Scotland continues to be the odd man out in Britain’s post-crisis jobs recovery

Scotland’s been something of the odd-man-out lately. Missing out on Euro 2016 was bad enough but today’s latest labour market figures confirm that Scotland’s jobs market continues to under-perform compared to the rest of the UK. The turnaround has been rapid. As recently as October 2015, the Scottish employment rate was 74.8 per cent – higher than its pre-recession peak. The big question back then was whether the positive performance of mid-2015 would continue to go from strength to strength.

Unfortunately, we’ve instead witnessed a reversal of fortune. The number of people in work in Scotland has dropped in the most recent quarter, taking its employment rate from 74.4 per cent to 73.2 per cent. It’s not all bad: Scotland’s employment rate is still higher than in Wales, Northern Ireland and much of the North of England, and Scottish pay growth has been stronger than in England in recent years. But while the other nations and regions have kicked on, Scotland has slipped back below where it was at the start of the recession.

This stalling in Scotland’s jobs recovery is being driven by a rise in people leaving the labour market altogether rather than rising unemployment. The unemployment rate actually fell from 6.1 per cent to 5.8 per cent on the previous quarter, a drop of 11,000. But that welcome decrease is dwarfed by the 54,000 increase in the number of people aged 16-64 classed as economically inactive. The inactivity rate is now at 22.2 per cent, its highest since 2013.

What’s behind this disappointing performance? The North Sea crash is likely to have played a role but today’s figures make the ‘oil and gas’ argument less convincing. The electricity and gas sector added jobs over this period. It may be however that some of the underperforming sectors – administration and support services, and transport and storage – are suffering as a result of the oil and gas downturn. And its effects are showing up in other ways: Aberdeen house prices saw the second biggest fall in the country as of this week’s HPI figures.

More generally, we look at the latest figures on the number of jobs in industries, the picture is less clear. The sector doing the vast majority of the positive work is professional, scientific and technical activities, which grew by 25,000 jobs over Q1 2016. These are generally higher-skilled, higher-paying roles. There have been concerns that rising labour costs linked to the National Living Wage would reduce employment at the other end of the spectrum. But we can see that the biggest low-paying industry – wholesale and retail – actually added jobs over this period. Although these figures only run up to March, and so don’t include 1 April when the NLW became compulsory, it’s likely that many firms will have begun to adjust in the preceding months so any sharp adjustments would be visible.

Whatever the exact cause – and future months’ data should help to clear up this picture – the trends are certainly concerning. In their manifesto in the lead up to last month’s elections, the SNP pledged to bring forward a labour market strategy. Near the top of that strategy should be a focus on inactivity. More analysis and data will be needed to dig into what is driving this uptick and the groups most affected but at the UK level, recent RF research has highlighted the need to look beyond the unemployed and devote more attention to helping disabled people into the labour market. Boosting productivity and progression need to be other core strands of such an approach. Failing to get this right could mean Scotland continues to be the odd man out as the recovery continues.