-' is not available

Source: Eurostat.

A number of key points can be made from Table 5.

• With the labour market tightening in recent years, employment levels in the Highlands & Islands are high. The Highlands & Islands has an employment rate of 73%, slightly above the Scotland level of 72% and significantly above the rates for the EU-15 and EU-25.
• The Highlands & Islands has a higher economic activity rate, at 76%, than the EU-15 and EU-25 which are at around 70%. Between 2001 and 2004, the Highlands & Islands' economic activity rate has seen a small decrease while the Scottish and EU rates have increased by 1% in the same time frame.

The Highlands & Islands has high employment and economic activity rates. However, as with many rural economies, these figures can mask labour market disadvantage in the form of under-employment. Part-time employment can be a proxy for under-employment:

• 28% of the Highlands & Islands employment is part-time compared with 18% across the EU-25. Scotland's and the UK's part-time employment is also high in the EU context at 25%.
• Highlands & Islands part-time employment increased by 4%, compared to Scotland and EU-25 increases of 1% and 2% respectively, between 2001 and 2004.
• Using the Annual Business Inquiry, 37% of the Highlands & Islands total employment is part-time in nature (ie. less than 30 hours per week), compared with Scotland's 32%. The proportion is highest (39%) in the Western Isles and in Inverness & Nairn and Moray, Badenoch & Strathspey.

Unemployment rates across the Highlands & Islands reflect the region's high employment rates.

• Using the Annual Population Survey, the Highlands & Islands 2004/05 official unemployment rate was 3.2%, with 7,200 people of working-age unemployed. The rate is significantly below the Scotland and UK figures at 5.4% and 4.8% respectively.
• Orkney appears to have the lowest unemployment rate and the Western Isles the highest.

On long-term (12+ months) unemployment rates:

• The Highlands & Islands has the same rate as Scotland at 21%. However, the Highlands & Islands have seen a far smaller decrease (1%) in the long-term unemployment rate between 2001 and 2004, compared with Scotland's fall of 6%.
• Using the Jobseeker Allowance ( JSA) claimant count, long-term unemployment is highest in the Western Isles and lowest in Inverness & Nairn and Moray, Badenoch & Strathspey.

Employability

Although the Highlands & Islands now has relatively high employment rates, specific groups of individuals experience barriers to employment, causing high levels of unemployment and economic inactivity relative to the rest of the population.

• Every individual within a client group will not necessarily experience the same barriers. For example, one lone parent may only face childcare availability as a barrier, whereas another lone parent may have poor qualifications, no work experience and no access to affordable childcare.
• Low skills or qualifications, lack of self-confidence and work experience are personal barriers common to many of the workless client groups. The benefits system and stigma are also problems common to many of the client groups.

The scale and composition of the problem can be seen from an analysis of the adult jobless population on DWP benefits.

• In 2005, there were 32,800 working-age claimants of key DWP benefits in the Highlands & Islands, around 16% of the working-age population. This is in line with the proportion of claimants across Scotland.
• The most substantial group is the 22,300 sick or disabled claimants, which are 68% of all claimants and 11% of the total working-age population.
• The number of claimants in the Highlands & Islands has fallen (Figure 3) by 13% in the last 5 years with the greatest decreases in JSA unemployed (46%) and lone parents (30%). However, the sick or disabled group has increased by 6%, compared to a 2% decrease for Scotland.

Figure 3: % change in working-age claimants of key benefits, 2000-05

Source: Nomis - DWP Benefits.

Working-age claimants of Incapacity Benefit, Severe Disability Allowance, Disability Living Allowance or Income Support are a substantial client group in the region. There are 22,600 sick or disabled claimants in the Highlands & Islands, 11% of the working-age population. Between 2000 and 2005, the client group has increased by 6%.

Similarly, young people not in employment, education or training (or NEET) as a group is another significant workless group. Examining Census data:

• 11% of the Highlands & Islands 16-19 year old population fall within the NEET group, around 2,250 people. The proportion is below the Scotland level of 13%.
• The NEET group is largest in Inverness & Nairn and Moray, Badenoch & Strathspey at 12% and lowest in the island communities of the Orkney, Shetland and the Western Isles, which have rates below 10% - in other words, while there are concentrations, they are not as significant as in the rest of Scotland.

Key messages

• The region's labour market is relatively robust. Employment and economic activity rates are high according to EU averages and unemployment is also relatively low in the region.
• Although this has resulted in tight labour markets, for much of the largely rural region, under-employment is a significant feature of local labour markets, with high levels of part-time employment, contributing to the relatively low average earnings noted above.
• Worklessness is acute among particular groups outside of the labour market, including sick and disabled benefits claimants and the ' NEET' group, although these groups are not concentrated as prominently as they are in other parts of Scotland.

2.3 Workforce Skills

Table 6 below shows Highlands & Islands adult participation in training at 16% is well above the EU-15 and EU-25 averages, and slightly above Scotland's level.

Table 6: Adults aged 25-64 undertaking education or training in last four weeks

'-' data not available

Source: Eurostat.

Research by the Training and Employment Research Unit at Glasgow University into the major barriers to work-based learning (Glass et al ., 2002) found that the majority of employees felt that employers should give them more support. For example, 93% of employees felt that if their employers provide more support on work-based learning, it would help them in their current job, and a further 80% think that it would make them more useful to their organisation in the longer term. However, employees are inhibited both by barriers that they put up themselves and by constraints that are placed on them by the employers.

There are a number of barriers to prevent individuals from improving their skills and progressing though employment, and to prevent employers from developing their workforce through training and offering opportunities for progression. A summary of major barriers to progression and how they impact on the target groups is given in Table 7 below.

Table 7: Barriers to increasing participation in lifelong learning

Source: Scottish Executive (2001), Adult Literacy and Numeracy in Scotland.

There are particular skills-related issues for different groups in the workforce, which are discussed in the following sections.

Low Skills

Statistics on literacy and numeracy levels are not available for the Highlands & Islands but data at the Scottish level show that while few adults have a complete lack of reading and writing ability, many more may have very low levels of literacy or numeracy skills. The International Adult Literacy Survey ( IALS) estimated that 800,000 - or 23% - Scottish adults have low literacy or numeracy skills, while another 30% may have inadequate skills to meet employers demands.

The highest level of qualification held is often used as a proxy of skills.

• Qualification levels in the Highlands & Islands are slightly below the Scottish average. 51% of the working-age population's highest qualification is below SVQ level 3, compared to Scotland's 49%.
• Argyll & Bute is the only area that performs better than the Scottish average at 47%. The Western Isles and Moray perform the worst at 53% and 52%, respectively.

In relation to tertiary education:

• 20% of the Highlands & Islands 15-plus population have ISCED levels 5-6 qualifications (equivalent to tertiary education), below the Scottish average of 23%.
• Between 2000 and 2004, the number of people attaining ISCED levels 5-6 in the Highlands & Islands has grown by only 7.5%, which is significantly lower growth than experienced in Scotland and the UK.

Low Waged

Low pay is defined by the OECD as earnings below two-thirds of the median level. Data from the Annual Survey of Hours and Earnings ( ONS, 2005a) show that:

• the proportion of Highlands & Islands employees below the low-pay threshold is higher than the Scotland level of 22%, as median wage levels across the Highlands & Islands are well below the Scottish average; and
• the highest concentrations of Scotland's low-paid jobs are in distribution, hotels and restaurants and agriculture and fishing which are all important industries in the Highlands & Islands in relative terms.

The Institute for Employment Studies (2003) found that there was no UK research into the opportunities for progression amongst low-paid, low-status employees. However, because of the limited training on offer, people in these jobs are unlikely to gain any formal qualifications. As a result, there are two possible paths for career progression:

• promotion opportunities that do not require additional formal applications and are not likely to be taken by better qualified external applicants; and
• similar but slightly better jobs with other employers.

There are likely to be few opportunities in the first category, while as a result of the buoyant labour market and the premium placed on work experience and references by employers, there will be more 'horizontal' movement. However, in the context of the Highlands & Islands, the second set of opportunities would carry the risk of wage inflation in the current tight labour market, unless matched by parallel job-creation activity to ensure the demand for labour increases in step with the labour supply.

Women Returners

Data from the Annual Population Survey show the number of economically-inactive women who want a job and their reason for not seeking work.

• Around 4,800 economically-inactive women in the Highlands & Islands would like a job.
• Approximately 34% of these were prevented from returning to work because they had to look after their family and a further 27% because of long-term sickness.

There is evidence to suggest that women tend to return to lower-skilled part-time work because of the inflexibility of full-time employment. This is not helped by persistent gender differentials in Scotland's labour market.

• Hourly rates of pay for women are only 84% of the male figure, and for full time jobs female weekly pay is only 82% of the male average.
• Only 11% of workers in the construction industry are female and only 27% in manufacturing, transport and communications.

As a whole, part-time workers are much less likely to undertake training or to progress onto higher paid, higher skilled jobs. Earlier it was noted that the proportion of employees in part-time employment in Highlands & Islands is well above the Scottish, UK and EU averages.

Older Workers

Data from the Labour Force Survey ( ONS, 2005b) show that people aged over 50 are much more likely to have low skills than other age groups.

• In the Highlands & Islands, there are approximately 11,000 economically-active people in this age group with no qualifications, around 23% of the age group. The proportion is higher than the Scotland and the UK averages of 20% and 19% respectively.
• The Highlands & Islands also has a higher proportion (21%) of its population aged between 50 and 65 in 2004 compared with the Scotland figure of 18%.

However, using qualifications as a proxy for skills means that that some people will be classified as being 'low skilled' because they lack accredited qualifications, even though they may have high levels of unaccredited skills. This is likely to be especially true for people aged over 50.

Ethnic Minorities and Migrant Workers

Census data show that there were 2,300 working-age non-white residents in the Highlands & Islands in 2001, which is less than 1% of the region's total working-age population. 52% of the 2,300 did not possess a qualification higher than SVQ level 2, compared to 56% for the Highlands & Islands working-age population as a whole.

The UHI Migrant Workers in the Highlands & Islands Research Report (De Lima, Jentsch and Whelton, 2005) found that the number of migrant workers have increased significantly in recent years. Using National Insurance Number registrations for migrant workers:

• in 2004/05, there were 2,555 such registrations in the Highlands & Islands compared with 405 in 2001/02; and
• the increase is greatest amongst EU accession state nationals with 1,320 registrations in 2004/05, but none in 2001/02.

The report found that migrant workers face the following difficulties in accessing training.

• English language training provision fails to meet demand, is insufficiently flexible and does not provide different courses for different levels, such as beginners versus advanced.
• Difficulty in accessing services due to poor English language and communication skills. This is exacerbated by lack of interpretation and translation facilities.
• Lack of easily accessible information on education and training opportunities.

Enterprise Managers

The region has a relatively high stock of entrepreneurs, though in recent years, numbers have decreased. Detailed data on self-employment are available through Eurostat.

• There are around 33,000 self-employed people in the Highlands & Islands, 12% of all employment. This is above the Scotland rate of 10% but well below the EU-15 and EU-25 averages of 15%.
• Between 2001 and 2004, the number and rate of self-employed fell in the Highlands & Islands, but increased in the EU and UK.
• Using the Annual Population Survey, the highest proportion self-employed in the Highlands & Islands was in Lochaber, Skye & Lochalsh (17%) and Orkney (16%).

Due to the difficulties of estimating the number of SME managers with skills development needs, data on the number of small workplaces are used as a proxy.

• The number of units employing less than 200 in the Highlands & Islands is 17,500, 99.6% of all Highlands & Islands units. This is slightly higher than the Scotland and UK proportions of 99.3%.
• Between 2001 and 2004 the number of SMEs in Highlands & Islands has increased by 4%, above the Scotland increase of 1%.
• Considering micro-enterprises, 83% of Highlands & Islands business units employ between one and ten employees.

The most widely perceived constraint to setting up an enterprise is finance, although there is ongoing debate over whether this is a real or simply perceived constraint. Outwith finance, no single constraint affects the majority of 'would be' entrepreneurs and most face more than one constraint. The constraints identified include:

• a shortage of skills - specific skill shortages vary between individuals but cover a wide range of issues and it is not possible to focus on one or two skill areas;
• not knowing any entrepreneurs;
• taking on additional responsibilities and the effect on family life;
• concerns over lack of security and the problem of finding another job if the enterprise fails; and
• a concern over taking on debt and the possibility that the home would be repossessed should the enterprise fail.

Skills Required for the Social Economy

As well as 'for-profit' SMEs, the skills of the social economy is another important issue to consider, not least as social enterprises and voluntary sector organisations are often the bodies addressing the employability issues identified above. Studies conducted at the Scottish level by McGregor et al. (2003) and Glass et al. (2002) highlight some of the main support needs of social economy organisations:

• around a third of organisations see the need to develop the skills of the workforce, employed or volunteering;
• strengthening the skills of managers was the main support need for over one in five of the largest organisations;
• smaller organisations are much more concerned to tackle long standing issues of board or management committee capacity, but this is reported as a main support need by only 10% of large organisations;
• there are increasing needs for financial skills;
• enterprise training to help staff become more entrepreneurial is an important issue; and
• raising the standards of the general approach to managing human resources, through Investors in People continues to be a need for many social enterprises.

Key messages

• Low pay is a key issue in the Highlands & Islands.
• Around 4,800 economically-inactive women would like to work, with 34% prevented from returning to work because they had to care for their family.
• The region has a relatively high share of older people in the population. In terms of the workforce, older workers often have greater skills needs than other groups in the labour market.
• The Highlands & Islands has high self-employment and a large proportion of SMEs, characteristics generally associated with lower levels of in-work training.
• The strong levels of inward migration provide the region with an opportunity in the context of its tight labour market, but there are notable skills issues (for example, with regards to English language provision) for some key migrant groups.
• The Highlands & Islands has a smaller proportion of the working-age population with high-level skills than the Scotland average. It remains a key barrier for the development of entrepreneurial and managerial expertise.
• Social economy organisations have particular skills issues that need to be recognised in the context of the contribution of these organisations to addressing the employability challenges identified above.

2.4 Lifelong Learning

Table 8 summarises the broad position for the Highlands & Islands.

• In 2004, adult participation in education and training in the Highlands & Islands was 15.6%. The figure is in line with UK and Scotland and is significantly higher than the EU-15 and EU-25, where only around 9% of adults are participating in education and training.
• Highlands & Islands percentage of population in further education is below Scotland and UK levels but above the EU-15 and EU-25.
• Highlands & Islands participation in higher education is marginally lower than for Scotland as a whole but the level is significantly higher than that for the UK, EU-15 and EU-25.

Table 8: Headline indicators for lifelong learning

¹ Defined as participation in ISCED level 3.

² Defined as participation in ISCED levels 5 and 6.

* Highlands & Islands figure not available from Eurostat. Estimate based on number of Highlands & Islands and Scotland-domiciled students studying in Scottish higher and further education against their respective populations. The Scottish ratio between the Eurostat and calculated figure has then been applied to Highlands & Islands.

Source: Eurostat.

The key features of lifelong learning in the Highlands & Islands are as follows:

• Nearly three quarters of the working-age population are involved in some form of learning activities.
• Half of school leavers progress to further or higher education, but many have to leave the region to continue their education.
• Working-age training in the Highlands & Islands is below the Scottish average.
• Social economy organisations report that their key needs are developing the skills of their employees and volunteers, and the capacities of their managers.

Participation in lifelong learning

Post-Compulsory Schooling

Staying-on rates beyond post-compulsory education are an important lifelong learning indicator.

• In 2004/05, 78% of Highlands & Islands pupils entering S3 in 2002 stayed on until S5, compared with the Scottish level of 76%.
• The figure drops to 72% after Christmas, when education becomes voluntary for all S5 pupils, but again this is higher than the Scottish level of 67%.

29% of the Highlands & Islands school leavers progressed to higher education ( HE) in 2004/05, slightly below the Scotland rate of 31%. Fewer enter further education ( FE), 19% versus 21%.

Further Education

The Highlands & Islands has a network of further education colleges and the University of the Highlands & Islands Millennium Institute also offers FE courses. In 2004/05 there were 22,270 FE enrolments in the Highlands & Islands. In line with the Scottish average, four-fifths of enrolments were part-time with only one-fifth full-time.

28,170 students in Scottish colleges were domiciled in the Highlands & Islands in 2004/05, significantly more than the number of enrolments in the region's own colleges. This suggests that demand for FE is not being met by the Highlands & Islands institutions. DTZ Pieda's (2005) Supply and Demand of Further Education in Scotland report supports the finding that only 69% of the Highlands & Islands FE students enrol in the region's colleges. Other rural areas, such as North-East Scotland (95%) and Dumfries & Galloway and Scottish Borders (88%) have a far greater market share.

DTZ Pieda's (2005) report also found substantial variations in participation rates at colleges across Scotland.

• The average participation rate was 153 per 1,000 of the working-age population, but the rate was approximately 25% lower in the Highlands & Islands and was the lowest across Scotland.
• Between 1999/2000 and 2002/03, the report also found that participation rates in the Highlands & Islands had fallen relative to the Scottish average

Higher Education

According to the Higher Education Statistics Agency, there were 15,400 students from the Highlands & Islands in Scottish Higher Education Institutions ( HEIs) in 2004/05.

• The only HEI in the Highlands & Islands, the UHI Millennium Institute, had 6,400 enrolments in 2004/05. As with FE, HE demand does not appear to be met by the region's HE institutions.
• Only 42% of enrolments at UHI Millennium Institute were full-time compared with the national average of 68%.

The nature of HE and FE provision in the Highlands & Islands leads many young people to leave the region to study.

Training

Information taken from Futureskills Scotland's (2005) Skills in the Highlands & Islands of Scotland 2004 report and the Scottish Executive's (2005) Lifelong Learning Statistics show that, for Scotland as a whole:

• Older people are less likely to undertake training.
• 32% of full-time workers do training compared to 26% of part-timers.
• Generally, the higher the level of qualification achieved the larger the proportion of people undertaking training.
• Training is less likely to be provided in small workplaces.

Highlands & Islands data on adult learning are available through the Annual Population Survey.

• Around 77% of working-age people participated in adult learning in 2004/05, above the 72% for Scotland and the UK.
• Orkney and Shetland have the highest participation at 84%, the Western Isles the lowest at 71%.

Employers and SMEs: In-Work Training

In-work training can be both on-the-job and off-the-job training. On-the-job training includes supervised training at the workplace; while off-the-job training includes training away from the workplace at the employer's premises or at an educational establishment or other training provider.

• The Annual Population Survey shows that in 2004/05, 49,800 (29%) of the Highlands & Islands working-age people in employment had undertaken job-related training in the previous three months, slightly below the Scotland average of 31%.
• Further evidence on work-related training is obtained from surveys of employers. Futureskills Scotland's (2005) Skills in the Highlands & Islands of Scotland 2004 report showed that 62% of establishments in the Highlands & Islands provided some training in the previous year.

The Scottish Executive's (2005) Lifelong Learning Statistics suggest the incidence of training increases significantly with workplace size, a key issue in the Highlands & Islands.

• 96% of establishments with 250 or more employees provided training in the previous 12 months.
• Less than half the establishments with less than five employees provided training.

Key messages

• The limited further and higher education opportunities in the region have contributed to the out-migration of young people and the lack of local training and lifelong learning infrastructure.
• Access to lifelong learning and training is particularly limited for some groups in the population and for parts of the enterprise sector (particularly SMEs).

2.5 Summary of Key Challenges

In this final section, on the basis of the evidence presented above, a summary of the key issues to be addressed in the Programme is presented: first, an analysis of the main strengths, weaknesses, opportunities and threats for the region's labour market; and second, a more detailed identification of the key challenges for the Programme.

SWOT analysis

Regional Strengths

• The region's labour market is relatively robust. Employment and economic activity rates are high according to EU averages and unemployment is also relatively low in the region - if anything, the main challenge the region arises from a tightening labour market.
• Overall, the region's population loss has been limited, with relatively strong levels of in-migration, though there continue to be significant demographic losses for particular parts of the region and among young people.

Regional Weaknesses

• Although the region's population has grown in recent years, parts of the Highlands & Islands have experienced more severe depopulation.
• The region is characterised by low levels of productivity, caused in part by the largely rural nature of the economy.
• Low pay is a key issue in the Highlands & Islands.
• For much of the largely rural region, under-employment is a significant feature of local labour markets, with high levels of part-time employment, contributing to the relatively low average earnings noted above.
• Despite the high levels of economic activity, worklessness is acute among particular groups outside of the labour market, including sick and disabled benefits claimants and the ' NEET' group, although these groups are not concentrated as prominently as they are in other parts of Scotland.
• Major barriers remain arising from childcare and other responsibilities are preventing significant numbers of economically-inactive women returning to work.
• The strong levels of inward migration provide the region with an opportunity in the context of its tight labour market, but there are notable skills issues (for example, with regards to English language provision) for some key migrant groups.
• The limited further and higher education opportunities in the region have contributed to the out-migration of young people and the lack of local training and lifelong learning infrastructure.

Regional Opportunities

• The Highlands & Islands has high self-employment and a large proportion of SMEs.
• Many of the workless groups identified above provide an opportunity for the region to expand its workforce.
• The strong levels of inward migration provide the region with an opportunity in the context of its tight labour market, but there are notable skills issues (for example, with regards to English language provision) for some key migrant groups.

Regional Threats

• The Highlands & Islands has a smaller proportion of the working-age population with high-level skills than the Scotland average. It remains a key barrier for the development of entrepreneurial and managerial expertise.
• Social economy organisations have particular skills issues that threaten their capacity to contribute to addressing the employability challenges identified above.
• Access to lifelong learning and training is particularly limited for some groups in the population and for parts of the enterprise sector (particularly SMEs).

Key programme challenges

The SWOT analysis - and the key messages highlighted in the foregoing sections - suggest that there are a number of key strategic challenges which the Programme should address.

1. Tackling the problems of worklessness in certain client groups. Worklessness is more prevalent in certain client groups in the Highlands & Islands, but overall, is less concentrated that is the case in the rest of Scotland. Although the 'sick and disabled' working-age jobless on DWP benefits have been growing in Highlands & Islands and is by far the largest group of jobless people, support needs to be flexible at a local level to address the particular client group issues faced by different parts of the Highlands & Islands. Addressing the issue would help to alleviate the tight labour market problems in the region.

2. Encouraging older people and women returners into the workforce. Older people and women returning to the labour market confront particular problems in terms of the quality of employment on offer. A key issue is to influence employer (public sector as well as private sector) attitudes to older workers and women returners by promoting their value as employees.

3. Addressing under-employment. Under-employment is a serious and distinctive issue for Highlands & Islands. In relation to the employability agenda it can act as a disincentive for people to move from benefits in to work.

4. Improving the ability of the low-waged and low-skilled to progress in the labour market. There is little to suggest that anything other than a small proportion of the low-waged/low-skilled employees progress in the labour market. There needs to be an innovative and concerted attempt to deal with this issue and so expand the supply of labour to the higher-skilled jobs. In particular, migrant workers often have little access to sustainable employment. There is potential value in developing brokerage services which help individuals source a number of part-time employment opportunities to make a higher income, and to move from part-time to full-time employment with the passage of time.

5. Reducing the gender earnings gap and occupational and sectoral under-representation. Persistent gender earnings gaps and strong gendering in specific occupations and industries need to be addressed more effectively, both to widen opportunities for women and increase the labour supply to male-dominated occupations and industries.

6. Improving the management and entrepreneurial skills of the region. To increase 'higher level' skills, management and entrepreneurial skills training could be targeted at the large number of small enterprises in the region.

7. Providing social enterprises with the business skills for sustainable and thriving organisations.For social enterprises, there is a need to build up the skills of key managers. This can then help these organisations to sustain and grow the enterprises and the associated employment, and deliver more effective services.

8. Improving the access to lifelong learning and training for particularly disadvantaged groups. In terms of headline figures, the Highlands & Islands compares favourably in terms of overall participation rates in lifelong learning, but participation rates vary considerably by group. This underlines the need to focus on the most disadvantaged:

• disaffected young people, particularly those in or in danger of joining the NEET group;
• older people;
• long-term unemployed and economically-inactive people with multiple barriers to employment; and
• individuals with no or low qualifications.

Without working intensively to address these disparities, it will be very difficult to make in-roads into closing the opportunity gap that currently exists.

9. Improving the lifelong learning and training infrastructure provision of the region. The limited provision of lifelong learning and training in the in large part derives from the deficiencies in the higher and further education infrastructure in the region.

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