The living standards challenge facing the next Scottish government

The living standards challenge facing the next Scottish government

This morning’s labour market statistics marked a milestone for Scotland: its employment rate has overtaken its pre-recession level, rising to 74.9 per cent. This is a welcome landmark in the recovery. But coming as it does, 15 months after England closed its ‘jobs gap’, also highlights that there is still work to be done.

A new report published today by the Resolution Foundation details how Scotland has performed better than the UK on some counts during the recession and recovery. But on others, there’s still a long way to go before Scotland can be considered be in fully recovered – let alone the outlook for living standards in the coming years. Five charts taken from that report illustrate that experience and the challenges ahead.

1. Scotland’s lighter squeeze means typical pay is now higher than in England

For most of the last two decades, typical pay has been higher south of the border. But from the mid-2000s onwards, improved Scottish pay growth alongside flatter wage increases in England narrowed that gap. The English pay premium has now turned into a Scottish pay premium, with the typical Scottish worker earning 8p an hour more than their English counterpart.

2. But getting more people into work will be crucial if that Scottish lead is to persist

Scotland’s stronger pay performance has been built on several foundations, but the cornerstone has been its higher employment rate. More and more jobs were added in Scotland in the run-up to the recession. However, Scotland’s better pay performance more recently was in part due to the steeper fall in employment compared to England. Scotland has lost its position as one of the strongest parts of the UK when it comes to jobs. While today’s closing of the jobs gap is a positive step forward, continuing to get more people into work will be crucial to sustaining Scotland’s pay lead.

3. Scotland’s pay advantage may already be under threat

Today’s more positive figures aside, 2015 wasn’t a great year for jobs in Scotland, with employment growth stagnating and unemployment staying above the UK average (it fell to 5.6 per cent today, still above its pre-crash level and above England). Pay data from 2015 suggest that this slower jobs recovery may have had an impact on pay. The wages of lower-paid workers grew faster in England than Scotland last year – a change from most of the recovery. Scotland’s pay premium shouldn’t be taken for granted by the government post-May.

4. People with low qualifications or disabilities are less likely to be in work in Scotland

If the next Scottish government is looking to boost employment rates to get pay growth accelerating again, where should they look? After all, Black, Asian and ethnic minority workers and younger people are as likely (or more likely) to be employed in Scotland than elsewhere in the UK. But the employment rates of people with disabilities and those with low qualifications are below the UK average. With powers over back-to-work programmes and disability benefits devolved, developing effective approaches to help these groups into work will be key.

5. But the quality of that work is vital too

Roughly one-in-five  Scottish workers are paid less than the Living Wage. While getting people into work is crucial, taking a broader view on the quality of work available and the pay within those roles is just as important. The UK government’s ‘National Living Wage’ (which doesn’t take the cost of living into account) is expected to boost the earnings of about half a million Scots by 2020. But it won’t solve Scotland’s low pay problem. A much broader approach will be required, such as getting to grips with productivity in low-paying sectors like retail and hospitality. But as well as making workers and industries more productive, it’s also important that more jobs allow workers to have a decent standard of living.  The share of workers paid less than the (voluntary) Living Wage in Scotland is set to rise over the next few years. The public sector has already taken the lead in paying the Living Wage in Scotland but a challenge for the next government will be to spread the Living Wage’s impact further into the private sector and especially low-paying industries.

The next government will be faced with a labour market that, in many ways, is in good shape. Pay is the jewel in the crown but the welcome-but-late closing of the Scottish jobs gap shows both that the labour market is recovering but there’s still a way to go. Focusing on how to complete that recovery and retake Scotland’s position as a labour market leader will be a defining challenge for the new government. Scotland’s newly acquired pay lead may well depend on it.