Economists have pointed to “targeted interventions” for North Sea oil and gas workers to transition to other jobs after the decline of the industry was blamed in part for the “deterioration in labour market performance”.

Scotland’s employment and earnings grew significantly faster than the rest of the UK during the 2000s, but since 2014 there has been slower growth north of the Border.

A new report from the Institute for Fiscal Studies (IFS) has highlighted that the relatively weak performance has been driven by a marked deterioration in employment and earnings levels in the Highlands, Islands and North East of Scotland – areas which have historically had relatively strong performances.

The study shows that the employment rate in the Highlands, Islands and the North East of Scotland fell by around three percentage points between 2013–15 and 2020–22.

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In contrast, employment in the rest of Scotland increased – by two percentage points in the south of Scotland, and three percentage points in the east of Scotland and west central Scotland, where it has broadly kept pace with trends in the rest of the UK.

The report highlights the “deterioration in labour market performance in the Highlands, Islands and North East of Scotland in recent years is likely driven, at least in part, by a decline in employment and earnings in the oil, gas and related sectors”.

But the document adds that despite the “recent deterioration in performance”, the employment rate in the Highlands, Islands and North East “remains above the Scottish average”.

It adds: “In addition, average monthly earnings in North East Scotland remain well above the level in the rest of Scotland – and indeed most of the rest of the UK.”

David Phillips, an associate director at the Institute for Fiscal Studies and one of the authors of the report, said: “The complex regional patterns and trends in employment and earnings pose something of a policy conundrum for the Scottish Government, especially given the limited funding it has available.

"On the one hand, it is likely to face political pressure to provide additional support to the north of Scotland to help make up for reductions in employment and earnings associated with the decline in the oil and gas industry.

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“Moreover, it will want to keep the – often highly skilled and highly paid – workers from these sectors in Scotland, not least given the outsize contribution their earnings make to supporting local economies and devolved tax revenues.”

He added: “On the other hand, it remains the case that the areas with lowest earnings and employment are concentrated in central and south western Scotland, despite improvements in performance in some of the more deprived areas around Glasgow in recent years.

“This may suggest focusing general support for skills, employability and economic development on the traditionally struggling areas of Scotland, but providing targeted interventions to help workers in the oil, gas and other sectors to take up other opportunities in Scotland, for instance, related to the green energy transition.”

The Scottish Government has insisted that it will provide a just transition for workers moving from the oil and gas sector to other industries such as renewables, but the vow has been questioned after a failure to produce the number of promised green jobs so far.

SNP and Greens ministers and still mulling over the findings of a consultation on its energy strategy and just transition plan that proposes supporting accelerating the decline of the North Sea oil and gas sector.

Scottish Conservative shadow finance and local government secretary, Liz Smith, said: “This report shows the real and damaging impact of the SNP-Green Government’s decision to abandon the oil and gas sector.

“That has been disastrous for incomes, jobs and the wider economy of the Highlands, Islands and North East.

“In combination with the data showing that Scottish growth has lagged behind the rest of the UK for nearly a decade, it is an indictment of the failure of SNP-Green economic policy and their casual disregard for the real priorities of Scottish workers and businesses.”

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Scottish Labour net zero spokesperson, Sarah Boyack, said: “This is a damning sign of SNP and Tory failure to deliver a just transition for the North East.

“Oil and gas workers deserve better than managed decline from two governments lacking in vision.

“Scotland has the potential to be a world-leader in renewables but we need the political will and action now.

“Labour’s plans will create the jobs and opportunities of the future, as well as lowering bills, providing energy security and tackling the climate emergency.”

A Scottish Government spokesperson said: “Aberdeen and the North East - long known as the oil and gas capital of Europe - can now become the net zero capital of the world by using the skills and expertise of those working in the region to deliver a just transition.

“Our draft energy strategy and just transition plan sets out a clear vision to capitalise on the enormous opportunities of net zero, and we have allocated £75 million from the 10-year £500 million just transition fund to create jobs, support innovation, and secure the highly skilled workforce of the future across the North East and Moray.

“After being selected as one of Scotland’s investment zones, the North East will be supported by up to £80 million in targeted investment, tax reliefs and other incentives over five years to drive business growth and create good green jobs.

“The Scottish Government is also contributing £379 million to the Aberdeen city growth deal and associated side package to ensure economic transformation and a just transition.

“We are also investing significantly to help the Highlands and Islands to thrive, capitalising on their huge assets, including initiatives such as the Inverness and Cromarty Firth green freeport and the four city and regional growth deals worth £242.5 million, which aim to create nearly 3,000 new jobs.”