The challenges facing Scotland’s jobs market as number of Scots in work falls by 18,000

Scotland’s labour market is under increasing pressure, experts have warned, after new figures showed the number of people in work had fallen by 18,000 over the last three months.

There were 2,657,000 Scots aged 16 and over in work over the period from June to August, according to the latest official data from the Office for National Statistics (ONS).

That total was down by 18,000 when compared to the March to May figure, although the number of people in work was 38,000 higher than in the equivalent June to August period in 2024.

Scotland’s unemployment rate was calculated to be 3.9% for June to August - lower than the UK rate of 4.8% over this period.

Overall, Scotland’s employment rate for June to August 2025 stood at 74.3 per cent - lower than the rate of 75.1 per cent recorded for the UK as a whole.

The latest figures also showed the number of people north of the Border who were unemployed had increased when compared to the previous three months.

There were 107,000 people out of work in June to August, with this 5,000 more than in March to May. However the unemployment total was still 3,000 lower than it was in June to August 2024, according to the latest data.

Scotland’s unemployment rate was calculated to be 3.9 per cent for June to August - lower than the UK rate of 4.8 per cent over this period.

The latest jobs and wage data come just weeks before Chancellor Rachel Reeves delivers her critical Budget speech.

Ann-Frances Cooney, employment and pensions partner at legal firm DWF in Scotland, said: “Scotland’s labour market is under increasing pressure against a backdrop of a challenging economic climate and a new legislative and regulatory framework.

“The early seasonally adjusted estimates for September 2025 from HMRC Pay As You Earn Real Time Information indicate that median monthly pay for payrolled employees in Scotland was £2,600, an increase of 5.9 per cent compared with September 2024. The combined effect of rising inflation and higher employer national insurance contributions is intensifying financial pressures on businesses, particularly as employees seek pay adjustments to keep pace with the cost of living.

“With a broad package of new employment rights set to take effect, employers are increasingly focused on future-proofing their workforce. Proactive preparation through strategic workforce planning and compliance readiness will be key as businesses assess the operational impact of the reforms and position themselves for long-term sustainability.

“Businesses are looking to the autumn Budget for clearer policy direction and reassurance, as they seek to prepare for the evolving economic and regulatory landscape,” she added.

Scottish business and employment minister Richard Lochhead said that “despite challenging conditions Scotland’s job market remains fairly stable”.

He added: “We are working with businesses to grow the economy, create jobs and put more money in people’s pockets. However, we are doing this without the powers needed to fully address the issues facing Scotland’s economy.

“At the same time, the UK government is taking decisions which are damaging to business and jobs including raising employers’ national insurance contributions.”

The ONS said regular wage growth fell back to 4.7 per cent in the three months to August, down from 4.8 per cent in the previous three months, and hitting a fresh low of more than three years.

The UK jobless rate increased unexpectedly to 4.8 per cent in the three months to August, up from 4.7 per cent in the previous three months. This is the highest since March to January 2021, at the height of the pandemic, although the ONS said the figure needs to be treated with caution as it continues to overhaul its labour market survey.

But it also noted that there were signs of the jobs market downturn “levelling off”, with a rise in UK workers on payrolls - up 10,000 between July and August, following a minor increase the previous month, though early estimates signalled a 10,000 drop during September to 30.3 million.

Vacancies fell by 9,000, or 1.3 per cent, to 717,000 in the quarter to September 30, which is the smallest decline since the three months to February.

The data also showed an upward revision to total wage growth including bonuses for the quarter to July, up to 4.8 per cent from 4.7 per cent in the previous estimate. This is good news for pensioners, as it is a key figure for the pensions triple lock calculation and puts them on course for a 4.8 per cent uplift in the state pension next year.

Challenges

TUC general secretary Paul Nowak said the labour market data showed some positive signs amid long-term challenges.

“There are chinks of light in the jobs market with a welcome levelling off of falls in payrolls and vacancies,” he said. “But there are no quick or easy fixes to wider labour market challenges, which have been a long time in the making.

“The government is on the right track with significant public investment, stronger workers’ rights and improving the support people need to get into work. The Chancellor must build on this at the Budget, sustaining investment in our infrastructure and continuing to repair our public services.”

Alex Hall-Chen, principal policy advisor for employment at the Institute of Directors (IoD), added: “A change of policy direction is needed if the government is to meet its target of stimulating growth and supporting businesses to create jobs. The Chancellor should avoid levying additional taxes on business in the forthcoming Budget, and the government should begin to engage meaningfully with employers to minimise the damage that the Employment Rights Bill will do to job creation and economic growth.”

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