Bill Jamieson: Darker side of the labour market

In the relentless blizzard of statistics about Scotland's economy, there's one set that stands out as a measure of our performance and well-being: employment, and its dark alter ego '“ the jobless rate.

02/02/17 . GLASGOW. Stock shot of Govan Job Centre Plus office. The Scottish government has said it was "completely unacceptable" that it was not consulted on plans to close half of Glasgow's job centres. On Wednesday, the Department of Work and Pensions announced the closures as part of a review of its estate. Scottish government Employability Minister Jamie Hepburn has written to the department to ask for clarity. The DWP said there would be public consultation on closures resulting in travel of more than three miles. Denise Horsfall, DWP work services director for Scotland, told BBC Radio's Good Morning Scotland programme that three of the proposed closures would result in travel increasing to up to four miles. She said these job centres - in Maryhill, Castlemilk and Bridgton - could remain open depending on the outcome of the consultation. Proposed closures Castlemilk and Langside Jobcentres will move to Newlands Jobcentre Parkhead, Easterhouse and Bridgeton Jobcentres will move to Shettleston Jobce

Being in work makes an enormous difference to the life prospects of individuals and households. It drives consumer spending, from housing (and houseware items), food and clothing, to cars, travel and leisure activity.

Income from work is the fuel that lubricates the greater economy. It is also a vital source of tax revenues. And as the Fraser of Allander Institute points out, “with £11 billion of devolved income tax revenues now dependent upon how well the labour market performs, just doing enough is not sufficient. The new fiscal framework is centred upon relative Scot-UK economic performance, which makes closing the gap with the UK crucial”.

And latest figures on Scotland’s Gross Domestic Product (GDP) performance are none too reassuring. They show our GDP in the third quarter of 2016 was still below the level of two years ago while across the UK as a whole there has been a gain of more than 6 per cent. The slowdown in North Sea oil related activity, and lacklustre readings for retail sales and consumer confidence are chiefly to blame.

But it is the monthly employment and jobless totals that are the first stop for anyone seeking to determine how well the economy is doing. And here the latest figures present a puzzle. The employment rate in Scotland at 73.6 per cent is close to its all-time peak of 74.9 per cent recorded in 2007. Yet the total employed fell by 20,000 over the year, largely driven by a decline in full-time work.

But unemployment is also down over the year by 27,000. Given all the political shocks of 2016 and continuing UK public expenditure restraint this figure could be considered something of an achievement. In fact, Scotland’s unemployment rate at 4.9 per cent has almost recovered back to the UK level. The figures for October to December show a slight rise – but nothing as grotesque as the sharp increase many feared in the immediate wake of the Brexit vote. So what accounts for the divergence between the fall in employment and a coincident fall in the jobless total?

In between these two numbers is a large wedge of “grey data” – those who, for one reason or another, are consigned to the column of “economically inactive” – that is, people not actively seeking work.

Over the past year this total has risen by almost 60,000 – a notably sharp rise. This takes the percentage of those between the ages of 16 and 64 categorised as “inactive” to 22.4 per cent, compared with 21.6 per cent for the UK as a whole.

New research by the Fraser of Allander Institute turns the spotlight on this dark corner of the labour market. It points out that while unemployment in Scotland has indeed fallen sharply over the past 18 months, “this continues to be driven not by people finding work, but by a rise in levels of economic inactivity”. And Scotland is the only nation in the UK to see a rise in inactivity over the last year.

The “inactive” category is a catch-all description for anyone who is neither in work nor actively seeking or immediately available for work. It thus includes people who may be studying. It could include those who are sick or injured; those who have caring responsibilities at home; or those who simply do not want to work and have no desire to look for it.

The FoA analysis has drilled down into these categories to see whether the growth in the total can be more accurately defined. It finds that the numbers of those aged 16 and 64 who have taken retirement have been falling in recent years. This could reflect increases in the state pension age for women. It could also be seen as evidence of a growing preference for people to remain in work for as long as they are able. As I have frequently written about here, the number of people aged 65 and over who are still in work has risen consistently every quarter since the 2009 recession and now stands at more than 1.2 million. Many continue to remain in work because they wish to augment their pension savings. But many others may prefer to remain active and to maintain social connections.

Meanwhile, the numbers who are inactive because they are either “looking after the family home” or “temporarily sick or injured” has remained broadly unchanged. As for those inactive because they are studying, this can be highly seasonal, fluctuating sharply in any given month or quarter. But the general trend appears to indicate no major change here since 2010.

This leaves two problematic categories. The numbers of those who are long-term sick or disabled increased gradually through 2015 but has increased rapidly during 2016. By the end of last year there were some 227,000 in this category, compared with 197,000 in the same quarter in 2015. When this category is broken down by age, there was a notable increase in inactivity among those aged 18-29. The FoA analysis finds inactivity in this group is around 56,000 higher now than a year ago. Of particular concern is the apparent rise in the number of 18 to 29-year-olds who cite long-term health issues in explaining inactivity. The number in this category has risen in five consecutive quarters since the second quarter of 2015. This may reflect a rising prevalence of mental health conditions and learning difficulties. Whatever the explanation, more research is surely needed.

Finally, there is the darkest category of all: “other”. This rose by some 30,000 between the first quarter of 2015 and 2016. There are some signs of an increase in the number of those who say they do not need or want employment but there has also been a rise in the number giving no specific reason for their labour market status. Here again, more analysis is needed, particularly on the interplay between personal wealth, social welfare benefits and numbers of those who neither need nor want employment.

Meanwhile, and more pressingly, our overall economic performance has some catching up to do.