Scottish economic bulletin: February 2024

Labour Market

Unemployment remains low however recruitment activity continues to slow.

Employment, Unemployment and Inactivity

• Labour market conditions have been very tight since the start of 2022 and have been resilient in the face of subdued GDP growth and inflationary pressures. This has been characterised by low unemployment, strong demand for labour with elevated vacancy rates and some companies reporting staffing shortages.
• Latest data for September to November show that Scotland’s unemployment rate fell over the quarter to 3.8% (UK: 4.2%), while employment rose by 6,000 to a rate of 74.4%, and inactivity fell by 3,000 to a rate of 22.6%.^[9],[10]
• Labour market conditions have softened slightly over the last year with the employment rate falling 1.7 percentage points while the unemployment rate has increased 0.6 percentage points, and the inactivity rate has risen 1.3 percentage points.

• Wider labour market data illustrates further the resilience in the labour market. The number of PAYE employees in Scotland continued its upward trend since the start of the 2023 to 2.46 million, though was largely unchanged over the month of December, while Scotland’s claimant count rate was 3.5% with the number of claimants down slightly over the month to 107,700.^[11],[12]

Recruitment Activity

• Business survey data also signal that the extent of tightness in the labour market has cooled slightly over the past year as unemployment has remained low and recruitment activity has stabilised.
• The RBS Report on Jobs indicated a fall in permanent staff placements in December (43.7) with falls in four out of the last five months of the year. Furthermore, business demand for staff fell for a fifth consecutive month in December and to its lowest level in three years (42.9).^[13]

• BICS data provides further insights on labour shortages and recruitment challenges across sectors, which have been gradually easing over the past year. At the start of January 2024, 25.3% of businesses reported experiencing a shortage of workers, down from the average rate of 33.4% in 2023 and 37.4% in 2022. In December, 24.7% reported experiencing difficulties, down from the average rate of 34.9% in 2023 and 40.3% in 2022.

• At a sector level, worker shortages remain most reported in construction (41.7%) and accommodation and food services (25.8%). Nearly half of businesses (48.1%) reported that worker shortages led to employees working increased hours, while 38.6% reported being unable to meet demands and 34.2% reported having to recruit temporary workers.
• Recruitment difficulties were also most reported in arts, entertainment and recreation (34.5%), admin and support services (34.3%), manufacturing (30.3%) and construction (28.5%). Latest data from January show most businesses responded that a lack of qualified applicants (63.1%) alongside a low number of applications (49.1%) were reasons why they experienced difficulties in recruiting employees while 20.1% reported not being able to afford an attractive pay package to applicants.

Earnings

• Recruitment challenges, staffing shortages and inflationary pressures have generated upward pressure on earnings over the past year, however there are indications that this has started to ease.
• The RBS Report on Jobs for December 2023 indicates that growth in starting salaries remained positive (net balance of 55.4), though the pace of growth has significantly softened compared to the start of the year (71.0 in January 2023).
• More broadly, nominal median monthly PAYE pay in Scotland was £2,377 in December, up 7.8% over the year. This remains above the average annual growth rate over the past eight years (4.1%), however has slowed from higher rates of growth of over 8% and 9% earlier in 2023.^[14]
• Adjusting for inflation, which was 4% in December, real median earnings grew 3.8% on an annual basis. This was the nineth consecutive month of positive annual growth following the period of falling real pay during 2022 and the start of 2023, reflecting the increase in nominal pay growth and easing in inflationary pressures.

• Looking ahead to over 2023-24 as a whole, the Scottish Fiscal Commission Forecast average nominal earnings in Scotland to grow 6.6% over the year, faster than the OBR forecast of 6.2% for the UK as a whole.