The job market in Scotland is facing challenges, with wage growth lagging behind the rest of the UK, primarily due to the downturn in the oil sector, as reported by the Institute for Fiscal Studies (IFS).
Data indicates that since 2014, the employment rate in Scotland has seen a significant dip, now standing a percentage point beneath the UK’s average. Concurrently, salary increments in Scotland have been slower than in other parts of the UK.
While the average pay, excluding London, across the UK rose by 5% since 2015, Scotland saw a modest increase of only 1.5%.
IFS analysts pinpointed the employment pinch mostly in the Highlands and Islands and Scotland’s north-east regions. Over the last ten years, these areas have witnessed a decline in their employment rates by approximately three percentage points.
Historically, earnings in the northeast were 30% higher than the UK average, but this margin has dwindled to 14%. In contrast, the Highlands and Islands went from having wages 6% above the average to now being 10% below.
The decline in the employment rate and wage growth in these areas, as highlighted by the think tank, is partly attributed to the diminishing prominence of the well-remunerated oil and gas sector, which has been a significant employer in these regions.
David Phillips, an economist from the IFS, pointed out the challenges the Scottish government faces in policy-making due to the downturn, especially when oil and gas workers continue to be relatively affluent.
He stated, “There’s a political tug-of-war for the Scottish government. They might feel the need to bolster support in northern Scotland to counteract the employment and income drops resulting from the oil and gas sector’s decline. However, the regions with the most significant employment and earnings challenges remain in central and south-west Scotland.”
Nonetheless, the industry might see an uplift soon.
Prime Minister Rishi Sunak has declared that the UK will issue hundreds of new permits for oil and gas exploration, aiming to strengthen the nation’s energy stability, especially after the war in Ukraine highlighted global supply vulnerabilities.
The Labour Party, although opposing the move, clarified they wouldn’t rescind these permits if they win the upcoming general election.
