State of working Scotland: living standards, jobs and pay

20 January 2016

With only months to go until May’s Scottish Parliament elections, this report provides an analysis of the state of working Scotland. In particular, we focus on how Scotland’s labour market performed in the run-up to the economic downturn and in the recovery.

Key findings

Steady economic growth and impressive improvements in its employment rate meant the 2000s was a period of catch-up for the Scottish economy and labour market. Scotland then had a more ‘traditional’ recession – a steep fall in jobs but a less precipitous pay drop – compared to the UK’s employment-rich, pay-poor experience. These pre- and post-crash trends have contributed to median pay in Scotland now being slightly higher than in England.
However, Scotland’s employment rate is yet to return to its pre-crash position and unemployment remains above the UK average. These looser labour market conditions appear to be beginning to have an effect on pay, with pay for workers on the lower rungs of the earnings ladder growing faster in England than Scotland in 2015.
Changes in UK-wide policy will have varying effects on Scottish households in coming years. The National Living Wage should boost the pay of thousands of Scottish workers though will be less transformative than in many parts of the UK. The work incentives structure of Universal Credit may result in some workers reducing the number of hours they work and cuts planned to in-work support from 2020 will have a large impact on the incomes of many Scottish households. Alongside personal tax allowance cuts which will primarily benefit higher earners, it appears that UK tax and benefit policy is unlikely to act as a boost to the income of low and middle income Scottish families.
Though from a living costs perspective – particularly on housing affordability and exposure to interest rate rises – Scottish households are in a relatively privileged position compared to some parts of the UK, it is clear that Scotland’s performance on employment and pay will matter more than ever for those on low and middle incomes in the next few years.

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