3.1 General context
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LAST MODIFIED ON: 10/11/2020
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This chapter provides information about the labour market across the UK in general and in Scotland in particular. It reflects the different responsibilities of the UK Government and the Scottish Government in employment and entrepreneurship. For further information about devolution, see the article entitled 'Historical Development' in the Eurydice Network's description of education systems.
Labour market situation in Scotland
The UK is a large, open and competitive economy with low levels of regulation in its product and labour markets. The 2020 European Commission UK Country Specific Report states that the UK has high employment but low, stagnant productivity. Labour productivity and investment are low and not improving. The UK faces a broad need for more investment in equipment, infrastructure and housing, while also bringing down project costs. There is scope to improve the effectiveness of education and training systems in areas such as basic and technical skills. Tight regulation of the land market can also prevent capital and labour from moving to where it is most needed.
A certain amount of market and economic volatility has occurred following the referendum of 23 June 2016, in which the UK voted to leave the European Union. During the transition period 31 January 2020 to 31 December 2020, trading relations between the EU and the UK will remain essentially unchanged. Beyond this period, however, they will depend on the outcome of the negotiations on the UK’s future relationship with the EU.
COVID-19 has a significant economic impact on the UK. A report from the Office for National Statistics for the period of September 21st to October 4th 2020 states:
- The arts, entertainment and recreation industry had the lowest percentage of businesses currently trading, at 70%, compared with 86% across all industries.
- Wave 15 (21 September to 4 October 2020), 48% of businesses experienced a decrease in turnover; since Wave 12 (10 to 23 August 2020), the trend has flattened compared with a previously steady decrease.
- In Wave 15 (21 September to 4 October 2020), 9% of the workforce were on partial or full furlough leave, unchanged from Wave 14 (6 to 20 September 2020).
- The accommodation and food service activities industry had the highest percentage of businesses with no cash reserves, at 7%, and had the highest percentage of businesses with a severe risk of insolvency, at 17%.
Gross Value Added (GVA) is a measure of the increase in the value of the economy due to the production of goods and services. Data from the Office for National Statistics (ONS) shows that in 2017, the UK per head GVA figure was £27,555. Of the four UK countries, only England had a higher GVA per head value than this average at £28,096. Wales had the lowest GVA per head at £19,899. Northern Ireland experienced the highest annual growth in total GVA at 3.6% though GVA per head remains the lowest at £21,172. Scotland’s GVA per head was £25,485.
The 2019-2023 Corporate Plan of Skills Development Scotland - the national body for skills and workforce development - provides an overview of the economy. It’s important to note this overview was before the onset of COVID-19. It states that:
Scottish employment (75.6%) and unemployment (3.3%) levels compare favourably against the UK and internationally. Within the UK, Scotland also has the highest proportion of employees earning the Living Wage. However, this is coupled with high levels of in-work poverty and reliance on state benefits. Scotland’s population is forecast to grow at a slower rate than in recent years and faces a gradual decline in the working age population. With rising dependency ratios there is even greater pressure for people to work longer and retire later. Scotland is, historically, a highly skilled nation. However, evidence tells us that almost a fifth of graduates in Scotland are under-employed, and up to 225,000 employees are over-qualified or over-skilled for their current role. This highlights a skills utilisation issue, where the qualifications that people gain are not always put to full use within businesses.
Scotland’s productivity is currently 20% behind our ambition to rank in the top quartile of OECD countries. Significant change is not forecast, with the Scottish Fiscal Commission estimating an increase in trend productivity growth from 0.3% in 2018 to 1.3% by 2023.
Data published by the Office for National Statistics in 2020 shows labour productivity increased in 32 out of 44 enterprise regions in the UK between 2010 and 2018; the highest productivity growth occurred in West Midlands City Region, in Edinburgh and South East Scotland City Region and in Stirling and Clackmannanshire City Region.
A UKCES report analysing the UK labour market following the 2008 recession shows that the UK's progress was brought to a halt, and indeed was reversed: productivity declined slightly, whilst productivity in other nations continued to increase.
The UK recognises that it has a skills shortage in some important industries, acting as an obstacle to people accessing employment. The 2017 UK Employer Skills Survey (published in 2017 by UKCES).shows an 8% increase in the number of skills-short vacancies since 2015. This increase is similar to the proportional increase in vacancies, meaning the density of skill-shortage vacancies has remained stable at 22% since 2013 There is a lack of expertise in the business services sector, IT, oil and gas, and energy and construction sectors, as evidenced in the chosen specialisms for the new national colleges (see the section on Skills Development). Results of the 2019 survey are expected to be published in 2020.
Labour market regulation
The UK has a lightly regulated labour market. In line with the Equality Act 2010, there are protections against discrimination on the grounds of age; disability; gender reassignment; marriage and civil partnership; pregnancy and maternity; race; religion or belief; sex; and sexual orientation. The Equality and Human Rights Commission has published guidance on this for employers.
Health and safety regulation is well established and comprehensive. Working time is controlled and flexible working promoted.
Governance of youth employment
Youth employment in the UK is governed by the same conditions as the employment of older workers.
National Minimum Wage
There is a national minimum wage (NMW) and a national living wage (NLW) in the UK. The minimum national wages for under-25s in 2020 are set out in the table below:
National minimum wage for:
18 to 20
21 to 24
Source: The National Minimum Wage and National Living Wage rates, GOV.UK
The National Living Wage, which stipulates a higher wage for older workers, was introduced in April 2016.
The Low Pay Commission Report Spring 2016 outlines the reason for these two wages: the age structure seeks to help manage employment risks, given that younger workers have lower pay on average than older workers and face tougher labour market conditions. This means that if employers were to maintain a generally higher level of wages for all ages, there might be fewer opportunities for younger workers.
All employees over 22 years of age are auto-enrolled into a designated pension scheme.
Youth and the labour market
There is no specific regulation of the youth labour market.
The UKCES report on young people, entitled Catch 16-24 and published in 2015, states that persistently high youth unemployment is a long term, structural element of the UK economy. Policy has focused on maintaining engagement with young people who are at risk of not being in education, employment or training (NEET). For more information about such policy measures, see the article on 'Integration of Young People in the Labour Market'.
Catch 16-24 also outlines the key issues for young people in accessing work:
- they find it difficult to get work without experience and difficult to obtain experience without work
- access to opportunities for work placements and related activities is limited by geographical location (the so-called 'postcode lottery') - these are more readily available in areas with higher economic performance
- young people are most likely to be recruited into low wage, low skilled jobs where the pathways for promotion, and for further learning and development, are unclear.
Persistently high youth unemployment is a long term, structural element of the UK economy. This has been significantly impacted by COVID-19. A youth unemployment report published by the House of Commons library in October 2020 states that in June - August 2020:
· 581,000 young people aged 16-24 were unemployed, an increase of 35,000 from the previous quarter.
· 3.54 million young people were employed, down 220,000 from the previous quarter
· 2.74 million young people were economically inactive, an increase of 168,000 from the previous quarter.
In September 2020, 529,400 people aged 18-24 claimed unemployment related benefits. This was an increase of 294,400 claimants from March 2020, when the UK lockdown began. This represents an increase of 125% between March and September 2020. Some of this increase will be due to employed people who have become eligible for Universal Credit as part of the government response.
The Office for National Statistics has developed a framework for labour market statistics which describes the major concepts (earnings, employment, hours of work, labour disputes, economic inactivity, redundancies, claimant counts, unemployment, job and vacancies) that exist within the UK labour market and their relationship to each other. Details are available in the Guide to Labour Market Statistics.