Where have all the jobs gone?

Today's labour market data highlight the continuing divergence between Scotland and the UK. The jobs market is clearly deteriorating in Scotland while apparently markedly improving in the UK. Employment in the UK rose by 100,000 in the quarter to July - September, an increase of 0.3 per cent. In contrast, Scottish jobs fell by 27,000 a drop of 1.1 per cent.

Looking back on employment since the recession we have the following jobs picture in Scotland and UK.

The UK jobs market has now returned to, and slightly passed, its pre-recession peak, whereas in Scotland employment is still 3.1 per cent below the peak.

These data suggest that output growth in Scotland will have been weaker in the third quarter and I think primarily because of the Olympic 'bounce' effect. Output might be stronger than these jobs figures imply because of the apparent labour productivity effect that has seen output hold up much better than both jobs and the volume of hours, which we noted in the recent Fraser of Allander Institute Commentary here.

But the overall labour market picture is worrying from a Scottish standpoint.

Unemployment continues to rise in Scotland as it falls in the UK. Unemployment rose by 4,000 in Scotland in the quarter to July - September, a rise of 1.8 per cent. In the UK, unemployment dropped by 49,000 a fall of 1.9%. Unemployment now stands at 8.1% in Scotland compared to 7.8% in the UK as the chart below shows

It also worth remembering where we have come from. At peak activity before the Great Recession Scottish unemployment had fallen to 3.9 per cent compared to 5.2 per cent in the UK. While this was a boom period and almost certainly unsustainable it does give a pointer on how far the Scottish labour market has to travel to get back to a more normal or natural rate of unemployment. This is likely to be between 5 per cent and 6 per cent.

Moreover, we cannot say that the rise in Scottish unemployment has been worsened by an increase in labour supply. The chart below shows that the activity rate fell in Scotland in the latest quarter and has been on a downward trend since the start of the Great Recession.

We don't know why this is. It may in part be due to a discouraged worker effect as people leave the labour market frustrated by a lack of job opportunities. This may also link to a rise in outmigration as job opportunities have risen in the UK compared to Scotland.

Unfortunately, the data are not available to provide a detailed understanding of what is currently happening on the supply side of the Scottish labour market. Nor, do we really understand where all the jobs have gone.

Comments

[Christian Allard]

It seems that the answer is in the details:

"The only region of the UK that is showing a strong decrease in the employment rate is Scotland which decreased by 1.0 percentage points. However, it is not yet clear whether this decrease is thestart of a pattern of decreases or due to sampling variability."
http://www.ons.gov.uk/ons/dcp171778_286516.pdf

I look at the graphs and I see Scotland's line with massive highs and lows, why?