Scottish Jobs and the UK

Some time ago someone asked me in the context of the referendum debate: "How many jobs in Scotland depend on links with the UK?" I said: "I don't know but I can attempt to find out. But the harder question is determining how many of these jobs might be at risk if Scotland chooses to become independent."

So in a later post I shall look at the jobs in Scotland that can be said to be dependent on the UK.

In the next post I shall try and make an assessment of which and how many of those jobs might be at risk through the process of Scotland became politically independent.

Jobs dependent on the UK

We can identify 5 broad categories of jobs that depend on the UK in some sense. These are jobs in:

• Rest of UK owned/controlled companies
• Companies exporting from Scotland to the rest of the UK
• The reserved public sector, less financial institutions in current UK state ownership
• UK public sector contracts for Scottish companies, especially defence
• Scottish R&D in the HEI sector financed by UK grants

These jobs we can call the direct jobs dependent on the UK. But there are also further jobs that depend on the jobs that are dependent on the UK. These are the secondary jobs in local companies supplying the direct jobs in one or more of the above categories. They are obtained technically by applying Type 2 Employment multipliers at the appropriate sectoral level using the Scottish Government's input-output tables.

The grand table with source links and descriptions of the calculations is presented below

Source: Own calculations using the following

(1) http://www.scotland.gov.uk/Topics/Statistics/Browse/Business/Corporate/alltables Table 3

(2) BIS calculations based on Scottish Input-Output tables 2009 data, retrieved May 2013, http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/Input-Output/Downloads and http://www.scotland.gov.uk/Topics/Statistics/Browse/Labour-Market/BRES-Employee-Jobs-Sco

(3) http://www.scotland.gov.uk/Topics/Statistics/Browse/Labour-Market/TrendPublicSectorEmp

(4) http://ukdefencejournal.org.uk/what-impact-would-independence-have-on-scotlands-defence-industry/ 75% of jobs assumed to depend on MOD spending

(5) 9,034 research staff: active academics plus research fellows and assistants equals 12.1% of UK total. Assume at a minimum without UK R&D grants Scotland would have a UK population share at 8.3% - Source: http://www.universities-scotland.ac.uk/uploads/briefings/Research%20facts%20and%20figs(2).pdf

(6) Derived from 2009 Scottish Input Output tables by aggregation to appropriate sector http://www.scotland.gov.uk/Topics/Statistics/Browse/Economy/Input-Output/Downloads/IO1998-2009All

 

The source spreadsheets for these calculations can be accessed here: Download Business in Scotland 2013. Download Jobs in Sco-ruk exports 2009  Download Scottish I-O tables 1998-2009

Now this table must be viewed with great care.

First, there will be some, probably quite a bit of, overlap between at least two of the categories of direct jobs: in rUK owned firms and in companies exporting to rest of UK. Clearly, many jobs in rUK owned firms will be associated with export sales to rest of UK. We have no data for the overlap, so we take the share of employment that is in rest of UK owned firms in Scotland (18.7%) apply that to the estimated direct export jobs 247,000, giving 46,000, then reduce the jobs in rest of UK owned firms – 359,000 - by that amount. The adjusted – rounded - numbers are presented in Table 2.

Table 2: Scottish Jobs Dependent on UK adjusted for overlap

Type of Job	Direct	Secondary	Total
rUK owned firms	313,000	204,000	517,000
Exports to rUK	247,000	350,000	597,000
Other to UK	75,000	86,000	161,000
Total	635,000	640,000	1,275,000

 

There is a further problem with the estimates presented in Table 2: the estimated secondary effects are almost certainly too high. Where there is a large change in the demand for goods services, and labour in the economy prices and wages will adjust as well as output. In the event of a reduction in demand and loss of jobs prices and wages will fall and so the competitiveness of supplying firms will increase to partially offset the loss of demand. In our – the Fraser of Allander Institute's – analysis, in the June 2010 Economic Commentary,of the impact of cuts in the Scottish DEL under the austerity proposals of the new UK Government, a flex-price analysis led to a reduction in jobs which was about half – 51% - of the fall when prices were held fixed under the standard Input-Output multiplier approach.

Applying that adjustment uniformly across all categories to the secondary jobs in Table 2 we get Table 3

Table 3: Scottish Jobs Dependent on UK adjusted for price and wage change 

Type of Job	Direct	Secondary	Total
rUK owned firms	313,000	104,000	417,000
Exports to rUK	247,000	179,000	426,000
Other to UK	75,000	44,000	119,000
Total	635,000	327,000	962,000

 

So, with the adjustments in place, Table 3 tells us that almost 1 million jobs – 962,000 – depend on links to the rest of the UK. This is a clear indication, if anyone wanted one, of the extent to which the Scottish economy is integrated with the rest of the United Kingdom.

 

Comments

[FF]

The critical figure, I think, is the number of people employed by companies that wholly or mainly serve the UK market. If a company, say a whisky distillery, sells half of its stuff to the UK and half to various other markets then it will probably stay put and diversify into those other markets.

A company that wholly serves the UK market will typically have 90% of its customers in the rUK and 10% in Scotland. That's true of my company, for example. The Scottish part of that company's business is irrelevant. In the case of Scotland becoming independent, that company has to serve its customer base from a foreign country, or else move to stay within the UK.

How many people employed by companies that wholly or mainly serve the UK market? How many jobs would be relocated?

On the relocation question, I would say from the experience of my company that we would probably continue for a while from Scotland, but I am sure we would never have created the company in Scotland in the first place, if Scotland weren't in the UK. Companies are dynamic things - they merge, go out of business, start new operations. The incumbency effect will wear off within a half life of five years or so.

Fag packet calculation: one quarter to one half of jobs in companies that wholly or mainly serve the UK market will literally go south over the next five years. Assuming 400 000 jobs are at risk, this would add between 4% and 7% to Scotland's unemployment figures, taking us back to the level of unemployment we saw in the eighties.