The State of the Scottish Labour Market in 2016 and looking forward. (Brexit!) Duncan Melville, Chief Economist Paul Bivand, AD Statistics & Analysis
State of the Scottish Labour Market 2016
Scotland is no longer recovering GDP % change Scotland UK Employment rate Scotland UK 4.0 75.0 3.5 74.5 74.5 3.0 74.1 74.0 2.5 73.5 2.0 73.0 1.5 72.5 1.0 72.0 0.5 71.5 0.0 Universal Credit (seasonally adjusted) Claimant count Unemployment rate Scotland UK Jobseeker's Allowance (seasonally adjusted) 7.0 100.0 6.0 90.0 5.2 80.0 5.0 70.0 4.9 Thousands 4.0 60.0 50.0 3.0 40.0 2.0 30.0 20.0 1.0 10.0 0.0 0.0
Gender, inactivity & employment differences Female Employment rate Male Employment rate Scotland UK Scotland UK 73.0 80.0 79.4 72.0 79.0 71.0 70.8 78.0 70.0 77.6 69.6 69.0 77.0 68.0 76.0 67.0 75.0 66.0 65.0 74.0 Female Inactivity rate Male Inactivity rate Scotland UK Scotland UK 29.0 18.5 28.0 18.0 27.0 26.8 17.5 17.5 26.0 25.7 17.0 25.0 16.5 24.0 16.3 16.0 23.0 15.5 22.0 21.0 15.0
70% of claimants are ESA/IB Change to ESA has made little difference to total ESA/IB claim numbers Others on Job seeker income and UC related IB/SDA Support group 72,850 benefit Work related activity group Unknown 19% 7,850 2% Assessment phase 350,000 300,000 ESA and 250,000 incapacity 200,000 benefits Lone parent 272,550 150,000 70% (IS) 33,080 100,000 9% 50,000 0
Employment gaps for disabled people Employment rates UK Scotland All 16-64 Not disabled Disabled 0.0 20.0 40.0 60.0 80.0 100.0 UK Scotland Gaps • To get to the same employment rate as Scotland – 204,000 jobs for disabled Not disabled people • To get to the same employment rate as Disabled not-disabled people – 247,000 jobs for disabled people -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Low qualifications still a huge barrier to jobs No qualifications SVQ/NVQ1 SVQ/NVQ2 Other Qualifications SVQ/NVQ 3 Trade apprenticeships SVQ/NVQ 4+ Workless Working 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% • 63% (UK 60%)in employment UK Scotland qualified to Level 3 + SVQ/NVQ 4+ • 52% (UK 56%)of workless Level Trade apprenticeships SVQ/NVQ 3 2 or below Other Qualifications • 30% (UK 33%) of workless SVQ/NVQ2 below Level 2 SVQ/NVQ1 • Qualifications in ‘old standard’ No qualifications for comparison with UK 0% 20% 40% 60% 80% 100% Employment rate
Scotland’s Work Programme performance – 1/3 with sustained job outcome in 2 years • Two-year performance risen Twelve months Two years 30 months 40 sharply in most recent figures 33.3 35 • Total performance now below 32.1 two-year performance as the 30 rise has not yet flowed 25 through to 30 months 20 17.5 • One-year performance down 15 latest period – will this impact 10 on 2-year and total? 5 0 Jun 2011 Sep 2011 Dec 2011 Mar 2012 Jun 2012 Sep 2012 Dec 2012 Mar 2013 Jun 2013 Sep 2013 Dec 2013 Mar 2014 Jun 2014 Sep 2014 Dec 2014 Mar 2015
Job outcomes have improved and are beating DWP expectations JSA 18-24 completing Oct 2015-Mar 2016 Scotland 43.0 England 45.6 Wales 41.9 DWP expectation 34.7 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 JSA 25+ completing Oct 2015-Mar 2016 Scotland 41.5 England 42.9 Wales 35.0 DWP expectation 26.9 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 ESA new claimants shorter prognosis – completing Oct 2015-Mar 2016 Scotland 21.5 England 19.9 Wales 14.1 DWP expectation 12.7 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0
Looking forward: Possible implications of BREXIT for Scotland
What is Brexit? • “Brexit means Brexit” • “Naturally , people want to know what Brexit will mean - simply put, it means leaving the European Union” • Theresa May • David Davis
So what is BREXIT? A continuum but three broad options: • Membership of the European Economic Area (EEA) (“Norwegian model”) • Bilateral treaties plus membership of the European Free Trade Area (EFTA) (“Swiss model”) • Reliance on World Trade Organisation (WTO) rules
EEA Membership • In the Single Market • Required to implement EU regulations, but cannot influence them • Free movement of labour • Rules of origin apply to exports to the EU • Potentially subject to EU anti-dumping duties • Must contribute to EU Budget • Can negotiate trade deals independently of EU
Bilateral treaties plus EFTA • Free trade in non-agricultural goods with EU • Negotiated partial access to the Single Market – gaining access for services is important • Exports to EU must be compliant with EU regulations • Possible / not free movement of labour • Potentially subject to EU anti-dumping duties • Must pay to participate in EU programmes it joins • Can negotiate trade deals independently of EU
WTO fall-back option • Outside the Single Market, no right of access for service exports • Trade with EU subject to MFN tariffs and non-tariff barriers • Exports to EU must be compliant with EU regulations • No free movement of labour with EU • Potentially subject to EU anti-dumping duties • No obligation to contribute to EU Budget • Can negotiate trade deals independently of EU
Long run economic impact of Brexit Percentage impact of Brexit on UK GDP by 2030 6 4 2 0 -2 -4 -6 -8 -10 -12 CEP NIESR OECD HMT OxEcon PWC CEP (rev. Open Lyons EfB EfB) Europe High Low
What about the opportunities from Brexit? • Reducing the burden of regulation • Better, faster trade deals with non EU countries • Migration – lower / more equitable and efficient • Fiscal savings from ending the UK’s contribution to the EU Budget
Reducing the burden of regulation: Product markets
Reducing the burden of regulation: Labour markets
Better, faster trade deals with non EU countries • EU negotiations must take account of all member state interests • Makes negotiations complicated and so lengthy • Potential for UK to achieve simpler, bespoke trade deals • But reduced bargaining power and current lack of trade policy expertise in the UK
Migration – lower rather than more equitable and efficient • Lower – end to free movement of labour • Net non-EU in migration 188,000 in 2015 • Points based system no longer an option – More equitable: EU and non-EU migrants considered on an equal basis – More efficient: Choose the migrants we need (skilled from across the globe) not those we don’t (unskilled EU nationals) • Some system of work permits now seems the most likely. Focus more on quantitative restrictions than economic need.
Ending our contribution to the EU Budget • UK does not send £350 million a week to the EU • Gross contribution net of the UK rebate is £275 million a week • Net contribution taking account of EU spend in the UK is estimated going forward at £150 million a week • Only needs a fall in UK GDP of 0.6% / 1.0% to worsen the public finances by £150mn / £275mn a week. • Better focused, less bureaucratic public spending, but less of it?
Short run drivers • Transition effect to a new (more economically costly) economic policy regime outside the EU • Uncertainty about: outcome of the referendum, new policy regime (trade off between securing a deal quickly to reduce uncertainty and securing the best long term deal), financial volatility • These: – raise the cost of borrowing / external finance to businesses and households – reduce business and consumer confidence • Leads to delays / permanent reductions in business investment and household spending
Post-EU referendum survey results point to a negative impact
Annual Real GDP Growth (%) 1.8 1.6 1.4 1.2 1.0 Per cent 0.8 0.6 0.4 0.2 0.0 2016 2017 2018 Consensus, UK Fraser of Allander, Scotland
ILO unemployment 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2016 2017 2018 LWI Consensus based Fraser of Allander
Summary and Conclusions 1 • Economy slowing, employment rate now below UK average. • Some significant employment gaps remain, especially for the people with a disability, and the low qualified • Work Programme performance sets a challenging benchmark for the new Scottish employment programme(s) • Economic impact of Brexit is worse the less integrated the UK remains with the EU. The most integrated option, EEA membership, appears politically infeasible.
Summary and Conclusions 2 • The impact of Brexit on unemployment in Scotland depends on the magnitude of the GDP impact of Brexit and the extent to which real wages adjust. • The more wages adjust the less the impact on unemployment • Our / Fraser of Allander projections suggests a rise in unemployment in Scotland of 40,000 to 50,000.
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