Future Skills Action Plan for Scotland: evidence and analysis annex

Future Challenges for our Labour Market

Employment forecasts

65. Employment forecasts for Scotland are generally cautious. Scotland is already close to a record high employment rate and close to a record low for unemployment. Our population is ageing and Brexit is expected to reduce employment in the economy – with the Scottish Government estimating a potential 8% unemployment rate in the event of a no-deal Brexit.^[58] In its May 2019 Economic and Fiscal Forecasts, the Scottish Fiscal Commission projected an average increase in employment in Scotland of around 0.1% per year over the next 5 years.^[59]

66. Although it is unlikely workforce participation can grow significantly higher, forecasts produced by Oxford Economics indicate that over the next 10 years there could be significant employment churn – although this is not a new feature of our labour market. Of the approximate 1 million jobs expected to be demanded in our economy between 2019-2029, 92% are expected to be “replacement” demand – where jobs are vacated through retirement, change of occupation or migration and are required to be re-filled.^[60]

67. This level of churn in the labour market has implications for skills demand but also supply. Where replacement demand is higher (e.g. professional occupations, elementary occupations and sales and customer service occupations), the skills associated with those jobs would be expected to be in greatest demand. Of all qualification grades, SCQF 7-10 (HNC to Honours degree level) is expected to make up around half of this labour market churn, followed by SCQF 5 (National 5) making up around one quarter.^[61]

Brexit

68. The current and future impact of Brexit on our economy, labour market and skills profile is highly uncertain. However, the Scottish Government’s position is that Brexit in any form will have a negative impact on all regions and sectors of our economy – while recognising that this impact will not be uniform.^[62]

69. There are indications that the uncertainty caused by Brexit is already impacting our economy. The Scottish Government’s Consumer Sentiment Indicator was positive in every quarter prior to the Brexit referendum, but has been negative in every quarter since the Brexit referendum and reached its lowest level on record in Q1 2019 (-9.6).^[63]

70. Sector specific analysis carried out by the Scottish Government’s Office of the Chief Economic Adviser highlighted Agriculture and Fishing, Construction and Manufacturing as the sectors where the negative impact of a no-deal Brexit in particular could be greatest.^[64] This analysis considered the extent to which sectors trade with the EU, are reliant on EU workers, deal with integrated EU supply chains and are subject to EU regulation.

71. From a supply perspective, a fall in EU migration due to Brexit could exacerbate existing skills gaps in these sectors. Of the businesses in Scotland that reported hard to fill vacancies in the UK Employer Skills Survey, 41% tried to recruit non-UK nationals to fill them.^[65] Of those businesses that tried to recruit non-UK nationals, a large majority (89%) tried to recruit EU nationals. This suggests that if recruiting EU nationals becomes significantly harder after Brexit, there will be a major impact on businesses currently using this as an employment strategy to mitigate hard to fill vacancies.

72. Data from the UK Employer Skills Survey shows that the Highlands & Islands and South of Scotland already have issues with difficulties in obtaining work permits for non-EU staff and this is a reason for some hard to fill vacancies in these regions.^[66] Depending on the agreed immigration framework for EU nationals, this issue could be exacerbated, particularly in these regions.

73. The longer term impact of Brexit may create more need for redundant workers to upskill and to retrain if sector downturns lead to job losses. The industries most at risk from Brexit (e.g. agriculture & fishing, manufacturing and construction) tend to have older workers than average and older age groups tend to be unemployed for longer than younger age groups.^[67] Workers leaving these industries may have highly specialised skills and require significant re-skilling to secure employment in other sectors.

Global climate emergency

74. The Scottish Government recognises that there is a global climate emergency and is committed to taking whatever action possible. Through the introduction of a new Climate Change Bill the Scottish Government has committed to setting a new target date of 2045 for reaching net zero emissions.^[68] If agreed by Parliament, Scotland will have the most stringent statutory targets in the world.

75. Reaching this target could have profound impacts on Scotland’s labour market and skills needs through changes to how people travel, food production, and investment levels in more traditional forms of energy production and newer more sustainable energy sources. In recognition of this, the Scottish Government set up the Just Transition Commission to make recommendations how to understand and mitigate risks to regional cohesion, equalities, poverty and a sustainable and inclusive labour market of the shift towards a net zero emissions economy.^[69]

76. For Scotland to take advantage of new employment opportunities in emerging sectors aligned with a net zero emissions economy (e.g. off-shore windfarm production and operation) and also to mitigate potential future job losses in sectors targeted as high carbon emitting sectors (e.g. aviation), a more flexible skills system that encourages and enables job switching across all age groups will be required.

77. Scottish Government funded schemes such as the Environmental Placement Programme (EPP) already supports businesses to recruit graduates to work on environmental projects. Interns are supported throughout their placement and gain valuable work experience in the sector, while helping their host company to reduce emissions and improve their green credentials.

78. There is analysis that suggests transitioning to a net zero emissions economy may produce positive employment impacts for the UK as a whole. Research by the European Union estimates that implementing the policies set out in the 2015 Paris Agreement to maintain climate change at no higher than +1.5 degrees will have an overall positive impact on employment EU wide (+0.5% increase in employment). The UK impact is expected to be broadly in line with the EU average at +0.47%.^[70]

79. This EU wide increase is expected to be concentrated in middle skilled and middle income jobs – mainly in the construction and service sectors – mitigating the expected continuation of “hollowing out” led by digitalisation and further integration in global production networks and value chains across the EU as a whole. However, for the UK, job creation led by a net zero emissions economy is expected to be concentrated in lower skilled work.^[71]

Advances in digital innovation

80. Digital innovation, and in particular – automation, machine learning and artificial intelligence are anticipated to have an increasing impact on the global economy and labour market in future years.^[72] However, the exact nature of this impact is contentious.

81. These forms of technology already exist in our economy, and periods of technological advances are not new, however, the pace of development of this current phase may be what sets it apart from historical periods of technological change.^[73]

82. Much of the existing analysis of the potential labour market impact of the development of digital innovation focuses on the likelihood of job losses by sector and occupation through the replacement of human workers with technology.^[74] However, some analysis predicts that advances in technology will ultimately be job creating – but there will be distributional impacts, potentially worsening existing regional disparities in income.^[75]

83. In 2018 the Scottish Government, in conjunction with the Scottish Trades Union Congress (STUC), published ‘Technological Change and the Scottish Labour Market’ to better understand how the Scottish economy and labour market might be affected by technological development in years to come.^[76]

84. The report found that: “Views differ on how technological change will affect employment in the 21st century. Some argue that a significant proportion of current jobs are at risk over a relatively short horizon whilst others stress that humans and technology are often complements not substitutes and that the labour market could prove as resilient as during previous waves of technological change.”

85. While there is consensus that some occupations and roles will be replaced – with repetitive, administrative roles deemed most at risk – it is anticipated that new jobs will be created. Distributional impacts may be at the forefront of some of these changes. Recent research has pointed towards women and people from minority ethnic groups as being potentially particularly vulnerable to the impact of automation with a higher concentration in at-risk occupations.^[77]

86. Recent research by Professor Ewart Keep for the Scottish Government’s Strategic Labour Market Group – The impact of digital innovation on education, training and skills – stressed that how digital innovation impacts on our economy is not pre-determined, collectively we have choice around what technology is implemented, how and when.^[78]

87. Professor Keep’s research found that to prevent skills depreciation and to manage the expected future digital skills related requirements of our economy, a renewed focus on lifelong learning with an adult learning system to suit is required. His research also highlighted the need for policy makers to secure labour market intelligence on future digital skills needs and to adopt a sectoral approach to ensure policies are crafted in a way that addresses specific sectoral needs and circumstances.

88. Professor Keep’s work cites the attitude of employers and managers towards digital innovation as crucial in determining the successful application of advances of digital innovation in the UK and Scottish economies. Where businesses perceive workers as an asset and source of value add where technological development can augment their productivity, digital innovation is more likely to be successful. Where businesses regard labour as a cost to be minimised, digital innovation may be used to replace workers where it brings cost savings.

89. Alongside digital skills, a report published by Nesta highlights that skills such as interpersonal skills, higher-order cognitive skills, and systems skills are likely to be in greater demand in the future as digital innovations develop.^[79]

90. The Trade Unions Congress (TUC) have also recently published research making a number of recommendations how the UK as a whole can move to a net zero-carbon economy and achieve a fair transition to an economy with greater use of technology.^[80] The TUC recommended that delivering a national entitlement to skills, to give everyone the confidence to adapt to changing demands should be a key focus.

91. By definition, automation is the replication and replacement of repetitive tasks formerly carried out by humans by technology. Low skilled, repetitive jobs are therefore considered most at risk of impact from automation in the future. Whether or not innovations in digital technology result in net increases in employment, automation in particular is likely to have significant impact on the skills demanded in our economy in future.^[81]