FIGURE 8 Projected job openings requiring new employees by level of qualification (SVQ equivalent), and

Transcription

1 Futureskills Scotland Labour Market Projections 2004

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3 CONTENTS EXECUTIVE SUMMARY 5 1. INTRODUCTION 8 2. LABOUR DEMAND PROJECTIONS 9 3. LABOUR SUPPLY PROJECTIONS METHODS AND ACCURACY OF PROJECTIONS 22 3

4 LIST OF FIGURES LIST OF FIGURES FIGURE 1 employment by area in Scotland, 1981 to FIGURE 2 employment by gender in Scotland, 1981 to FIGURE 3 employment by status in Scotland, 1981 To FIGURE 4 total employment by industry in Scotland, 1981 to FIGURE 5A Actual (2003) and projected (2008) total employment by industry 13 FIGURE 5B Projected job openings requiring new employees by industry and FIGURE 6 total employment by occupation in Scotland, 1981 to FIGURE 7A Actual (2003) and projected (2008) total employment by occupation 16 FIGURE 7B Projected job openings requiring new employees by occupation, and FIGURE 8 Projected job openings requiring new employees by level of qualification (SVQ equivalent), and FIGURE 9 Equivalent qualifications to each SVQ level 17 FIGURE 10 population in Scotland, 1981 to FIGURE 11 labour force (economically active population) in Scotland, 1981 to FIGURE 12 economic activity in Scotland, 1981 to FIGURE 13A SVQ equivalent level of highest qualification in Scotland s population by age and gender 2002/03 21 FIGURE 13B Percentage of economically active population by SVQ equivalent level of highest qualification historical and projected 1998 to FIGURE 14 Illustration of how we estimate net demand or job openings requiring new employees 23 4

5 EXECUTIVE SUMMARY Executive Summary INTRODUCTION What is in the Executive Summary? This section summarises what the latest economic projections tell us about: how the number of jobs in Scotland will change between 2003 and 2008; how many jobs will become vacant and need to be filled in that period; where people work in Rural Scotland and Non-Rural Scotland and how that will change; the jobs people do their occupations and how that will change; and the industries people work in and how that will change. Looking back, we examine the period 1981 to 2003 to provide a context for the projections. How do we make projections of the future? The picture of the future we present uses economic models to make projections of what might happen. These projections are an informed estimate of the future. They are not facts waiting to happen. It is impossible to give detailed and wholly robust projections of the number of jobs that will need to be filled. HEADLINE FINDINGS It is likely that in Scotland s labour market there will be: Modest growth in the number of jobs. Considerable demand for employees half a million to fill jobs that become vacant. An increase in the share of jobs in the economy requiring higher levels of skills. A continued transfer of jobs from primary and manufacturing to services. A slow decline in total population. No change in the proportions of the population participating in the labour market. 5

6 EXECUTIVE SUMMARY There are 2.5 million jobs in Scotland, quarter of a million more than in 1981 and 100,000 more than in KEY PAST AND CURRENT TRENDS Employment is substantially higher than 10 and 20 years ago The number of jobs in Scotland today is markedly higher than 10 and 20 years ago. There are now 2.5 million jobs compared with around 2.2 million in Although there have been ups and downs, growth in the number of jobs has averaged 0.5 per cent per year since By 2008, it is projected that the total number of jobs will have risen to 2.55 million. The number of people in work employees plus the self-employed stands at around 2.4 million, up from 2.2 million in the early 1990s. The gap between the number of jobs and the number of people in work arises because of differences in the ways the two numbers are estimated and the fact that some people have more than one job. More women are participating in the labour market The proportion of working age people who are in work or looking for work the economically active has risen. This combines an increase in the proportion of economically active women and a fall in the proportion of economically active men. Continued structural change across industries Jobs will continue to be lost in industries like agriculture, fishing and manufacturing, but this will be more than offset by further increases in public and private service sector jobs. Public and private services lead jobs growth We project that public and private sector service industries, which have experienced substantial job growth over the last two decades, will continue to expand. Four service industries are expected to dominate employment growth Retail & Distribution (+19,000 employees), Banking & Insurance (+20,000), Business Services (+15,000) and Health & Education (+15,000). Continued increase in share of more highly skilled jobs in the economy Employment growth will continue to be strongest in jobs that are likely to require higher levels of skills and qualifications. Managerial, Professional and Associate Professional and Technical occupations accounted for 594,000 jobs in 1981, or 24% of the total. In 2003 these occupations accounted for 960,000 jobs, 38% of the total. By 2008 we expect Managerial and Professional occupations to account for 40% of all jobs, with growth concentrated in Professional and Associate Professional jobs. Stability in the Rural labour market The number of employees in Rural Scotland will remain broadly stable and there will be only marginal changes in industrial and occupational structure. LABOUR DEMAND - WHERE WILL THE JOBS BE IN THE FUTURE? We look at both economic growth and the effects of people retiring and changing jobs to estimate how many jobs will need to be filled between 2003 and 2008 Jobs are created when businesses and other organisations grow and are lost when they decline. Jobs also need to be filled when people leave their employment permanently by retiring, emigrating or changing occupation, for example. We can project job openings requiring employees by analysing these flows. Half a million job openings requiring employees between 2003 and ,000 new job openings requiring employees will arise in the period 2003 to While 36,000 new jobs are forecast to be created in Scotland over the next five years, an additional 464,000 new job openings will arise in the same period to replace workers who will leave the labour force or change jobs. 57,000 (11 per cent) of these job openings requiring new employees are projected to be in Rural Scotland, with 443,000 (89 per cent) projected for Non-Rural Scotland. 6

7 EXECUTIVE SUMMARY Job opportunities will arise in almost every industry In all industries including those in which employment is expected to contract the number of new job opportunities is predicted to be large due to the scale of replacement demand. One exception is Textiles and Clothing, where we project further contraction. Two sectors are expected to account for 40 per cent of job openings for new employees 40 per cent (or 193,000) of the job openings are expected to be in just two sectors Health and Education (103,000); and Retail and Distribution (91,000). Job openings for new employees will be in a wide range of occupations and job types The anticipated number of job openings for new employees over the next five years is large and positive for every occupational group. The most highly skilled occupations account for over half of all job openings Managerial, Professional, and Associate Professional and Technical occupations will together require 270,000 new workers by 2008, more than half of all job openings expected between 2003 and However, there are also substantial numbers of openings in lower skilled jobs LABOUR SUPPLY - HOW MANY PEOPLE WILL BE AVAILABLE TO WORK IN THE FUTURE? Even though population has declined, the number of people active in the labour market has grown The population of Scotland decreased slowly from 5.18 million in 1981 to 5.05 million in This trend is forecast to continue. On the basis of estimates published in December 2003, the population of Scotland is expected to fall to 5.02 million by Despite the falling population, the number of people in the labour force has continued to grow since 1981, due to more women becoming economically active. Population decline will continue, with constant or slightly declining participation in the labour market In the future, the population of Scotland is forecast to continue its gradual decline, while participation rates are expected to remain fairly constant or fall slightly. By 2008, one-third of the working age population will have higher education If participation in higher education continues at the present rate, it is projected that 35 per cent of the Scottish population will be qualified to degree level (SVQ level 4) and above or equivalent by Although there are expected to be 26,000 fewer Elementary jobs in 2008 compared with 2003, there will still be a need for 35,000 people to fill vacancies that will arise. This is because over 60,000 Elementary occupation workers are projected to move to other jobs or retire, and will need to be replaced. The job openings will require new employees with qualifications at all levels Between 2003 and 2008, 188,000 jobs will need to be filled by people with qualifications that are equivalent to SVQ level 4 or above typically Higher National Diploma, degree or higher degree level. However, 90,000 vacancies will need people qualified to level 3, with 97,000 at level 2, and 43,000 employees who have no qualifications. 7

8 1. INTRODUCTION This report presents projections of the future labour market based on past trends. Our view of the future is based on an informed view of what has happened in the past. It is a projection of the future based on past trends. 1 At present, the working age population comprises women aged and men aged Introduction WHY USE PROJECTIONS? The future has to be planned for, but it is always uncertain. Past trends and events can guide us towards an understanding of the future. Many individuals and organisations, including employers and government, make decisions about the labour market based on what they believe the future might hold. There are clear advantages in basing policy on a systematic and transparent assessment of future trends. Economic forecasting models can be very useful in this, provided we understand the assumptions on which they are based and the limits to their legitimate use. WHAT IS REPORTED? This report presents a picture of how aspects of the labour market are expected to change between 2003 and Our view of the future is based on an informed view of what has happened in the past. It is a projection of the future based on past trends. The report presents information about: The demand for, and the supply of labour, where: Labour demand is the number of jobs, plus any job vacancies; Labour supply is the number of people in the workforce, which depends on the size of the working age population 1 and the proportion of working age people who are in work and looking for work. How employment patterns have changed over the last 20 years. The changes that are projected over the next five years. It examines the demand for labour according to the types of jobs people will be expected to do (occupations), by gender, by industry and qualification levels. The report also identifies how many people will be available for work and the level to which they will be qualified. In all of the historical data and projections presented in this report, totals are rounded to the nearest 1,000 people or jobs. That is because projections and economic modelling have their limitations and we do not pretend that they can accurately provide exact numbers they are intended to be used as a guide. THE RURAL DIMENSION The report presents projections for Scotland as a whole, and also for Rural Scotland and Non-Rural Scotland. Rural Scotland is defined as the Borders, Dumfries and Galloway, and Highlands and Islands. WHERE TO FIND MORE DETAILED ANALYSIS This report presents a summary of our analysis. A Technical Report, which contains a comprehensive and detailed set of labour demand and labour supply projections and technical details describing how the forecasts are produced, is available at: HOW TO USE THE PROJECTIONS Projections should: be used as part of a process of trying to understand the future; focus on broad movements and changes rather than on precise numbers; recognise that all projections are subject to error; recognise that projections cannot predict shocks or sudden events; be read with a critical eye; be based on the most up-to-date information available; and be informed by knowledge of the industry, area or type of job in which you are interested. It is unwise to treat projections as: facts waiting to happen; precise numbers rather than estimates and indications of trends; the sole input into planning or decision-making, particularly when they are based on out of date information. Projections cannot accurately tell you exactly how many jobs in certain areas, industries or occupations there will be. However, they can give you a broad indication of likely future trends 8

9 2. LABOUR DEMAND PROJECTIONS 2. Labour Demand Projections KEY FINDINGS Between 2003 and 2008, there will be 500,000 job opportunities requiring new employees to the labour market. Of these, growth in the economy is projected to provide 36,000 job openings. Opportunities arising from the need to replace existing employees leaving their industry or occupation permanently or retiring are projected to provide 464,000 job openings. WHAT IS IN THIS SECTION? This section presents past trends and projections of employment in Scotland. The historical information covers the period from With 2003 as the base year projections are presented for 2006 and Both the historical information and the projections are broken down by gender, whether jobs are full-time or part-time, industry, occupation, and qualifications. Our projections also provide estimates of the number and type of job openings requiring new employees. WHAT IS LABOUR DEMAND? Labour demand is the total number of jobs for which workers are required by employers, and is usually measured by the number of jobs plus vacancies. TOTAL EMPLOYMENT Analysis of historical and projections data shows that: All of the growth in employment in Scotland over the last two decades has been in Non-Rural Scotland. In contrast, Rural Scotland has experienced a slight decline in employment. Employment in Rural Scotland is anticipated to remain stable at just over 300,000. All of the projected increase in employment is expected to be in Non-Rural Scotland where the number of employees is forecast to increase from 2.22 million to 2.25 million. 500,000 new job openings will arise in the period 2003 to This comprises the 36,000 jobs that arise from growth in the economy and a further 464,000 new job openings which will arise because some workers will retire, die or move to new jobs. EMPLOYMENT BY GENDER The balance in employment between men and women has changed significantly over the last two decades as shown in Figure 2, especially in Rural Scotland where women traditionally comprised a low proportion of the workforce. In 1981 in Rural Scotland, women comprised only 35 per cent of those in employment, but by 2001, this had increased to over 45 per cent. This rapid growth was in large part due to an increase in the number of part-time jobs over this period, most of which are held by women. The gender distribution of employment is now similar in Rural and Non-Rural Scotland, and the gender shares are predicted to remain constant into the future with men holding 52 per cent of all jobs and women holding 48 per cent of all jobs. The total number of jobs is predicted to remain broadly stable between 2003 and 2008, with a projected increase of around 36,000 jobs. This represents an increase of 1.4 per cent on 2003, or approximately 0.3 per cent per year. The previous two decades witnessed increases in jobs of around 100,000 per decade from 2.2 million in 1981 to 2.5 million by 2001 a growth rate of about 0.5 per cent per year. The growth rate slowed in the 1990s to around 0.3 per cent per year and this slower rate is projected to continue. 9

10 2. LABOUR DEMAND PROJECTIONS FIGURE 1 employment by area in Scotland, 1981 to 2015 Non Rural Rural 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 FIGURE 2 employment by gender in Scotland, 1981 to 2015 Female Male ,000,000 2,500,000 2,000,000 FIGURE 3 employment by status in Scotland, 1981 to 2015 Full-time employees Part-time employees Self-employed 3,000,000 2,500,000 2,000,000 1,500,000 1,500,000 1,000,000 1,000, , ,

11 2. LABOUR DEMAND PROJECTIONS In the next five years, 36,000 new employees will be required as a result of economic growth. At the same time, a further 464,000 new employees will be required to replace workers who leave the labour force. EMPLOYMENT BY STATUS Employment status means the type of job held: either full-time, part-time or self-employed. As Figure 3 shows, there are fewer full-time jobs (not including the self-employed) in Scotland today than there were 20 years ago. All of the growth in employment since 1981 has been in part-time jobs and self-employment in both Rural and Non-Rural Scotland. Rural Scotland has a lower proportion of employees in full-time employment, and higher proportions in part-time employment and self-employment than Non-Rural Scotland. EMPLOYMENT BY INDUSTRY This report uses the official classification of activities used by the Office for National Statistics, called the Standard Industrial Classification (SIC), to describe the industrial pattern of employment. How is total employment by industry expected to change in the next five years? The trends in employment by industry are illustrated in Figure 4. Over the next five years it is projected that the number of jobs in manufacturing, construction, agriculture and utilities will continue to fall, although the rate of decline will slow. In contrast, public and private sector service industries, which have experienced rapid increases over the last two decades, are projected to continue to expand, but at a slower rate than in the past. Reflecting these developments, all of the projected increase in employment is attributable to growth in service industries. Four service industries are expected to dominate employment growth: Retail & Distribution (+19,000 jobs); Banking & Insurance (+20,000); Business Services (+15,000); and Health & Education (+15,000). In Rural Scotland the Retail & Distribution sector is projected to expand by around 4,000 new employees over the next five years. In contrast, several industries are projected to show relatively large decreases in employment over the forecast period, especially in Engineering, other parts of Manufacturing and Construction. However, it is important to point out that the growth of the economy generates only a small proportion of the demand for new employees. Account must also be taken of replacement demand the need to replace employees because people leave the workforce, change jobs or retire. Replacement demand exceeds demand that arises because the economy grows by a considerable margin. How many job openings requiring new employees will there be in the next five years? As illustrated in Figure 5, in almost all industries including those in which the total number of jobs is expected to fall the number of new job opportunities is predicted to be largely due to the scale of replacement demand. The sole exception is Textiles and Clothing which now accounts for less than one per cent of jobs. For example, the number of jobs in Construction is projected to contract by 11,000 between 2003 and 2008, but there will still be a need for 22,000 new workers to replace those who leave the industry or retire. In some sectors, the scale of replacement demand is considerable for example, over 100,000 job openings for new employees in Heath & Education are anticipated. The anticipated number of job openings for new employees over the next five years is large and positive for every occupational group Managerial, Professional and Associate Professional, and Technical occupational groups will together require 270,000 new workers by

12 2. LABOUR DEMAND PROJECTIONS FIGURE 4 total employment by industry in Scotland, 1981 to , , , , , ,000 0 Agriculture Mining & utilities Food, drink & tobacco Textiles & clothing Chemicals & non-metal minerals Metal, metal goods Engineering Other manufacturing Construction 600, , , , , ,000 0 Distribution Hotels & catering Transport & telecommunications Banking & insurance Business services Miscellaneous services Health & education Public admin and defence 12

13 2. LABOUR DEMAND PROJECTIONS FIGURE 5A Actual (2003) and projected (2008) total employment by industry TOTAL EMPLOYMENT CHANGE IN EMPLOYMENT Total change % change Agriculture etc 52,000 51, % Mining & utilities etc 46,000 42,000-4,000-9% Food, drink & tobacco 53,000 49,000-5,000-9% Textiles & clothing 17,000 13,000-4,000-24% Chemicals & non-metal minerals 39,000 36,000-2,000-6% Metal, metal goods 31,000 29,000-2,000-6% Engineering 67,000 57,000-10,000-15% Other manufacturing 66,000 61,000-5,000-7% Construction 173, ,000-11,000-6% Retail & distribution 379, ,000 19,000 5% Hotels and catering 187, ,000 8,000 4% Transport & telecommunications 150, ,000-4,000-3% Banking & insurance 213, ,000 20,000 9% Business services 215, ,000 15,000 7% Miscellaneous services 152, ,000 6,000 4% Health & education 492, ,000 15,000 3% Public admin and defence 186, ,000 1,000 0% All industries 2,518,000 2,554,000 36,000 1% 13

14 2. LABOUR DEMAND PROJECTIONS FIGURE 5B Projected job openings requiring new employees by industry and TO TO 2008 Rural Scotland Non-Rural Scotland Scotland (total) Rural Scotland Non-Rural Scotland Scotland (total) Agriculture etc 3,000 4,000 6,000 4,000 6,000 10,000 Mining & utilities etc <1,000 3,000 3,000 <1,000 4,000 4,000 Food, drink & tobacco 1,000 2,000 2,000 1,000 4,000 5,000 Textiles & clothing <1,000 <1,000-1,000 <1,000-1,000-1,000 Chemicals & non-metal minerals <1,000 3,000 3,000 <1,000 5,000 5,000 Metal, metal goods <1,000 2,000 3,000 1,000 4,000 4,000 Engineering <1,000 <1,000 <1,000 <1,000 2,000 2,000 Other manufacturing <1,000 5,000 5,000 1,000 7,000 8,000 Construction 2,000 12,000 14,000 3,000 19,000 22,000 Retail & distribution 9,000 50,000 58,000 14,000 77,000 91,000 Hotels and catering 3,000 24,000 28,000 5,000 37,000 42,000 Transport & telecommunications 1,000 12,000 13,000 2,000 22,000 24,000 Banking & insurance 2,000 33,000 35,000 3,000 56,000 59,000 Business services 3,000 30,000 33,000 5,000 50,000 55,000 Miscellaneous services 2,000 18,000 20,000 3,000 31,000 34,000 Health & education 8,000 58,000 65,000 12,000 90, ,000 Public admin and defence 2,000 20,000 22,000 3,000 31,000 34,000 All industries 36, , ,000 57, , ,000 14

15 2. LABOUR DEMAND PROJECTIONS The anticipated number of job openings for new employees over the next five years is large and positive for every occupational group. Managerial, Professional and Associate Professional and Technical occupational groups will together require 270,000 new workers by EMPLOYMENT BY OCCUPATION What are occupations? Occupations reflect the types of jobs that people do, and are categorised by the nature of tasks and the levels of skills required to perform the job. We use the Office for National Statistics Standard Occupational Classification (SOC) to describe and categorise types of job. How is employment by occupation expected to change over the next five years? Figure 6 shows how the number of jobs in each occupation changed between 1981 and 2003 and the projections for Over the last two decades, we have witnessed: rapid growth in Professional and Personal Service occupations; and a decline in Skilled Trades, Operative and Elementary occupations. These trends will continue in the period to 2008, with the number of jobs in higher skilled and professional jobs rising and the number of lower skilled jobs falling. How many job openings requiring new employees will there be in the next five years? As was the case with industries, the scale of replacement demand is much greater than the change in total employment. The anticipated number of job openings for new employees over the next five years is large for every occupational group, as presented in Figure 7. Managerial, Professional and Associate Professional and Technical occupational groups will together require 270,000 new workers between 2003 and 2008 more than half of all new job openings expected in that period. Even in Elementary occupations, where the number of jobs is projected to fall by 26,000 the number of new workers required will be 35,000. This is because over 60,000 Elementary occupation workers are expected to move to other jobs or retire, and will need to be replaced. FIGURE 6 total employment by occupation in Scotland, 1981 to Managers and Senior Officials Professional occupations Associate Professional and Technical Administrative and Secretarial Skilled Trades Occupations Personal Service Occupations Sales and Customer Service Occupations Machine and Transport Operatives Elementary Occupations 0 100, , , , ,000 15

16 2. LABOUR DEMAND PROJECTIONS FIGURE 7A Actual (2003) and projected (2008) total employment by occupation TOTAL EMPLOYMENT CHANGE IN EMPLOYMENT Occupation (job type) Total change % change Managerial & senior official occupations 322, ,000 20,000 6% Professional occupations 293, ,000 27,000 9% Associate prof & technical occupations 345, ,000 24,000 7% Administrative & secretarial occupations 349, ,000-5,000-1% Skilled trades occupations 286, ,000-21,000-7% Personal service occupations 163, ,000 13,000 8% Sales & customer service occupations 200, ,000 15,000 8% Process, plant & machine operatives 220, ,000-10,000-5% Elementary occupations 341, ,000-26,000-8% All occupations 2,519,000 2,554,000 36,000 1% FIGURE 7B Projected job openings requiring new employees by occupation, and TO TO 2008 Occupation (job type) Rural Non-Rural Scotland Rural Non-Rural Scotland Scotland Scotland (total) Scotland Scotland (total) Managerial & senior official occupations 5,000 43,000 48,000 8,000 70,000 78,000 Professional occupations 4,000 50,000 54,000 6,000 82,000 88,000 Associate prof & technical occupations 5,000 60,000 65,000 7,000 97, ,000 Administrative & secretarial occupations 2,000 38,000 40,000 3,000 61,000 64,000 Skilled trades occupations 7,000 <1,000 7,000 11,000 1,000 11,000 Personal service occupations 5,000 21,000 26,000 7,000 34,000 41,000 Sales & customer service occupations 4,000 26,000 30,000 6,000 42,000 48,000 Process, plant & machine operatives -2,000 20,000 18,000-2,000 33,000 31,000 Elementary occupations 7,000 15,000 22,000 11,000 24,000 35,000 All occupations 36, , ,000 57, , ,000 16

17 2. LABOUR DEMAND PROJECTIONS What kinds of qualifications will new employees be required to have? As presented in Figure 8, the 500,000 projected job openings will require new employees with qualifications at all levels. Between 2003 and 2008, 188,000 job openings will need people qualified to the equivalent of SVQ level 4 or above Higher National Diploma, degree or higher degree level. In addition, 90,000 vacancies will need employees qualified to level 3 with 97,000 at level 2. Some 43,000 jobs will require employees with no qualifications. FIGURE 8 Projected job openings requiring new employees by level of qualification (SVQ equivalent), and TO TO 2008 Qualification level Rural Non-Rural Scotland Rural Non-Rural Scotland Scotland Scotland (total) Scotland Scotland (total) SVQ 4+ 9, , ,000 15, , ,000 SVQ 3 7,000 49,000 56,000 12,000 78,000 90,000 SVQ 2 8,000 52,000 60,000 13,000 84,000 97,000 SVQ 1 7,000 44,000 51,000 11,000 70,000 81,000 No Qualifications 4,000 23,000 27,000 6,000 37,000 43,000 Total 36, , ,000 57, , ,000 FIGURE 9 Equivalent qualifications to each SVQ level SVQ Level Comparable qualifications 1 SVQ 1; General Standard Grades; GNVQ Foundation; BTEC first certificate 2 SVQ 2; Credit Standard Grades; GNVQ intermediate; BTEC first diploma 3 SVQ 3; Advanced Higher; HNC BTEC; RSA higher; Nursing, Teaching 4 SVQ 4; First degree; Sub degree higher education (HND, DipHE) 5 SVQ 5; Higher degree (postgraduate) 17

18 3 LABOUR SUPPLY PROJECTIONS 18 The population structure has changed since In particular, the population has been ageing and this trend is set to continue. Despite the falling population, the number of people in the labour force has continued to grow since 1981, mainly due to more women becoming economically active. 2 These were the estimates prepared by the Government Actuary s Department and published by the General Register office for Scotland in December A further set of estimates was published in September They also show the population falling, but at a slower rate than in the December 2003 projections. 3 Labour Supply Projections KEY FINDINGS Despite a gradual decline in the population since the mid-1970s, the number of people working or looking for work has grown. The population is forecast to continue its gradual decline, while the proportion of people in work and looking for work is expected to remain constant or fall slightly. If participation in higher education continues at the present rate, it is projected that one-third of the working age population will be qualified to SVQ level 4 or equivalent or above by WHAT IS IN THIS SECTION? The labour supply comprises people in work or potentially available to work. This section presents a review of the historical trends and future projections of the labour supply. We also provide projections of the qualifications held by the population, as recorded by the highest SVQ level-equivalent qualification individuals have achieved. PROJECTED CHANGES IN POPULATION Figure 10 shows that the population of Scotland has decreased slowly over recent years from 5.18 million in 1981 to 5.05 million by 2003, and this trend is forecast to continue. On the basis of the estimates available when this document was prepared 2, the population of Scotland is expected to fall to 5.02 million by Two interesting features of population change are that: The decline in the population since 1981 has been restricted to Non-Rural Scotland. The population in Rural Scotland actually increased in this period from 667,000 in 1981 to 692,000 in 2003, due to migration from urban to rural areas. However, the 2002-based forecasts suggest a reversal of this pattern over the five years from 2003 to 2008, with both Rural and Non-Rural populations projected to fall by 14,000 and 24,000, respectively. The age structure of the population has changed since The population is becoming older and this trend is set to continue. The number of people aged under 45 will fall while the population over 45 years of age will continue to grow in size. PROJECTED CHANGES IN THE RATES OF PARTICIPATION IN THE LABOUR MARKET Trends in the number of people in the labour force in Rural and Non-Rural Scotland are shown in Figure 11. Despite the falling population, the number of people in the labour force has continued to grow since 1981, due to more women becoming economically active. The detailed figures on activity rates by gender and age are presented in Figure 12. Activity rates in Rural Scotland are slightly higher than in Non-Rural Scotland for both men and women. There are differences in economic activity according to age and gender: Economic activity rates vary considerably across age groups, peaking amongst 25 to 44 year olds. There is a clear gender divide in terms of participation in the labour force, with men having higher activity rates across all age groups. It is notable that this gender gap has reduced since 1981, with slightly declining male, and increasing female participation.

19 3 LABOUR SUPPLY PROJECTIONS FIGURE 10 population in Scotland, 1981 to 2008 Non Rural Rural 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, FIGURE 12 economic activity in Scotland, 1981 to 2008 Non Rural males Rural males Non Rural females Rural females FIGURE 11 labour force (economically active population) in Scotland, 1981 to 2008 Non Rural Rural 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 Economic activity rate % ,

20 3 LABOUR SUPPLY PROJECTIONS Young people are better qualified than older people. Projected continued gradual increase in the qualifications levels of the population. QUALIFICATIONS This section presents projections of how the distribution of qualifications across the population and labour force will change. Projections can only be produced for Scotland as a whole, and not separately for Rural and Non-Rural sub-regions. Levels of qualification Qualifications are presented at SVQ equivalent level. SVQs are work-related, competence-based qualifications. They measure the skills and knowledge needed to do a job effectively, and represent national standards recognised by employers throughout the country. There are five levels of SVQ, denoting different levels of competence, skills and work practice. It is common to describe levels of qualifications at their SVQ equivalents. For example, attainment of an honours degree is equivalent to SVQ level 4. Figure 10 describes how some common qualifications relate to equivalent SVQ levels. Past trends Figure 13A presents estimates for 2002/03 for the highest qualification held for the whole Scottish population. The main findings are that: Younger people are better qualified than older people, reflecting the fact that school staying-on rates, exam attainment rates and participation in further and higher education have increased over time. - Approximately 36 per cent of 25 to 34 year old males have their highest level of qualification at SVQ4 equivalent or above, compared to 24 per cent for 45 to 65 year olds. - Approximately 35 per cent of 25 to 34 year old females have their highest level of qualification at SVQ4 equivalent or above, compared to 26 per cent for 45 to 65 year olds. Young women are slightly better qualified than young men. 19 per cent of females aged have their highest level of qualification at SVQ4 equivalent or above, compared with 15 per cent of males. The percentage holding no qualifications is much higher for those aged 45 or over, especially amongst women, of whom 35 per cent of those aged 45 to 60 have no qualifications. Overall, as older, less qualified workers retire and are being replaced by younger, more qualified workers, the average qualification level of the population is gradually increasing. Future outlook Figure 13B also presents some estimates for highest qualification held by the economically active population (the labour force) for a number of years from 1998 to Note that these estimates deal with the economically active population only, and differ from Figure 13A that presents the qualifications attainment of the total population. The main feature of the projections of highest qualification held is the increasing proportion of the economically active with SVQ level 4 or above. This reflects the impact of increases in the proportion of young people who continue into further and higher education. In the population as a whole, 26 per cent of individuals in 1998 were qualified at SVQ level 4 or above. This rose to 32 per cent by 2003 and is projected to increase to 35 per cent of the population by mid-2008, based on current trends. 20

21 3 LABOUR SUPPLY PROJECTIONS FIGURE 13A SVQ equivalent level of highest qualification in Scotland s population by age and gender 2002/03 SVQ equivalent level of highest qualification MALE AGE FEMALE AGE ALL ALL Total Level Level Trade apprenticeship Level 2 or below No qualifications Total FIGURE 13B Percentage of economically active population by SVQ equivalent level of highest qualification historical and projected 1998 to 2008 Source: Labour Force Survey CE/IER SVQ equivalent level of highest qualification ACTUAL PROJECTED Level Level Trade apprenticeship Level Level No qualifications Total (all economically active population)

22 4 METHODS AND ACCURACY OF PROJECTIONS 4 Methods and Accuracy of Projections LABOUR DEMAND PROJECTIONS How were the projections produced? The labour demand projections were prepared by the University of Warwick s Institute for Employment Research (IER) in collaboration with Cambridge Econometrics (CE). IER and CE produce an economic model called the Local Economy Forecasting Model (LEFM). The model is based on detailed information about how important aspects of the economy such as output and employment relate to each other and have changed over time. That detailed information is broken down separately for different industries, areas and occupations. Using this information, the model makes projections of how the number of jobs will change in the future. Where do job openings requiring new employees come from? Job openings that require new employees arise because of growth in the economy and the need to replace people as they retire or leave their jobs or industries permanently. We call job opportunities arising from growth expansion demand. Expansion demand is the number of jobs that will arise (or be lost) because of growth (or decline) in any particular industry or occupation. At the same time, a large number of job opportunities will arise through the normal processes of people changing their jobs to move to a different industry, or occupation or location. In addition, a considerable number of vacancies arise each year due to retirements from the labour force. Together these represent Replacement demand which arises through the need to replace people who permanently leave their industries, occupations, locations, or the labour force. Combining expansion demand and replacement demand gives the total number of job openings requiring new employees. An example for the manufacturing industry is presented in Figure 14. Between 2003 and 2008 the number of jobs is projected to fall by 28,000. However, an analysis of the composition of employees in manufacturing leads us to estimate that 51,000 employees will leave the industry permanently or retire and will need to be replaced (replacement demand). We can estimate the total number of job openings requiring new employees by adding expansion demand and replacement demand together to give 23,000. So the projections estimate that there will be 23,000 job openings requiring new employees between 2003 and The accuracy of the labour demand projections Based on the experience of Futureskills Scotland and the organisations that we commission our projections from (CE and IER), there are several key messages about the accuracy of projections. Past evaluations of the performance of CE/IER projections reveal that: Estimates of future total employment levels are quite accurate, especially for a relatively short time horizon of five years or under. Most of the errors in a projection are due to inaccuracies in historical data on which assumptions and projection models are based. Forecasts of total employment and changes for the national economy are more reliable than detailed projections that look at single occupations or industries. Generally, the more detailed forecasts become in terms of local area, occupation or industry, the less reliable they become. Forecasting expansion demand can be made more difficult by unexpected shocks (e.g. the dot.com bubble, BSE), and the growth of new products and services (such as mobile telephony). It is difficult to build a forecasting model which can accurately predict such changes. It is much more straightforward to forecast retirements, and thus replacement demand, given that the age structure of the labour force is already known. As replacement demand for new employees is always significantly greater than expansion demand, overall projections for the number of job openings will have relatively small margins of error. 22

23 4 METHODS AND ACCURACY OF PROJECTIONS FIGURE 14 COMPONENTS OF EMPLOYMENT DEMAND Illustration of how we estimate net demand or job openings requiring new employees. Expansion Demand -28,000 Expansion demand is the number of jobs that will arise or be lost because of growth or decline in any particular industry or occupation. Expansion demand Replacement demand Net demand Replacement Demand 51,000 Replacement demand arises through the need to replace these people who permanently leave their industries, occupations, locations, or the labour force. Total job openings requiring new employees is the net demand calculated by adding expansion and replacement demand together. These job openings require new entrants to the labour market to fill them. Net Demand 53,000-40,000-20, ,000 40,000 60,000 23

24 4 METHODS AND ACCURACY OF PROJECTIONS LABOUR SUPPLY PROJECTIONS What is labour supply? In this report, we make projections about the supply of labour in terms of: the total labour supply; the age and gender structure of labour supply; the proportion of the population that are economically active, and the nature of their economic activity (employed, self-employed, unemployed); and the qualifications of the supply of labour. These projections are based on a range of sources and techniques described below. Projecting population and economic activity Making projections about population and economic activity involves the use of two separate sources: Firstly, we use the Government Actuary s Department s population projections for Scotland for The forecasts are for all those normally resident in Scotland. Using this source, changes in the size of the population are presented. Projections are made as far forward as 2042, although in this report, only forecasts through to 2008 are presented. Secondly, we make projections of the number of individuals who are economically active. Projections are based on a two-step modelling procedure. STEP 1 The CE economic model combines projections of economic activity by age and gender for Scotland as a whole. These are based on Department for Education and Skills (DfES) forecasts of labour market participation rates by age and gender which use Census of Population and Labour Force Survey (LFS) data. They incorporate the relationship between participation rates and the aggregate level of economic activity. STEP 2 The LEFM provides forecasts of economic activity rates at the local level i.e. separately for Rural and the rest of Scotland by using local population benchmarking. Finally, the size of the labour supply is calculated by estimating the proportion of the population (for a particular age and gender category) that will be economically active. Projecting the supply of qualifications The other element of the labour supply projections focus on the qualifications of the labour force up to Forecasts are made for the highest qualification held by individuals at SVQ equivalent levels 1 to 4+, plus no qualifications, based on all mainstream qualifications held in Scotland. The likelihood of being in one of these categories is modelled, by age and gender, using data from the Labour Force Survey (LFS) over successive quarters on reported qualifications. The LFS collects data on 24 types of qualifications which can be assigned to SVQ equivalent levels. Data constraints mean that the projections cannot be broken down for areas smaller than Scotland. The accuracy of the projections For population figures, the flows (births, deaths and migrations) are fairly small. For example, taking 2002 figures, the net natural change in the population (births minus deaths) was only around 6,000 people per year and net out-migration was only 2,000 people per year compared with an overall population for Scotland of just under 5.1 million. Any errors in calculating flows in population will make very little difference to the overall stock of population, particularly over the short to medium term. The economic activity rates generated by the forecasting model tend to be fairly stable over time and any trends are persistent. The time period involved in these projections is fairly short, and forecasts of the near future tend to be much more reliable than forecasts for the more distant future. The projections of highest qualification held by age and gender are likely to have greater margins of error for a number of reasons: The forecasts are driven by the recent trends in the expansion of higher education and the forecasts rely heavily on this continuing. The analysis takes a limited look at the stock of highest qualifications held by the population. Not enough accurate information is known about how individuals progress through levels of education and skills attainment. Therefore we cannot accurately assess the full volume and nature of qualifications and skills attainment in the economy. 24

25 4 METHODS AND ACCURACY OF PROJECTIONS ABOUT FUTURESKILLS SCOTLAND Futureskills Scotland is part of Scottish Enterprise and Highlands & Islands Enterprise, and was launched in November We aim to: analyse the Scottish labour market to inform policy making; improve the availability, quality and consistency of labour market information and intelligence across Scotland; and work closely with Careers Scotland to provide the organisation and its clients with labour market intelligence. Our work is directed at a wide range of users from beginners to experts. All of our materials are available free of charge and we do not charge for any of our services. We try to present our analysis in a user-friendly, clear and accessible manner using robust and reliable information. Futureskills Scotland strives to maintain the highest standards of accuracy and clarity in all of our products, as well as trying to make them relevant and useful. If you want to contact Futureskills Scotland, details are available on the back cover of this report. 25

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28 FUTURESKILLS SCOTLAND SCOTTISH ENTERPRISE 150 BROOMIELAW ATLANTIC QUAY GLASGOW G2 8LU TEL: FAX: FUTURESKILLS SCOTLAND HIGHLANDS AND ISLANDS ENTERPRISE COWAN HOUSE INVERNESS RETAIL AND BUSINESS PARK INVERNESS IV2 7GF TEL: FAX: ISBN: X SE/4069/Nov04