Press & Policy

Scotland’s labour market is entering a new phase, and the signs of a leaky skills pipeline are becoming harder to ignore.

Businesses across the Chamber Network continue to report labour shortages, recruitment challenges, and pressures on retention. At the same time, the Milburn Review has shown that almost one million young people aged 16-24 across the UK are now not in education, employment or training. Many have never had a job at all. Fixing the skills pipeline, then, is central to building long-term growth.

The latest data from the ONS shows that the challenge is evolving.

Vacancies across the UK have fallen to their lowest level since 2021, while payrolled employment has also started to decline. In Scotland, employment has fallen over the last year, while unemployment and economic inactivity have both increased, to 4.4% and 22.7% respectively.

That raises questions about Scotland’s workforce pathway. There is broad agreement across the business community that economic growth should be front and centre of the political agenda, but without a frank conversation about our skills system, we only cover half of the story.

A strong economy depends on a strong workforce. In turn, that relies on people being able to access jobs, build skills, and progress over time. As it stands, all three of those fundamentals are under strain.

Entry-level opportunities are increasingly difficult to come by. The Institute of Student Employers has shown that in 2024, the average graduate role in the UK received 140 applications. Simply put, we are training too many people for too few clear entry-level routes.

At the same time, lower vacancy numbers do not mean the skills challenge has gone away. Many businesses are still cautious about hiring as demand softens and costs remain high, while others continue to struggle to find people with the right skills. That creates a difficult mismatch: fewer opportunities for people trying to enter the labour market, but no easy answer for employers who still cannot recruit the skills they need.

When fewer people can get their foot in the door in 2026, that means less experience and confidence in the labour market of 2036. That translates into slower progression for individuals and makes it harder for businesses to grow in the long-term.

Businesses see the impact of this disconnection from the labour market in their day-to-day operations: a weaker workforce means a smaller pool of future talent. It becomes harder to recruit, particularly for skilled roles, and training costs rise as businesses have to do more to bring people up to speed. Over time, productivity suffers as fewer people gain experience, move between roles, and develop the skills employers need.

The pressures created by new technologies should not be understated either.

Take a busy café owner as an example. It may be more straightforward to automate some aspects of their admin, ordering, or rota planning, freeing them up to deal with customers, suppliers, and staff, rather than hiring a new, young member of staff. That may be the right decision for that business, especially when costs are high and time is limited.

But if technology quietly removes the tasks that once gave people their first experience of work, we need to be mindful of what is lost. A young person’s first job is rarely just about the job itself. It is where they learn confidence, communication, timekeeping, teamwork and the habits that help them progress.

The challenge is not to draw a hard line between “AI jobs” and “human jobs”. It is to make sure that as work changes, young people still have a clear first step into the labour market, and businesses still have the support they need to train and develop future talent.

That is why we need to move beyond employers, schools, colleges, and training providers working in isolation.

Scotland needs a more joined-up workforce system, shaped by the businesses that create jobs and the educators who prepare people for them. Moving beyond a siloed approach would support clearer routes into work, better alignment between training and employer demand, and practical measures of whether young people are leaving education ready for the labour market they are entering.

To do this, workforce policy needs to be part of Scotland’s growth agenda, not a separate conversation. A business that cannot recruit will find it exceptionally difficult to grow. A young person who cannot get their first step into work will struggle to build experience. A worker who cannot retrain cannot pursue new opportunities. And a country with a weak skills funnel will find it harder to attract investment. The choice on the table is not between young people’s future and business growth. Their interests are bound together. Employers need people with the right skills, and people need opportunities to build those skills in the first place.

The labour market is changing, and the way Scotland responds must change with it.

We need a workforce system that is easier for businesses to engage with, more responsive to regional demand, and better aligned with the jobs being created across the economy.

If we get this right, Scotland can strengthen participation, improve productivity, and give more people a route into good work. If not, the pipeline will continue to leak, and businesses will feel the impact for years to come. Fixing the pipeline should be the starting point of our national conversation on economic growth.