Scotland's Labour Market Strategy

1. Scotland's Labour Market - the Beating Heart of our Economy

We have strong foundations and much to build upon

Our labour market is the beating heart of Scotland's economy. Scotland is a wealthy and productive economy, with strong economic foundations. We have a highly-skilled workforce, substantial natural resources, a long-standing reputation for innovation, internationally recognisable brands and products and companies competing successfully in global markets. We have published an analysis of Scotland's labour market alongside this Strategy. ^[5]

Scotland continues to recover from the global recession

Scotland's economy has continued to grow over the last year despite challenging market conditions, particularly in the oil and gas sector. Gross Domestic Product ( GDP) now stands 5.5 per cent above its pre-recession peak and grew by 2.1 per cent in 2015. ^[6] Employment is reaching record levels, with 65,000 more people in employment than before the recession. ^[7] We have also seen declines in poverty over the medium term.

Following the recession we have seen a growing proportion of part-time jobs and increasing female participation. While for many, part-time work can offer the flexibility they desire, we know there are fewer women in medium-high and high-skilled jobs compared to men and that women are more likely to work in lower pay occupations.

Similarly, while we are encouraged by figures that show increasing self-employment we need to understand if the drivers for this are increased innovation and entrepreneurialism or a sign of fewer job opportunities.

We understand the challenges facing the labour market

These changes are indicative of a number of challenges that remain for Scotland's labour market. Some are long-standing, some have been exacerbated by economic recession and some are more immediate. Key challenges include:

• improving the quality of employment, in terms of hours, earnings, and security. Currently the majority (53 per cent) of adults who are in poverty live in a household where at least one person is employed. ^[8] There has also been a rise in 'non-standard' jobs, particularly zero-hours contracts though these are less prevalent in Scotland than the rest of the UK; ^[9]
• addressing the ' hollowing out' of the labour market, a trend seen in many other advanced economies, whereby the number of middle income jobs has been reduced and jobs have become more polarised on either side of the income scale; ^[10]
• improving productivity. Productivity has risen by 4.4 per cent in real terms since 2007 (compared to no growth in the UK over the same period) and the gap between Scotland and the UK average has been significantly narrowed from 7.8 per cent to 2.4 per cent. In spite of this improvement, the gap between Scotland and the top performers remains largely unchanged; ^[11]
• tackling inequalities between regions and groups in Scotland. The unemployment rate varies widely across local authorities, from 2.6 per cent in the Shetland Islands to 8.7 per cent in Dundee City. ^[12] Employment rates for minority ethnic communities and disabled people are lower than the Scottish average and a gender pay gap persists despite some reduction in the size of the gap; ^[13] and
• responding to the structural shifts in the economy experienced in many advanced economies, away from manufacturing and towards generally lower pay services sectors. ^[14]

In addition to these challenges, the nature of work is changing; globalisation, technological change and automation as well as demographic changes will all influence the labour market of the future. We also face the continuing possibility of further sudden major economic changes which could impact on the labour market. We must be able to adapt to such changes.

We will continue to develop a Scottish Approach

We want to support businesses to be able to respond quickly to changing market, economic and social conditions and we believe that this can be done while providing their employees with a high level of security and stability, reflecting the principles which underpin the Scottish Business Pledge.

Our research, and the work of the Fair Work Convention, ^[15] tells us that secure, well-paid jobs which give fulfilment and offer opportunities for progression in organisations where employees have effective voice are the key to increasing workplace innovation. We believe that this can help to deliver a measurable shift in productivity and boost business success.

By international standards, Scotland is a competitive economy. However, some similar-sized countries have achieved better outcomes in terms of growth, wellbeing and sustainability. This is why our vision for a labour market based on good quality jobs and rising productivity that supports inclusive growth is so important - for employers, individuals and their families.

We would undoubtedly be better able to address these challenges if we had the full set of powers around employment law, tax and social security, and we will continue to press the UK Government for them. For now, we are absolutely focused on doing everything we can within the powers we have to achieve this growth. That is why the First Minister announced in August an initial £100 million for a package of measures to provide immediate support to the economy and jobs in light of the economic uncertainty that we currently face.

We aim to build on that by broadening the productive base of the economy, ensuring that employees have an effective voice and with employers fostering the environment in which they and their workers succeed, we can ensure that productivity and growth benefits all parts of society.

We acknowledge that these are ambitious aims and that achieving them will be challenging, which is why we have set out a clear vision for what we want to achieve through working with employers, trade unions, our delivery bodies and other stakeholders.

Building on Scotland's Economic Strategy

Fair work and jobs are central to our ambitions. The diagram below shows how we will build on our Economic Strategy's ambitions for inclusive growth by focusing on the labour market and driving improved productivity and inclusion through enabling more people to participate.

The diagram shows how we will deliver inclusive growth with activity in five priority areas:

• promoting the Fair Work Framework and encouraging responsible business to create a fair and inclusive jobs market that is resilient, innovative and sustainable over time;
• supporting employability and skills, so that all of our people, regardless of background, have the opportunity and can develop the skills required to participate successfully in the labour market;
• investment in our people and our infrastructure in a sustainable way that improves connectivity between people and places and access to labour markets, raises skills, promotes inter-generational social mobility and tackles inequality of opportunities;
• fostering a culture of innovation which goes beyond research and development, where innovation spurs on job creation, creates high-quality and skilled jobs across our labour market and where workplace innovation boosts the productive capacity of our business and employees; and
• promoting Scotland on the international stage and improving the competitiveness of our businesses to boost our trade and investment, and to retain Scotland's position as an attractive place to do business, and where inward investment creates jobs and employment opportunities to all parts of Scotland.

A shared agenda

Whether through local or national government, health or education, everything the public sector does impacts on the economy. What happens in the labour market can be impacted by a range of interventions such as, investment in our physical and digital infrastructure; improving health outcomes; provision of good quality housing; improving attainment and access to further and higher education; providing opportunities for skills; how we operate our tax and welfare systems; or extending early years child care.

The Scottish Government has put a strong emphasis on closing the attainment gap which will form a cornerstone of our approach to supporting inclusion, equality of opportunity and improved outcomes for the most disadvantaged in the labour market. That is why we are taking steps to work with teachers, parents and local authorities to accurately measure and set transparent targets for closing the attainment gap.

Equally, our policies on issues like early learning and childcare, transport and employability can help enable people to improve their lives by removing the barriers that prevent people working. With some employability powers being devolved next year, we will be able to provide improved employment support for vulnerable groups and the long-term unemployed, including disabled people and minority ethnic communities.

Strong evidence exists on the link between employment and improving outcomes across a number of dimensions of Scotland's social and economic performance including health, ^[16] crime, social mobility and tackling poverty.

Furthermore, healthy performance of local labour markets across urban and rural regions is central to increasing equality and accessibility of opportunities, to improve prospects for all. This cannot be achieved alone. Building on our partnerships with local authorities, delivery bodies, employers and other stakeholders will be core to our approach.

Ensuring our labour market is resilient in the face of economic shocks

As a small, open economy Scotland is well placed to reap the benefits of trade with the global economy. However, like all other economies, Scotland's labour market is susceptible to economic shocks and downturns. In recognition of this the Scottish Government, in partnership with its agencies, has developed effective mechanisms to increase the resilience of our labour market in the face of economic challenge. Our Partnership Action for Continuing Employment ( PACE) response supports individuals who are facing redundancy recognise their skills, explore their options and prepare for their next move. It is available free of charge and through its network of businesses PACE can often connect potential employers with those making redundancies.

Usually the PACE response is sufficient, complemented by business support offered through the enterprise agencies or local authorities. However, there are cases where the impact of the economic shock is particularly severe or sectoral, beyond the company, impacting on the wider community, the supply chain or on national economies. In those situations, greater intervention may be required - either locally or nationally led.

In 2014 Fergusons Shipbuilders Ltd was placed into administration, resulting in the loss of 70 employees. The Scottish Government immediately convened a taskforce to ensure that all that could be done to support the workers, was being done. With support from the First Minister, union representatives and the task force a buyer was found. Since then, the new business, Ferguson Marine Engineering Ltd, has re-employed all formerly redundant staff and is investing in the yard and expanding its workforce. This includes a commitment to take on 10 Modern Apprentices per year between 2015 and 2020.

On 20 October 2015 Tata Steel announced a plan to mothball all of its UK plate mills, citing challenging global market conditions for steel plates for its decision. This impacted 270 staff in Motherwell and Cambuslang. Under the direction of the First Minister, a multi-agency Steel Task Force was convened, chaired by Fergus Ewing, then Minister for Business. The Task Force drove forward actions in order to secure an alternative commercial operator for the sites and to produce a viable future for the highly-skilled workforce there.

On 23 March 2016, the Scottish Government agreed to enter into back-to-back contracts with Tata Steel, which included facilitating the sale of the sites to Liberty Steel. Liberty Steel started recruiting to the mills in June 2016, including introducing apprenticeship opportunities, and hope to resume steel production in September. Around 60 staff are already engaged in preparations to re-open Dalzell, with a further 40 expected to join the workforce before the site starts to produce plate again. In addition, the new business is supporting additional local jobs through the award of about 20 new supply contracts to firms in the Motherwell area.