Analysis

By Gavin Mochan

UNEMPLOYMENT in Scotland fell to a three-year low in the three months ending March. According to official data from the Office for National Statistics, published yesterday, unemployment in Scotland has dropped to 3.2 per cent. This is a marked improvement of 0.9 percentage points on the final three months of 2021.

However, the underlying health of the labour market is far from rosy. On the plus side we see that the number of employees on the payroll is well above pre-pandemic levels – across the UK, there were 530,000 more than February 2020. Redundancies also fell and were below pre-pandemic levels.

But there is cause for concern. The total weekly hours worked increased on the quarter but are still below pre-pandemic levels. National weekly earnings showed annual growth, of 4.2% without bonus and 7% when bonuses are factored in.

More importantly, real earnings – which factors in inflation – showed growth in total pay was 1.4% (with bonus) and regular pay (without bonus) fell

on the year at -1.2%.

Inflation is the primary headwind in our economy. The Consumer Prices Index, including homeowner costs, rose by 6.2% in the 12 months to March 2022, up from 5.5% in February. People

are tightening the purse strings, cutting back on major purchases and reducing travel to avoid higher fuel costs.

Concern over inflation and the knock-on effect of changing consumer behaviour is increasing the likelihood of recession. People’s confidence in the economy, or lack thereof, bleeds into business decision-making.

It is no surprise we have seen a softening of hiring demand growth. In the year-to-date we have seen 16% more job openings, (28,000) than the year before. In April we lost momentum on job growth.

The number of jobs advertised was down 14% on the previous month and 26% on April the year before. Sectors that normally start gearing up recruitment activity for summer are unusually quiet.

Companies adopting a wait and see approach can be understood. The Bank of England’s long-term target is to get inflation to 2%, but it is on track to exceed 10% by the end of the year. Abnormal factors such as increased bureaucracy on trade, extreme shortages of skilled labour, supply chain issues since the pandemic and the war in Ukraine are taking their toll.

We are now walking a thin line between growth and recession. Does the Bank of England increase interest rates to curb inflation and risk a recession, or does it leave rates and hope the strong demand for staff raises wages? The evidence would suggest the latter is not likely. More than 70% of business that are finding it difficult to recruit in Scotland cite low application numbers as the biggest problem.

The conundrum shows the importance candidate mobility

has on the health of the labour market and economy. While organic wage growth is not outpacing inflation, external wage growth is on offer, provided you are willing to move to get it. Employers are using sign-on bonuses, more attractive rewards, and benefits alongside higher wages.

It will be economic necessity that drives employees to pastures new.

Gavin Mochan is the managing director of s1jobs.