Monthly economic brief: September 2021

Labour Market

The number of payrolled employees has risen while vacancies and staffing shortages continue to emerge as the furlough scheme closes at end of September.

Official labour market statistics

• The latest labour market statistics for May – July 2021 show Scotland's employment rate was 74.1% (up 0.5 percentage points over the year),^[12] the unemployment rate was 4.3% (down 0.6 percentage points) and the inactivity rate was 22.5% (down 0.1 percentage points).

• The headline labour market indicators compare well against historical trends, however only show a partial picture of the impacts of the pandemic on the labour market over the past 18 months. Wider labour market indicators provide further insight into both the challenges that have emerged in the labour market during the pandemic and the signs of improvement in recent months.

Coronavirus Jobs Retention Scheme (CJRS)^[13]

• The CJRS has provided significant support to businesses and the labour market over the course of the pandemic. The ending of the furlough scheme on 30 September introduces new uncertainty regarding the impact that this will have on businesses ability to retain staff that have been furloughed and the implications this could have for unemployment.
• Latest outturn data showed that the furlough scheme continued to provide significant support to businesses and the labour market in recent months as restrictions eased, with the number of jobs supported by the scheme naturally falling as businesses resumed trading.
• At the end of July, 116,500 jobs in Scotland (1.6 million jobs across the UK as a whole) were furloughed, down from 141,500 at the end of June and from the recent peak of 393,400 in January.

• At a sector level, consumer facing services such as accommodation and food (23,900) and wholesale and retail (15,700) continued to have the highest number of jobs on furlough at the end of July, however they have also had the largest falls as restrictions on the consumer facing services sector eased and businesses in the sector have resumed trading.^[14]

PAYE payrolled employment and Claimant Count

• Pay As You Earn (PAYE) Real Time Information data for August show that the number of payrolled employees in Scotland was 2.37 million, an increase of 2.5% (UK: 3.0%) compared with August 2020.
• This is the highest number of payrolled employees in Scotland since March 2020, however remains 25,000 lower than its pre-pandemic level in February 2020.^[15]

• Alongside the rise in payrolled employees, Scotland's Claimant Count (the number of claimants of Job Seekers Allowance and claimants of Universal Credit claiming principally for the reason of being unemployed) fell 3.5% in August to 167,300; a claimant count rate of 5.2%. The claimant count continued its recent downward trend and has fallen 24.3% from its peak in August 2020, however, it remains 54,000 (24.3%) higher than its pre-pandemic level in February 2020.^[16]
• Combined, the claimant count and payroll data signal that the number of people that have been unemployed or employed with low income and/or low hours increased significantly during the pandemic. However, the movements back to pre-pandemic levels shows that progress in the labour market recovery has been made with support from the Job Retention Scheme.

Demand for staff

• The return to work of furloughed staff and the rebound in payrolled employees reflects an increase in demand for staff and recruitment activity as restrictions have eased.
• The latest Report on Jobs signals that permanent and temporary staff placements continued to grow strongly in August as businesses expanded their workforce in response to rising levels of demand.^[17]

• However, demand for staff also continued to grow strongly in August, with Job vacancies rising across Scotland for both permanent and temporary staff. ONS Adzuna data shows online job vacancies in Scotland for the week to 17 September were 33% higher than in February 2020.^[18]
• The combination of relatively low unemployment (supported by the furlough scheme), coupled with the recent rapid strengthening in demand for staff and sharp decline in candidate availability has resulted in labour shortages affecting sectors including haulage, construction, tourism, hospitality and food & drink.

• Latest BICS data into the start of September reported that 40% of businesses found vacancies were more difficult to fill than normal, while 26% found no difference and 1% reported vacancies were easier to fill.^[19]

Earnings

• Mean PAYE monthly pay fell sharply at the start of the pandemic, however strengthened over the course of 2020 and rebounded back above its pre-pandemic level in July 2020.
• Relatively robust earnings growth over this period in part reflects lower inflows of new employees, for which mean pay tends to be around 40% lower than for those continuously employed.^[20] Looking ahead, business survey data for August also shows that the increase in demand for staff has been reflected in upward pressures on rates of starting pay for both permanent and temporary staff positions.^[21]
• Following a slight easing in June, latest data for July shows mean pay per month in Scotland has increased by 1.3% to £2,499. On an annual basis earnings growth slowed to 6.3%, however remains elevated, which in part reflects the sharp fall in mean earnings in the early stages of the pandemic.

• While mean earnings have rebounded on an annual basis, the rate of annual growth needs to be interpreted with caution. Base effects, alongside compositional factors which reflect a fall in the number and proportion of lower-paid employee jobs, continue to influence the data.