Fair Work First - conditionality in public sector grants: business and regulatory impact assessment

Annex A – Labour Market Overview

This section provides an overview of the baseline conditions in relation to businesses and the economy in Scotland.

Jobs

The ONS Business Register Employment Survey (BRES) identifies the number of jobs by industry sector across Scotland using Standard Industrial Classification (SIC 2007) codes.

In 2023, the largest employment sectors in Scotland were: the Health sector (15.6% of jobs); the Wholesale Retail sector (8.7% of jobs); and the Accommodation and Food Services sector (8.6% of jobs).^[23]

In 2023, the largest employment sector in Great Britain^[24] was the Health sector (13.6% of jobs). The second and third largest employment sectors in Great Britain were Professional, Scientific and Technical (9.3% of jobs) and Business Administration and Support Services (8.5% of jobs).^[25]

Businesses

In 2024 there were an estimated 358,235 private sector businesses (registered and unregistered) operating in Scotland. Of these, the majority (98.2%) were classed as small (0 to 49 employees), 1.1% were medium-sized (50 to 249 employees), and 0.7% were large (250 or more employees).^[26]

Source: Businesses in Scotland: 2024 - gov.scot

In 2024 the sector with the largest number of private sector businesses was Professional, Scientific & Technical Activities, with 45,220 businesses (12.6% of all private sector businesses). The next largest industry sectors were Construction with 43,270 businesses (12.1% of all private sector businesses), and Wholesale and Retail with 35,140 businesses (9.8% of all private sector businesses).^[28]

The National Performance Framework also details how Scotland performs across national indicators on ‘high growth business’. In March 2024, 1.5% of all registered private sector businesses in Scotland were classed as high growth, up from the 1.1% in March 2023.^[29]

Labour Market

In 2023, Scotland had an employment rate of 74.7%, an unemployment rate of 3.6%, and an economic inactivity rate of 22.5%. In the same period, the UK had an employment rate of 75.7%, an unemployment rate of 3.8%, and an economic inactivity rate of 21.3%.^[30]

The employment rate in Scotland has fluctuated since 2004, experiencing steep declines in employment between 2008 to 2012, following the late 2000s’ recession, and between 2020 to 2021, as a result of the Covid-19 pandemic. The unemployment rate has followed a similar path, peaking at 8.3% in 2011, and then declining until 2020 when it increased in line with the Covid-19 pandemic before decreasing as the impact of the pandemic subsided. Scotland’s economic inactivity rate peaked at 23.8% in 2021, before decreasing sharply to 22.9% in 2022 and 22.5% in 2023.^[31]

Hours and Earnings

In 2024 the gross median hourly pay excluding overtime for all employees in Scotland was £17.50 which is slightly higher than for the UK as a whole (£17.03).^[32]

In Scotland, the industry sector with the highest gross median hourly pay excluding overtime, was Financial and Insurance Activities (£26.56). This was followed by Electricity, Gas, Steam and Air Conditioning Supply (£26.53). The industry sector with the lowest gross median hourly pay was Accommodation and Food Service Activities (£12.00).^[33]

At the UK level, the industry sector with the highest gross median hourly pay excluding overtime was Financial and Insurance Activities (£25.93). This was followed by Electricity, Gas, Steam and Air Conditioning (£24.5). The industry sector with the lowest gross median hourly pay was Accommodation and Food Services Activities (£12.00).^[34]

Source: ONS Annual Survey of Hours and Earnings, 2024

In 2023, 89.9% of all employees (aged 18 years and older) were paid the real Living Wage in Scotland. Sectoral analysis shows 84.2% of private sector employees, 89.5% of third sector employees, and 98.6% of public sector employees were paid at least the real Living Wage. Real living wage coverage was higher for men than women (91.4% compared to 88.5%) in Scotland in 2023.^[36]

Research from the Living Wage Foundation shows that 94% of Living Wage Businesses reported feeling they have benefited since accrediting.^[37]

Real Living Wage in Labour Market in Scotland

In 2023, 89.9% of employees in Scotland aged 18+ were paid the rLW or higher – the highest proportion across all countries in the UK. Younger people are more likely to be paid less than the rLW – 32.1% of employees aged 18-24 in Scotland were paid less than the rLW in 2023, compared with 8.5% of employees aged 25-34, 6.7% of employees aged 35-49 and 9.0% of employees aged 50+. Employees aged 50+ account for the largest proportion of all people paid less than the rLW – around 29.9% or 70,000 employees. This is because there are more employees in this age group compared with the 18-24 age group.

Estimates of employees earning less than the rLW are not available for all sectors. Where estimates are available for Scotland in 2023, these indicate sectoral differences – just under half (45.8%) of employees 18+ working in Accommodation and Food Services sector are estimated to earn less than the rLW compared with 3% in the Education sector.

Source: ONS Annual Survey of Hours and Earnings, 2023

Note: “-” Estimate is below reliability threshold due to small sample size or no people were recorded in this category in the survey.

Most employees who were paid less than the rLW were employed in the private sector – accounting for around 86.3% of all those earning less than the rLW in Scotland in 2023.

Effective Voice in the Labour Market in Scotland

In terms of collective trade union representation and individual trade union membership, there is data available from Trade Union Statistics 2023 and through “Measuring Progress – Fair Work and Business”. In 2023, the proportion of employees who were trade union members in Scotland was 28.8%, an increase from 26.2% in 2022. For the UK as a whole, the proportion in 2023 was 22.4%^[39].

Although some organisations and publications have looked at alternative voice mechanisms, there is no officially recorded data relating to membership of and/or the presence of non-trade union collective voice channels. Nor is there official data available on individual voice channels.

Reliable data on trade union membership for every industry is not available, however based on available data the industry in Scotland with the highest proportion of employees who are trade union members in 2023 was Education (56.4% of employees were members). This was followed by Human Health and Social Work Activities (46.6%), and Public Administration and Defence (45.7%). The industry in Scotland with the lowest proportion of trade union members was Wholesale and Retail Trade (6.4% of employees were members).^[40]

These industry trends are similar to those at the UK level where Education contained the highest proportion of trade union members (45.7%), followed by Public Administration and Defence (41.5%), and Human Health and Social Work Activities (36.9%). The industry sector with the lowest rate of trade union membership at UK level was Accommodation and Food Services (2.3%).^[41]

Source: Trade union statistics 2023, Department for Business and Trade, UK Government

Note: “-” Data suppressed based on ONS guidance due to respondent size

In Scotland the proportion of employees who reported that they are part of a collective agreement which affects their pay and conditions decreased from 38.1 per cent in 2019 to 33.7 per cent in 2020^[43].

Young People in the Labour Market

There is no data available showing employment of 16-17 year olds by sector. In 2023 young people aged 16-24 who were employed in Scotland were primarily employed in Wholesale and retail 21.9%) and Accommodation and food services (21.3%). Other sectors include Human health and social work (8.9%), Education (5.6%), Construction (5.3%), and Manufacturing (5.2%)^[44].

Apprentices In the Labour Market

Data from Skills Development Scotland^[45] shows:

• In 2023/24 there were 25,365 Modern Apprenticeship starts, similar to the previous two years. Of these apprentices, 40% were aged 16-19 years old, 20% were aged 20-24 years old, and 40% were aged 25 or above.
• In 2023/24 there were 38,607 Modern Apprenticeships in training, down slightly on 2022/23 but higher than 2021/2022. Of those in training, 50% were aged 16-19 years old, 20% were aged 20-24 years old, and 30% were aged 25 or above.
• The occupational groupings with the highest number of Modern Apprenticeship starts in 2023/24 were Construction & Related (25% of all starts), Sport, Health & Social Care (23% of starts), and IT & Other Services (10% of starts).
• The occupational groupings with the highest number of Modern Apprenticeships in training in 2023/24 were Construction & Related (34% of those in training), Sport, Health & Social Care (17% of those of training), and Engineering & Energy Related (14% of those in training).
• In 2021/22 there were 1,166 Graduate Apprenticeship starts, similar to the previous two years (2019/20 and 2020/21). The Business Management framework accounts for nearly a third of all Graduate Apprenticeships, followed by Engineering Design & Manufacture, IT Software Development, Construction & the Built Environment, and Civil Engineering which all account for around 10% of Graduate Apprenticeship starts.

A full breakdown of occupational groupings for Modern Apprenticeship starts and Modern Apprenticeships in training for 2022/23 and 2023/24 is shown in Table A.5 and A.6.

Source: Skills Development Scotland (2024) Modern Apprenticeship Statistics, up to the end of Q4 2023/24

Source: Skills Development Scotland (2024) Modern Apprenticeship Statistics, up to the end of Q4 2023/24

Around one in six (16%) Scottish employers offered formal apprenticeships in 2022 (apprenticeships that follow a formal framework or standard and lead to a nationally recognised qualification)^[46]. The likelihood of offering apprenticeships increases with employer size, ranging from 8% of employers with 2 to 4 staff to 43% of employers with 100+ employees. Employers in the Education and Construction sectors were more likely than the average to offer apprenticeships – 37% and 36% respectively.

Some industry sectors may have individual agreements between trade associations and trade unions that set rates of pay for apprentices, subject to the National Minimum and National Living Wage rates. Typically, first year apprentices are paid at, or slightly above, the statutory minimum apprentice rate. Apprenticeship stages do not necessarily align with minimum wage rate age groups but pay does increase with each stage (or year) of an apprenticeship. Using the SBATC rates of pay as an illustrative example, Table A.9, the rates of pay move broadly in line with statutory minimum age rates, and may be slightly above the minimum rate depending on the stage of the apprenticeship.

Examples of these are presented below for selected trade associations and industry bodies.

Source: Scottish and Northern Ireland Joint Industry Board for the Plumbing, Heating and Mechanical Engineering Industry, SNIJIB graded wage rates 2024/2025.

Source: Scottish Joint Industry Board, SJIB National Rates & Allowances 2024.

Source: Scottish Building Apprenticeship and Training Council, SBATC Apprentice Rates of Pay 2024.

Note: “ * ” – Pay rates are not agreed by SBATC and adhere to the legal requirements of paying the national minimum wage rates for applicable ages.

SBATC also have separate agreed rates for “experienced” apprentices who undertake an accelerated two-year apprenticeship, and these are given in Table A.10. This scheme is available to individuals who are typically age 22 and over, who have relevant industry experience but have not undertaken a formal apprenticeship.

Source: Scottish Building Apprenticeship and Training Council, SBATC Apprentice Rates of Pay 2024.

A separate apprentice wage rate also exists for agricultural apprentices in Scotland. The Scottish Agricultural Wages Board, an executive non-departmental public body, sets wage rates for apprentices and other agricultural workers via the Agricultural Wages Order. The minimum hourly rate, shown in Table A.11, applies to apprentices aged under 19, or apprentices aged 19 and over who are in the first year of their apprenticeship. An apprentice aged 19 and over, and who has completed the first year of the apprenticeship is entitled to the minimum rate for all agricultural workers (£11.44, effective from 1 April 2024).^[50]

Source: Scottish Agricultural Wages Board, Agricultural wages in Scotland.

Low Pay Sectors

Research commissioned by Scottish Government^[52] found the rLW criterion of Fair Work First would likely be a challenge for employers in sectors such as hospitality, retail and early years and other low-pay sectors, and in other sectors where this would mean removing the existing age-related pay rates for apprentices.

Most (80%) of SMEs in 2022-23 paid their employees at least the rLW (£10.90) at the time of the survey. Transport/Retail/Distribution and Administrative Services sectors were the least likely to report paying employees the rLW (70% and 72% respectively).^[53]

Source: Small Business Survey Scotland 2022 – 2023 - Tables