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Data briefing

Labour shortages are rising, and so are wages

Rising wages are adding to employer costs

Job vacancies have hit a record high, creating significant challenges for many employers – and new opportunities for some workers – as Scotland looks to recover from the COVID-19 crisis.

There are now more than a million positions available across the UK and labour shortages are intensifying in key sectors of the Scottish economy – such as agriculture, construction and haulage – contributing to higher prices and disrupted supply chains.

Wages have increased by 7.4% over the last quarter – or by 8.8% including bonuses – as employers compete to attract and retain skills and talent.

This will be welcome relief for many workers and families – especially the low paid – after years of below-inflation increases delivering effective pay cuts. Around half of households in poverty in Scotland are in employment.

However, sharply rising staff costs come at a challenging time for many businesses. One in four are taking on government-backed debt during the pandemic.

Retail footfall is still down by more than 27% despite the easing of public health restrictions.

The RBS Purchasing Managers’ Index finds strong growth in Scotland’s private sector in July for the fifth consecutive month, but there is also strong upward pressure on prices because of higher staffing and utilities bills.

Although inflation fell back to 2% in July from 2.5% the previous month, the Bank of England continues to warn that it could surge to 4% before the end of 2021.

RBS cites ‘greater Brexit-related costs’ as a key contributor. The ONS finds increasing numbers of employers struggling to hire – or afford to hire – new staff.

The Scottish Building Federation – like many other sectoral bodies – says its members are reporting damaging shortages of plumbers, heating engineers, plasterers and other key workers in their sector as post-Brexit levels of inward migration from the EU decline.

But there may also be something else going on. The pandemic has provoked many workers – especially those enjoying the benefits of working from home or an escape from a long commute – to reconsider their work-life balance.

It appears some are reducing their working hours or delaying their re-entry into the labour market until the right opportunity comes along. Record job vacancies will only strengthen their bargaining power.

If Scotland is to deliver a strong recovery that aligns with its ambitions for net zero and fair work, politicians and policymakers will have to resolve this apparent paradox: How to create new jobs and drive-up wages at the same time without – crucially – fuelling an inflationary spiral.

David Kelly is policy manager at the Scottish Council for Development and Industry

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