Brian Ashcroft: Scottish Labour market may look good but it is better not to be over optimistic

However, we must be careful about drawing overly optimistic conclusions from these data.

First, total UK employment is currently about 1.5 per cent below its pre-recession peak, while total Scottish employment is more than 3 per cent below its pre-recession peak.

Secondly, strong growth in jobs in Scotland of 70,000 between the first quarter of 2010 and the first quarter of this year masks the fact that Scotland endured a large shake-out of nearly 50,000 jobs between the 2009 Q4 and 2010 Q1.

This was probably an over-reaction by Scottish employers so there may have been an element of catch up last year as employers sought to establish a proper balance between jobs and output.

It is true that the Scottish Government’s decision to front-load capital investment may have helped the process of job recovery in Scotland but we need to look more closely at the industry breakdown of the employment data before that can be confirmed. What cannot be denied, however, is the evidence that the Scottish labour market shed 4.77 per cent of its jobs in the recession, while the UK shed only 2.41 per cent.

Thirdly, one must also look at the movement within the overall jobs total, particularly what is happening to jobs in the both the private and public sectors. The public sector jobs figures released in September show that public sector employment in Scotland fell by 25,200 in the year to the second quarter of 2011, while there were 57,700 more jobs in the private sector over the period.

The performance of the private sector job creation is clearly going to be of crucial importance to the future jobs prospects of the Scottish labour market as fiscal consolidation bites.

Finally, we need to bring in a fourth factor when considering the state of the Scottish labour market. This is that one should not judge the state of the labour market by job creation alone but by the creation of jobs in relation to available labour reserves.

Working population has been rising in Scotland by a little more than 100,000 since the start of the recession. When that is taken into account we see that the total employment-working population ratio is still more than 5.5 per cent below its pre-recession peak while the ratio fell by 6.35 per cent from peak to trough of the recession .

These figures do not indicate a tight labour market but one that is still suffering from a severe lack of demand, nearly four years after the start of the recession. Moreover, job creation in Scotland appears to be more biased towards part-time working than in the UK, so relatively less labour services may be being demanded than is apparent from the simple job numbers.

It could be that when expressed in terms of full-time equivalents the recent stronger Scottish employment growth might be largely an illusion.

Overall, it appears that the growth of private sector output remains weak and insufficient to offset the effects of fiscal consolidation to produce falling or stable unemployment. The latest figures, albeit for only one quarter, are consistent with our expectation that we should expect unemployment in Scotland to begin to rise again.

• Professor Brian Ashcroft is emeritus professor of economics at Strathclyde University