and looking forward. (Brexit!) Duncan Melville, Chief Economist - - PowerPoint PPT Presentation

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

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 Thousands

Claimant count

Universal Credit (seasonally adjusted) Jobseeker's Allowance (seasonally adjusted) 5.2 4.9 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

Unemployment rate

Scotland UK 74.1 74.5 71.5 72.0 72.5 73.0 73.5 74.0 74.5 75.0

Employment rate

Scotland UK 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

GDP % change

Scotland UK

Gender, inactivity & employment differences

77.6 79.4 74.0 75.0 76.0 77.0 78.0 79.0 80.0

Male Employment rate

Scotland UK 70.8 69.6 65.0 66.0 67.0 68.0 69.0 70.0 71.0 72.0 73.0

Female Employment rate

Scotland UK 25.7 26.8 21.0 22.0 23.0 24.0 25.0 26.0 27.0 28.0 29.0

Female Inactivity rate

Scotland UK 17.5 16.3 15.0 15.5 16.0 16.5 17.0 17.5 18.0 18.5

Male Inactivity rate

Scotland UK

70% of claimants are ESA/IB

50,000 100,000 150,000 200,000 250,000 300,000 350,000

Change to ESA has made little difference to total ESA/IB claim numbers

IB/SDA Support group Work related activity group Unknown Assessment phase Job seeker and UC 72,850 19% ESA and incapacity benefits 272,550 70% Lone parent (IS) 33,080 9% Others on income related benefit 7,850 2%

Employment gaps for disabled people

• To get to the same employment rate as

Scotland – 204,000 jobs for disabled people

• To get to the same employment rate as

not-disabled people – 247,000 jobs for disabled people

0.0 20.0 40.0 60.0 80.0 100.0 Disabled Not disabled All 16-64

Employment rates

UK Scotland

• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 Disabled Not disabled

Gaps

UK Scotland

Low qualifications still a huge barrier to jobs

• 63% (UK 60%)in employment

qualified to Level 3 +

• 52% (UK 56%)of workless Level

2 or below

• 30% (UK 33%) of workless

below Level 2

• Qualifications in ‘old standard’

for comparison with UK

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Working Workless No qualifications SVQ/NVQ1 SVQ/NVQ2 Other Qualifications SVQ/NVQ 3 Trade apprenticeships SVQ/NVQ 4+ 0% 20% 40% 60% 80% 100% No qualifications SVQ/NVQ1 SVQ/NVQ2 Other Qualifications SVQ/NVQ 3 Trade apprenticeships SVQ/NVQ 4+ Employment rate UK Scotland

Scotland’s Work Programme performance – 1/3 with sustained job

• utcome in 2 years
• Two-year performance risen

sharply in most recent figures

• Total performance now below

two-year performance as the rise has not yet flowed through to 30 months

• One-year performance down

latest period – will this impact

• n 2-year and total?

17.5 33.3 32.1 5 10 15 20 25 30 35 40 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 Twelve months Two years 30 months

Job outcomes have improved and are beating DWP expectations

JSA 18-24 completing Oct 2015-Mar 2016 JSA 25+ completing Oct 2015-Mar 2016 ESA new claimants shorter prognosis – completing Oct 2015-Mar 2016

43.0 45.6 41.9 34.7 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Scotland England Wales DWP expectation

41.5 42.9 35.0 26.9 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Scotland England Wales DWP expectation 21.5 19.9 14.1 12.7 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 Scotland England Wales DWP expectation

Looking forward: Possible implications of BREXIT for Scotland

What is Brexit?

• “Brexit means Brexit”
• Theresa May
• “Naturally, people want

to know what Brexit will mean - simply put, it means leaving the European Union”

• 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

• 12
• 10
• 8
• 6
• 4
• 2

2 4 6 CEP NIESR OECD HMT OxEcon PWC CEP (rev. EfB) Open Europe Lyons EfB

Percentage impact of Brexit on UK GDP by 2030

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

• n 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 (%)

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2016 2017 2018 Per cent Consensus, UK Fraser of Allander, Scotland

ILO unemployment

20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 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

• ption, 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.