Analysis: Job market trends are worrying for Scotland

Yesterday’s labour market data highlight the continuing divergence between Scotland and the UK. The jobs market is clearly deteriorating in Scotland, while apparently improving in the UK.

Employment in the UK rose by 0.3 per cent in the quarter to July-September. In contrast, Scottish jobs fell by 1.1 per cent.

Looking at employment since the recession, the UK jobs market has now slightly passed its pre-2008 peak, whereas in Scotland, employment is still 3.1 per cent below the peak.

These data suggest output growth in Scotland will have been weaker in the third quarter and I think primarily because of the Olympic “bounce” effect. Output might be stronger than these figures imply, because of the apparent labour productivity effect that has seen output hold up much better than both jobs and the volume of hours.

But the overall labour market picture is worrying from a Scottish standpoint. Unemployment continues to rise in Scotland as it falls in the UK. It now stands at 8.1 per cent in Scotland compared with 7.8 per cent in the UK.

It also worth remembering where we have come from. At peak activity before the Great Recession, Scottish unemployment had fallen to 3.9 per cent compared with 5.2 per cent in the UK. While this was a boom period and almost certainly unsustainable, it does give a pointer on how far the Scottish labour market has to travel to get back to a more natural rate of unemployment, likely to be 5 or 6 per cent.

Moreover, we cannot say that the rise in Scottish unemployment has been worsened by an increase in labour supply. The activity rate fell in Scotland in the latest quarter and has been on a downward trend since the start of the Great Recession.

We don’t know why this is. It may in part be due to a discouraged worker effect, as people leave the labour market frustrated by a lack of job opportunities. This may also link to a rise in outmigration, as job opportunities have risen south of the Border. Unfortunately, the data are not available to provide a detailed understanding of what is currently happening on the supply side of the Scottish labour market. Nor, do we really understand where all the jobs have gone.

• Professor Brian Ashcroft, of the Fraser of Allander Institute at Strathcyde University, publishes the blog Scottish Economy Watch.