Jobs, Jobs, Jobs

The number of jobs in Scotland has become another bone of contention in the referendum campaign. Let’s look at the facts.

The number of jobs in the Scottish economy has increased by 13.5 per cent since 1999, when the Scottish Parliament was established. The level of employment in Scotland is now 2.6 million, the highest level ever recorded.

Jobs growth in the UK as a whole since 1999 has been almost identical to that in Scotland. Figure 1 compares employment levels in Scotland and the UK from 1999 to 2014 indexed on the value 100 in 1999. Between 1999 and 2007 jobs growth in Scotland significantly exceeded overall UK growth. From 2007 to 2010, during the Great Recession, employment levels fell much more quickly in Scotland than in the rest of the UK. Since 2009, Scottish jobs have grown at about the same rate as the rest of the UK.

Figure 1: Jobs Growth in Scotland 1999 to 2014.

Fig 1 Total Employment

Source: Office of National Statistics

Overall, devolution has not delivered any faster growth in employment in Scotland than in the UK as a whole.  Performance prior to 2007 was stronger than the UK; since 2007 it has been weaker.

How does jobs growth in the UK compare with other European economies over this period? Figure 2, shows EU countries ranked by jobs growth over the same period – 1999-2014. It shows that the UK (and therefore Scotland) was one of the better performing European economies in terms of job growth over this period. Some small northern economies, such as Denmark and Finland, fell well short of Scotland’s jobs performance over this period.

Figure 2: Growth in Employment in European Countries 1999-2014

Fig 2 European Jobs Growth

Source: Eurostat

The number of jobs Spain (a large country) and in Ireland (a small country) did outgrow the UK over the period as a whole. However, after rapid expansion in the early 2000s, both countries experienced a severe reduction in employment since the beginning of the recession. Though their growth overall was greater, so too was their instability.

So why does employment grow faster in some countries than others? Usually this is down to differences in economic growth. Such growth may be unstable during an economic cycle – boom and recession – but in the long run it is mainly determined by the supply side of the economy – skills, digital and physical infrastructure, research, technology, and business development. Policy in these areas is already largely controllled by the Scottish Parliament.

How would the extra economic levers associated with independence help jobs growth? These would largely encompass new fiscal and monetary powers. However, it is not clear that monetary and fiscal policies have a long-run role in increasing employment. Some economists argue that lower taxes and lower public spending will unleash the ‘animal spirits’ that make for faster economic growth. However, among more developed economies, this case is not particularly persuasive. Germany is Europe’s largest and most resilient economy. It is certainly not characterised by low taxes and low public spending.

The growth in Scottish employment has been concentrated in the private sector. Public sector employment is now lower than it was when the Scottish Parliament was established (see Figure 3). In contrast, there were 338,000 more private sector jobs at the start of 2014 than there were in 1999. The Scottish economy is increasingly dominated by the private sector. Public sector employment in Scotland now only comprises 21.2 per cent of total employment, having been as high as 26 per cent in 2010.

Figure 3: Private and Public Sector Employment Scotland 1999-2014

Fig 3 Public Sector

In the UK as a whole, 17.7 per cent of workers are now employed in the public sector – a proportion close to the OECD average. There is one public sector worker for every 9.7 people in Scotland: there is one public sector for every 11.7 people in the UK as a whole. Thus, per head of population, there are 20.5 per cent more public sector workers in Scotland than in the UK as a whole. This margin is somewhat higher than the estimated 15 per cent extra public spending per head in Scotland than in the UK as a whole reported in the Public Expenditure Statistical Analysis conducted by the UK Treasury for 2012-13. Higher levels of public spending in Scotland are necessary to support higher levels of public sector employment.

The discrepancy between the spending and employment margins will partly be explained by the numbers of public sector employees in Scotland which are working for UK Departments that are not focussed on providing public services in Scotland – such as the Department for International Development or HMRC. It may also reflect differences in the structure of the public sector (eg the continuing role of Scottish Water as a public sector organisation, while water companies in England are entirely in the private sector). Differences in classification (such as the determination of whether further education lecturers are included in the public sector) are also likely to have a role, though they may have no practical effect on the services provided. Finally, lower levels of productivity among public sector workers in Scotland may also play a role in explaining Scotland’s relatively high public sector employment. It is extremely difficult to verify this argument, partly due to the differences in the way that the public sector is structured across the different parts of the UK.

So since 1999, Scotland has experienced relatively good jobs growth by international standards, though no better than the UK as a whole. Its public sector workforce has been shrinking, but remains above the UK average relative to its populaton. There are potential explanations as to why this difference exists, but they are difficult to verify.

About David Bell

David Bell FRSE is Professor of Economics at the University of Stirling. He graduated in economics and statistics at the University of Aberdeen and in econometrics at the London School of Economics. He has worked at the Universities of St Andrews, Strathclyde, Warwick and Glasgow. His research is mainly in labour economics, fiscal decentralization and the economics of long-term care. He has been budget adviser to the Scottish Parliament Finance Committee. He is PI for the Healthy AGing In Scotland project (HAGIS).
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