by David Bell

Key Facts

  • After substantial change to the economy in the last two decades of the century, Scotland has become a much more services-based economy and one where workers are now better qualified and more likely to be female.

  • Ownership and control has changed, with many multinational companies leaving Scotland. Relatively few large companies are now headquartered in Scotland. Income and wealth inequality has also substantially increased since the 1970s.

  • The financialisation of the Scottish economy has meant that Scotland and its banks were highly exposed to the global financial crisis and its aftermath, leading to significant difficulties for those institutions leading to nationalisation of two major banks.

  • Productivity growth is the key to future economic performance. Scotland seeks to be in the top 25% of OECD countries in terms of hourly productivity rates but is making glacial progress (and remains significantly below the lowest placed target country). The UK productivity score also remains significantly higher than for Scotland. 

  • Innovation is an important driver of productivity growth and Scotland has a relatively poor innovation performance track record across several measures though innovation activity is increasing in Scotland.

  • Weak innovation is also associated with a relatively poor export record, something that may be further challenged by the net impact of Brexit on Scottish firms.

  • Since the Great Recession, employment in Scotland has increased, but the extra jobs have been mainly part-time while full-time employment has stagnated. Part-time work is characterised by less secure work and lower wages and implies that as part-time work replaces full-time, output actually declines because the number of hours worked and pay per hour falls. In fact, as far as the Scottish labour market is concerned,  unlike the rest of the UK, Scotland had not emerged from recession by the end of 2015 (if we contrast total working hours with 2008).

  • Scotland, like other developed economies, has seen a hollowing out of the labour market as the demand for middle-ranking skilled jobs has fallen due to the effects of technological change and globalisation. The disappearance of middle ranking jobs is likely to inhibit social mobility, which suggests that policy should be aimed at moderating, or even reversing, this trend. For a relatively small country that cannot significantly influence world markets or technological change, this is a very substantial policy challenge.

  • Scotland has experienced relative decline compared with the rest of the UK since 2008-09 and this has been exacerbated by the decline in the North Sea Oil and Gas sector and insipid productivity growth.

For the full chapter, please see: Bell, D. (2017) The Contemporary Landscape of the Scottish Economy. In Gibb, K., Maclennan, D., McNulty, K., & Comerford, M. (eds) Scottish Economy - A Living Book. London: Routledge. Available via this link.


Visualisations

Figure 3.1: GDP Per Hour Worked (Scale: USA=100 in 2010)
- Data comes from the OECD data portal on productivity measures and the Scottish government on labour productivity in comparison the UK overall


Proportion of Population in Employment by Region
- Average employment ranges from 57.3% in 2012 to 60.5% in 2007
Regional Employment Patterns in Scotland: Statistics from the Annual Population Survey 2016


Net Immigration by Administrative Region
- Data source: Net migration to/from Scottish administrative areas, 1981/82 to most recent on National Records of Scotland website


Income Growth vs. The Inflation Rate
- Data comes from the ONS on CPI (consumer) inflation rates and the Scottish Government's Annual Survey of Hours and Earnings.


Figure 3.5: Real Hourly Pay by Region
- Data comes from the Office of National Statistic's Annual Survey of Hours and Earnings (ASHE) time series of median gross weekly earnings