Coronavirus (COVID-19): measures to mitigate the labour market impacts - report

2. Challenges facing the Scottish Labour Market

The Scottish economy was facing a period of uncertainty prior to the COVID-19 outbreak, with the uncertainty over the UK's departure from the European Union (EU) and the potential future trade agreement with the EU and other countries, coupled with a global slowdown and rising trade tensions.

This economic backdrop was contributing to modest economic growth and weak business investment in the months leading up to the pandemic.

Despite weak economic growth, the overall Scottish labour market position was positive with high levels of employment and low levels of unemployment. The strong overall position masked a number of specific challenges facing the Scottish labour market. This included: Fair Work and quality of work; the persistence of precarious and insecure work; inequalities of labour market outcomes across groups and regions; significant proportion of people earning below the national living wage; labour market shortages in key sectors; proportion of graduates undertaking non-graduate employment; and low levels of in-work training. The Strategic Board's Annual Analysis highlighted these challenges^[3] (Annex B provides a brief summary).

The magnitude of these challenges has increased in light of the pandemic and the expected impact this will have on the Scottish labour market over the next few years. The latest set of modelling from the Scottish Government highlight that unemployment in Scotland could rise to between 10% to 14% by the end of 2020 and that it could take a number of years before the unemployment rate returns to pre-crisis levels. For vulnerable groups, the unemployment rate is expected to be much higher, in some cases around three times higher than the national average.

The crisis will also bring a number of new challenges to the Scottish labour market. These include the significant weakening of the demand for labour which will not only bring a large increase in the number of people facing redundancy, but also affect those entering the labour market for the first time, including the current cohort of school leavers and graduates. It is essential that the data and intelligence on new opportunities in sectors and regions emerging during the recovery are collected centrally and easily accessible to these groups in order to mitigate the period of time spent looking for employment.

A number of businesses have had to adapt their business model to continue trading these past few months, including having more home working, greater e-commerce and changing the way they interact with customers. As Scotland progresses through the different stages of the Route Map,^[4] these innovations are likely to continue, and businesses will need to continue to adapt as they restart and scale up their activity.

There is still a degree of uncertainty whether all sectors will bounce back to their pre-COVID-19 position. It is likely that some sectors will contract, and others expand as the economy adapts to the post-COVID-19 world. Furthermore, there will be new sectors Scotland will wish to focus on to drive the long-term change to a zero carbon, wellbeing and inclusive economy. These changes will potentially see large volumes of people having to look for employment opportunities in different sectors. This will require additional training and support in order to mitigate a rise in structural unemployment where there is a fundamental mismatch between the skills workers have and those employers require.