The latest labour market data published today reveal that conditions in the Scottish labour market continue to improve. In the quarter January to March unemployment fell by just under 7,000 to below the 200,000 mark to 199,000, or a rate of 7.3%. The chart below shows that unemployment is now faring better in Scotland than the UK.
What is striking about these latest jobs market data is the surge in employment in Scotland. Jobs rose by 54,000 in the first quarter of this year compared to a fall of 43,000 in the UK as a whole. This brings Scottish jobs performance since before the recession more into line with the UK as the following chart shows.
Scottish jobs are now -1.3% below their pre-recession peak, whereas in the previous quarter they were more than 3% below the pre-recession peak. This is still worse than the UK, where, despite the loss of jobs in the recent quarter the total is 0.6% above the pre-recession peak.
So what is going on here?
First, we cannot discount the possibility that the Scottish data reflect measurement or sampling error, more so than the UK data where samples are relatively bigger. The latest 'surge' may reflect a correction of earlier errors, or a large error in the latest measurement. Only later data will help clarify that.
Secondly, if we assume no measurement error, the explanation could be as follows.
Since the fourth quarter of 2009 when there was a large loss of jobs in Scotland, the Scottish jobs market has been weaker than the jobs market in the UK as a whole. Yet, GDP growth has been very similar in Scotland and the UK. On the face of it, that meant that productivity worsened more in the UK than Scotland. Again we also cannot discount measurement error affecting the GDP estimates both in Scotland and the UK. There may also be different industrial/structural reasons, including the relative number of 'zombie' firms in Scotland and the UK, which would affect the relation of employment to output in Scotland and UK - I assume that the contribution of such firms to GDP is much less than their contribution to employment, other things equal.
But setting all those possible explanations aside, maybe, just maybe, Scottish employers took a more pessimistic view of the course of the recession and recovery than their UK counterparts. Hence, employment was cut back here but nor in the UK. Now we may be seeing a correction as Scottish employers revise their expectations up considering that conditions are not as bad as they expected. Conversely, UK employers may be in the process of revising their expectations downward: the recovery is not as strong as they anticipated, hence cutback on employment.
Only a theory, but it does reconcile the different Scotland-UK jobs market behaviour with the similar output/GDP behaviour.
What do you think?