Labour shortages in Scotland

A Scottish or an industry lens?

When examining the challenges faced by organisations, as well as the policy levers that can contribute to solutions, it is important to look at matters through a Scottish as well as an industry lens. While it is true that there are sectors in which employment is more concentrated in Scotland (eg oil and gas or food and drink), by and large, the sectors experiencing labour shortages report the same issues with recruitment or retention no matter where they are based in the UK.

We know this because as part of our Post-Brexit Labour Market report research we ran a series of focus groups in Scotland, Northern Ireland and the North of England, and found commonalities across sectors rather than geographies. That being said, some of the policy implications from our findings (eg around skills) depend on levers held by the devolved governments and administrations, but more on that later.

The six sectors we examined as part of this research were retail, transport and storage, food processing, hospitality, social care and construction. Unsurprisingly, all of them got a mention in the Scottish Parliament’s debate, with MSPs highlighting specific examples from their own constituencies throughout. MSPs from across the political spectrum agreed that the situation was serious. Where disagreements occurred was around the reasons for labour shortages. Both Brexit and Covid featured heavily in the contributions from SNP and Labour MSPs, while the Conservatives were more likely to highlight long-term skills gap issues.

CIPD research makes it clear that there is a range of factors at play. Labour shortages are certainly rising, but they are restricted to a narrower range of occupations and industries – such as hospitality and transport and storage – than many suggest. The incidence of labour shortages in many low-paying sectors is no more prevalent than before the pandemic in the vast majority of cases.

It is true, however, that both the pandemic and Brexit contributed to a drop in the stock of EU nationals in the labour market. With more restrictive immigration policy, it has become harder to replace this pool of talent, impacting on sectors with a higher proportion of migrant labour – hospitality, health and social care or food and drink being the three most cited examples in the Scottish Parliament. There are some encouraging signs of employers turning to upskilling or apprenticeships as a response to labour shortages, but matching domestic workforce expectations and preferences with vacancies is a continuing challenge.

Low pay is also discouraging applicants – and some sectors in our research did raise wages in response to labour shortages – but this is only one of the factors that are cited as reasons for the perceived unattractiveness of certain roles. Indeed, we know that young people are willing to endure low pay for a while, provided that suitable training opportunities and promotion possibilities were available. Career progression and skills development are increasingly part of the recruitment conversation. For some industries, this would suggest a considerable change to their workforce structure may be needed.

What can be done?

When it comes to changing the attractiveness of certain roles, the onus is on employers to improve their offering. Yes, increasing pay is one route, but broadening this to the provision of financial wellbeing or other non-financial employment benefits can also help. Building links with local schools and colleges, for example, through Developing the Young Workforce groups and hiring apprenticeships, can help with the talent pipeline. Providing flexibility as well as contractual stability is also important, as our research shows. Lastly, as mentioned above, ensuring that career progression pathways and skills development opportunities are in place can make a big difference in recruitment.

This last point is linked to public policy too. The CIPD has a long-standing position around reforming the Apprenticeship Levy into a more flexible training levy – something that is the responsibility of the UK Government. In a Scottish context, however, it is up to the Scottish Government to strengthen the link between Levy-payers and skills interventions, as well as ensuring that all employers have access to a wide range of apprenticeships or upskilling/reskilling initiatives. Given the willingness of employers to look at apprenticeships in response to labour shortages, this is a golden opportunity to boost funding in the area. This should also include incentive payments directed at SMEs in particular.

The other area where the Scottish Government can intervene is on the employer demand side. People management training can help unlock the workforce development capability of businesses, again something that is more acute among SMEs. We have long argued for a nationwide rollout of the People Skills model, through which the smallest of businesses can access free advice in relation to people management. Often it is the inability to navigate the various interventions that needs to be overcome.

We do, however, need to recognise that the immigration system following the UK’s departure from the European Union was devised under different circumstances. The drop in the stock of EU nationals has left a gap that is now more difficult to fill. One of our key recommendations for the UK Government is therefore the establishment of a temporary job mobility scheme for young EU nationals to act as a ‘safety valve’ and ease immediate and acute labour shortages. The advantage of a scheme like this is that it can be easily adjusted with changing labour market circumstances and could be subject to an annual cap.

In conclusion

In conclusion, Scottish labour shortages are the result of a combination of factors, some long-term, while others are more recent. Similarly, tackling them will require an immediate, but also a longer-term response by employers and all levels of Government. Just like there is no easy cause, there is no easy solution. But we hope that CIPD’s research has helped shed the light on both.