THE decline of the North Sea oil and gas industry is the "likely" reason behind slower growth in employment and earnings in the Highlands, Islands and North East since 2014, a report has found.
The report from the Institute for Fiscal Studies (IFS) found that while employment and earnings in Scotland grew substantially faster than the rest of the UK during the 2000s, since 2014, this growth has slowed down.
It revealed that the employment rate in Scotland in 2014 was 74% – 1% higher than the wider UK.
However, since 2021, the employment rate had grown to 74.7%, but was overtaken by the wider UK employment rate (75.5%).
The IFS also found that, outside of London, average monthly UK earnings grew by nearly 5% in real terms and accounting for inflation between 2015 and 2022, but they grew by 1.5% in Scotland.
It also found a deterioration in employment and wages in the Scottish Highlands, Islands and in the North East of Scotland – stating a decline in employment and earnings in the oil and gas industry as a “likely” reason.
The report highlights that these areas have “historically had relatively strong labour market outcomes”.
The employment rate in the Highlands, Islands and North East fell by around three percentage points between 2013-2015 and 2020-2022.
In contrast, employment across the rest of Scotland grew by two percentage points in the south of Scotland and west central Scotland, keeping pace with the rest of the UK.
Monthly earnings on average in the north east of Scotland fell from 30% above the UK average outside of London to 16% in 2022, and earnings in the Highlands and Islands fell from 6% below average to 10% below over the same period.
Despite the recent deterioration in performance, the report found that employment in the Highlands, Islands and North East remains above the Scottish average – and monthly earnings in the North East remain higher than the rest of Scotland and most of the UK.
David Phillips, an associate director at the Institute for Fiscal Studies and one of the report’s authors, said: “The complex regional patterns and trends in employment and earnings pose something of a policy conundrum for the Scottish Government, especially given the limited funding it has available.
“On the one hand, it is likely to face political pressure to provide additional support to the North of Scotland to help make up for reductions in employment and earnings associated with the decline in the oil and gas industry.
“Moreover, it will want to keep the – often highly skilled and highly paid – workers from these sectors in Scotland, not least given the outsize contribution their earnings make to supporting local economies and devolved tax revenues.
“On the other hand, it remains the case that the areas with lowest earnings and employment are concentrated in Central and South Western Scotland, despite improvements in performance in some of the more deprived areas around Glasgow in recent years.
“This may suggest focusing general support for skills, employability and economic development on the traditionally struggling areas of Scotland, but providing targeted interventions to help workers in the oil, gas and other sectors to take up other opportunities in Scotland (for instance, related to the green energy transition).”
