The Scottish Government

Overview

Since 1998, the Scottish labour market has experienced unprecedented growth; employment and economic activity levels reached record highs, while unemployment fell to an unparalleled low. Those in employment at the beginning of 1998 stood at around 2,300,000, before increasing by around 250,000 to 2,550,000 towards the end of 2008; growth of 10 per cent. A similar position emerges with economic activity; after remaining relatively flat over the period 1998 to mid-2002 (around 2,500,000), economic activity increased to almost 2,700,000. Furthermore, at the beginning of 1998 unemployment was around 190,000 (7.5 per cent), before falling to just over 110,000 (4.2 per cent) at the end of 2008; a fall of around 40 per cent.

The improvement in employment prospects coincided with a change in the types of business operating in Scotland. Firstly, there was a decline in manufacturing employment which coincided with strong growth in service sector. For example, in 1998 manufacturing accounted for around 15 per cent of total employment, with services accounting for 75 per cent. However, by 2006 (most recent data) the respective percentage shares of total employment were 9 per cent and 82 per cent. Secondly, there has also been growth in the number of part-time workers, as well as an increase in the amount of female workers. According to the Annual Business Inquiry, a survey of businesses in the UK, total employment increased in Scotland by 10 per cent over period 1998-2006; representing a 5 per cent increase in full-time versus a 20 per cent increase in part-time. Male and female employment also increased during this period (by 7 and 12 per cent respectively), with part time employment growth the most significant for both genders; 39 per cent for males, and 15 per cent for females.

However, given the slowdown in global economic activity, as well as both the UK and Scottish economies entering into a period of recession, the expectation is that the record levels of employment witnessed over the past decade will fall, with unemployment anticipated to rise.

Indeed, over the three month period January-March 2009, the employment rate in Scotland was 74.9 per cent; a fall of 1.6 percentage points since the previous year, which is slightly greater than the UK average. However, Scotland's employment rate still remains the highest of all the UK countries. An internationally recognised measure of unemployment was developed by the International Labour Organization (ILO). The ILO unemployment rate in Scotland over the period January-March 2009 was 5.9 per cent. Although the ILO unemployment rate rose over the quarter by similar levels in Scotland and UK (0.7 and 0.8 percentage points respectively), Scotland's unemployment rate still remains the lowest in the UK. Compared to one year previously, Scotland's unemployment rate increased by 1.3 percentage points, which is the lowest increase of all UK countries.

Previous months have been characterised by economic inactivity rising in Scotland whilst it has either remained stable or fallen slightly in the UK. However, the latest statistics suggest that this picture may be beginning to change with relative stability in economic inactivity over the three month period January to March 2009 in both Scotland and the UK.

Scotland's Current Skills Profile

Scotland's investment in skills stands comparison with any other part of the United Kingdom. Qualification levels over the last 30 years, for example, have been higher than in the rest of the United Kingdom. Indeed, the UK Leitch Review of Skills recently highlighted Scotland as the only nation or region of the United Kingdom where the percentage of people with a Higher Education qualification outnumbers the percentage with a basic school leaving qualification. However, the measurement of skills is limited, with the set of indicators used to measure Scotland's relative skills position saying little about:

• the utilisation of attained skills;
• differences in quality of skills attained; and
• the relevance of skills for the current and future make-up of the labour market.

Table 1 shows that Scotland is ranked 3rd in terms of percentage of the population with degree level qualification or above, behind the South East and London. Moreover, in terms of the population with SVQ level 4 qualification or above, Scotland is ranked 2nd behind London. Therefore, within the UK context, Scotland performs strongly, with only London and the South East in a stronger position. Given that the South East and London is a centre for economic activity and has a large numbers of qualified individuals, the performance of Scotland is encouraging.

Table 1: Qualifications Level, June 2007, UK Regions

From an international perspective, the most recent data (2006) and relative position to 1999 can be summarised as follows:

• Low/No qualifications - relative to OECD countries, Scotland is in the lowest quartile (ranked 23 out of 30); a positive position. The percentage of the population that had a lower secondary qualification has fallen from 19.3 per cent to 15.3 per cent. Of all the G8 countries, only the United States, Canada and the United Kingdom have lower proportions.
• Intermediate qualifications - relative to OECD countries, Scotland is in the second quartile for this measure (ranked 10 out of 31), with Germany, Japan and the United Kingdom the only G8 countries with higher proportions. This represents a slight deterioration in the position from 1999, when Scotland was in the first quartile. However, it should be noted that this indicator could be misleading. For example, the relatively lower attainment in intermediate qualifications will probably be a result of the fact that a higher proportion of our population have higher qualifications.
• Higher Qualifications - Scotland is in the 2nd quartile out of the OECD countries (ranked 12 out of 31), with Japan, United States, Canada and the United Kingdom the only G8 countries with higher proportions. Indeed, it should be recognised that Scotland's ranking position has worsened since 1999; despite an increase in the percentage of the population with Higher Education from 15.3 per cent (1999) to 20.7 per cent (2006).

Returns to Education

The one central purpose of the Scottish Government is to promote sustainable economic growth; determined, in part, by increases in productivity. Improvements in productivity over time drive changes in our material standard of living, allowing us to enjoy goods and services which our parents and grandparents would have regarded as luxuries. Productivity is driven by a range of factors which are integral to the processes of enterprises themselves, as well as the wider economic environment in which the Scottish economy is set. The key factors are:

• Investment;
• Skill levels;
• Research & Development and Innovation; and
• Enterprise.

As a result, skills alone do not hold the key to fully understanding productivity performance. Nevertheless, it is accepted that a skilled and educated workforce is essential to productivity and sustainable economic growth. Not only are skilled workers potentially more productive in their own right, but the skill level of the workforce is likely to impact significantly on the utilisation of capital and the ability of employers to adopt innovative work practices. However, given the improvements to Scotland's skills profile, as well as the strong performance of HEIs in research and innovation, these positives have apparently not yet turned into success in economic performance. Indeed, the economy's performance on productivity and growth has been steady, though not spectacular, with output per hour worked trailing that of the UK as a whole, and the UK figures trail those of key international competitors.

Despite increasing levels of qualifications not translating into improved productivity performance, individuals still reap considerable benefits from improving their skill levels. For Scotland specifically, analysis shows that additional qualifications increase the earning potential of workers; those with degrees or HNCs/HNDs earn around 75 per cent more on average than workers with no qualifications. Unsurprisingly, data also show that working age men and women with qualifications are much more likely to be in employment when compared to those without qualifications. Furthermore, three-quarters of working-age Scots with 5 Standard Grades are in work, compared to half of working age Scots with no qualifications.

Further information on skills in the labour market can be found in the following links:

• Government Economic Strategy (GES)
• Scotland Performs
• National Performance Framework
• Futureskills Scotland - Labour Market Information and Intelligence