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2 SOCIO-ECONOMIC BACKGROUND

This section provides an evidence base to educate the development of the new ESF Programme in Lowlands & Uplands Scotland for the period 2007 to 2013. It contains:

• analysis of the main relevant features - and trends - of the region;
• identification of the region's main needs with particular emphasis on key spatial variations within the region; and
• a summary SWOT analysis - this will identify a series of clear challenges/needs that will feed directly into Chapters 3 and 4.

The analysis begins with general background context-setting for the region's key demographic, economic and other relevant trends. It then provides more detailed analysis under several headings:

• employment and employability, focusing on the size of the workforce (and the barriers to different groups being able to participate in the labour market);
• workforce skills, covering the skills issues relating to different groups in the workforce; and
• lifelong learning, covering the region's capacity for addressing the employment and skills development challenges through training and lifelong learning.

An assessment was done by the ex-ante evaluator as to whether the ESF programme required a Strategic Environmental Assessment. The evaluator concluded that this was required for the ERDF programme for this region, but not for the ESF Convergence Programme. Consequently, an analysis of the environmental situation of the region is not contained in this document.

The analysis is not meant to be a comprehensive review of the Scottish economy, but a focus on a specific set of market failures which Structural Funds can help to address within the framework of the Lisbon goals on growth and jobs. Some important elements of wider economic development have not been examined in detail because Structural Funds under this Objective cannot provide significant support to address the issues adequately. The role of the Lisbon Agenda as the key driver in the development of the Programme should be emphasised - the Structural Funds have to make clear, value-added contributions to the EU's goals of improving economic growth and jobs within challenging timescales. Moreover, the analysis focuses on aspects of socio-economic development where limited Structural Funds support can make significant differences.

The analysis also covers both Scotland as a whole and at a regional level. Using Scottish figures is unavoidable in many cases because of the level at which figures are collected - however, as the Lowlands & Uplands region includes the bulk of population and economic activity, it remains a strong indicator of the issues facing the region. Regional statistics are given at NUTS 2 and NUTS 3 level. It is worth noting that the NUTS 2 regions are:

• North-East Scotland (including: Aberdeenshire, City of Aberdeen and North-East Moray);
• Eastern Scotland (including: Angus and Dundee City, City of Edinburgh, Clackmannanshire, East Lothian, Falkirk, Fife, Midlothian, Perth and Kinross, Scottish Borders, Stirling and West Lothian); and
• South-Western Scotland (including: parts of Argyll & Bute, City of Glasgow, Dumfries and Galloway, East Ayrshire, East Dunbartonshire, East Renfrewshire, Inverclyde, parts of North Ayrshire, North Lanarkshire, Renfrewshire, South Ayrshire, South Lanarkshire and West Dunbartonshire).

Where specialised sources of data/research are used, these are cited in the text with the full references listed in the annex. General sources of statistics used in the analysis include: the Scottish Economic Statistics series, the Scottish Economic Report and the General Register Office for Scotland ( GROS).

2.1 General Background

Population

Before providing a detailed analysis of the region's main economic and social features, background statistics are provided here. In 2004, the population of the LUPs region was 4.711 million people, or 93% of the population of Scotland as a whole, an upward trend on previous years. Nevertheless, in terms of population change, there has been considerable variation: areas that have shown significant population growth since 1995 include West Lothian (10%), East Lothian (6%) and Stirling (5.5%), while those showing contraction include Aberdeen City (8%), Inverclyde (7.3%) and Dundee City (6.7%). The majority of the population are concentrated in the so-called Central Belt area around and between Glasgow and Edinburgh.

According to the General Register Office for Scotland, the population for Scotland as a whole is set to continue to rise to a peak of over 5.1 million in 2019 before slowly declining. At present, children aged 15 and under accounted for 19% of the population, as do people of retirement age. However, the number of children aged under 16 is projected to decrease by 15% from just under a million in 2004 to 790,000 by 2031 for Scotland as a whole. This is contributing to the number of working-age people falling by 7% from 3.18 million in 2004 to 2.96 million in 2031. At the same time, the number of people of pensionable age will increase by 35% from 0.97 million to 1.31 million over the same time period. The combined trends will increase labour demand pressures in the regional economy and suggest that policy will need to focus on how the labour market can be expanded.

One counter trend to population decline has been migration. Again, according to General Register Office statistics from mid-2005 population estimates for Scotland as a whole, in the year to mid-2005, there was a net migration gain of around 19,000, reflecting a net gain of around 12,500 people from the rest of the UK, a net gain of around 7,300 from overseas (including asylum seekers). The latter gain has represented a new trend in recent years with significant numbers of migrants coming from new Central and Eastern European Member States of the EU, particularly Poland. Migrants tend to be much younger than the general population with 69 % (overseas) of in-migrants aged 16-34 as compared to 24% of the Scottish resident population. Although potentially representing an injection of new skills into the regional labour market, many of the overseas migrants have substantial skills challenges relating to English language and 'converting' overseas skills qualifications into recognisable qualifications for Scottish employers (an issue relating as much to employer attitudes as to the nature of the qualifications themselves).

GDP

GDP at basic prices for the LUPS region in 2004 was £78,384 million. The main contributing regions to GDP have been the major metropole areas, particularly the cities of Aberdeen, Edinburgh and Glasgow. In recent years, GDP growth has been improving, but the economy as a whole continues to perform less well than the wider UK economy.

Productivity performance lies at the heart of regional competitiveness. As Chapter 3 will show, it has also been identified as the key challenge for economic development by the Scottish Government. If Lowlands & Uplands Scotland is to be able to contribute to Lisbon Agenda targets, productivity growth will be a key aspect of economic development actions.

Productivity in Scotland is low and declining relative to the UK. In 2004, for Scotland as a whole, gross value added per head of population was 95% of the UK average, having fallen from 101% in 1995. Within the LUPS region, there is considerable variation in gross value added, ranging from 161% of the UK average in the City of Edinburgh, reflecting a concentration of high-value economic activities, especially financial services, to 62% in East and West Dunbartonshire and the eastern parts of Argyll & Bute. Other areas with low figures include Clackmannanshire/Fife, East and North Ayrshire, East Lothian/Midlothian, and the Scottish Borders - all are areas whose performance relative to the UK average had decreased since 1995. The worst performing regions share similar traits. These are regions that have lost more employment in manufacturing and agriculture than the rest of the Scottish economy; and manufacturing and services in those regions have systematically under-performed the Scottish average in terms of GVA per employee over the past decade.

Table 1: Gross value added relative to the UK average (%,1995 and 2004)

Source: ONS, 2006.

Labour market

The region's labour market has been performing well in recent years, with more individuals in employment than ever before. Employment rates are, and will remain partly dependent on broader global economic cycles and UK macro-economic factors. Both the employment rate and the economic activity rate (those in employment or seeking employment) for the region are at historically high levels. The employment rate for the period March-May 2006 stood at 75.3%, with the economic activity rate at 79.9%. The employment rate has increased by around four percentage points since 1999 with over 180,000 more people in employment than in 1999. Currently Scotland is fifth highest out of the 12 UK regions in terms of employment rates and also fifth in terms of economic activity rates. Moreover, Scotland has higher economic activity and employment rates than England, Wales, Northern Ireland and the UK as a whole. All employment growth over the last two decades has been in non-rural Scotland.

The region has seen a very significant structural change across industries in the last two decades. The transfer of jobs from the primary and manufacturing sectors to services has been highly significant, and will continue. Similarly, employment in professional and personal sector services has grown substantially and more than outweighs the fall in manufacturing and in skilled trades. These trends are expected to continue with the numbers of higher skilled and professional jobs rising and lower skilled jobs falling. Estimates suggested there will be half a million job openings expected between 2003 and 2008. Of these 36,000 will arise due to economic growth (an increase of 1.4%). The remaining 464,000 will arise to replace existing workers who leave the workforce or change their industry or occupation (Futureskills Scotland, 2005a).

Skills and education

Higher skills levels are linked to higher employment rates. The share of more highly-skilled jobs within this region's economy will increase most quickly. Two decades ago managerial, professional and technical occupations accounted for only 26% of jobs in the region. By 2003, they accounted for 38%, and are projected to account for 40% by 2008. This is matched by the increasing proportion of economically-active Scots educated to Scottish Vocational Qualification ( SVQ) level 4 or above: 26% in 1998, 32% in 2003, and a predicted 35% by 2008 if rising education participation rates continue. There is also a trend for increasing emphasis on generic and 'soft' skills. The most pressing need will be for more effective communication, problem solving, numeracy, planning, organisational, team working, and computing skills, together with an increased emphasis on attitude and self-presentation. (Futureskills Scotland, 2005b).

Diversity and equal opportunities

With an ageing and potentially declining population in the region, employers are hoping to use more technology to improve productivity as well looking to non-traditional groups to enter the workforce. To maintain flow into the labour market this diversity will have to continue apace to enable the region to be productive in world markets. Organisations will have to respond to changing demographics to enable more individuals with direct caring responsibilities for children and for elderly relatives to be accommodated in the workforce. On the supply side, there is evidence that more women, more older people and more people from abroad are entering and staying in the labour market. European integration and expansion of the EU has increased the supply of cheaper labour into the UK, and this is likely to continue. 32,135 Eastern Europeans registered in Scotland in 2004 under the Government's Worker Registration Scheme according to Home Office figures. More complex family relationships, more solo households, relatively smaller state pensions resulting in more older people staying in the labour force, will all have an effect on the nature of the work, the skills and training required, and the flexibilities and equality of opportunities which will have to be taken into account to ensure that people are not excluded from the workplace.

Key messages

• Long-term population decline represents a potentially significant labour market challenge to the region.
• Inward migration, particularly from overseas, could bring new skills and dynamism into the regional economy.
• Overall, the region's level of economic activity and growth remain relatively low, though there have been notable improvements in recent years.
• Similarly, the region's productivity performance is also comparatively limited, but with significant variations at sub-regional level.

2.2 Employment and Employability

Employment

With the labour market tightening in recent years, employment levels in the region are high. The region has an employment rate of 75% compared with 63% and 65% in the EU-25 and EU-15 respectively. The region has already met the EU Lisbon employment target of 70%. Since 2001, the region's employment rate has grown at nearly twice the rate of the EU-25. It also has a higher economic activity rate, at 76%, than the EU-25 and EU-15, both 75%. Between 2001 and 2004, the Scottish economic activity rate has seen a 1% increase. In contrast the EU-25 rate has fallen in the same time frame.

According to Eurostat, the region's unemployment rate (5.7%), is below the EU-25 level of 9.2%. While unemployment across the EU increased between 2001 and 2004, it decreased in Scotland. Scotland also out-performs the EU-25 in terms of unemployment amongst 15-24 year olds and long-term unemployment. Between 2001 and 2004, Lowlands & Uplands Scotland's 15-24 year old unemployment rate has fallen to 14.2% in contrast to the increase across the EU-25 to 18.5%. The rate for those unemployed for more than 12 months as a proportion of the unemployed total in the region fell to 21.9% compared to that for the EU-25 of 45.1%.

In terms of the older groups of working-age people, the LUPS region has higher employment rates for both 45-54 and 55-64 year olds than the EU-25. According to Eurostat, the difference is most marked for the 55-64 age group with a figure of 54% relative to the EU-wide figure of 42%. The Scottish percentage increase has also been above the EU level for both age groups.

Working-Age Population Activity

The number of working-age people in employment, education or training ( EET) in Scotland as a whole was estimated in the Annual Population Survey to be 2.49 million in 2005 (Scottish Executive, 2006). That was 79.7% of the working-age people, an increase of 0.3 percentage points on 2004. However, this varies considerably between the different Local Authorities at NUTS 3 level. Glasgow and East Ayrshire had the lowest EET proportions in 2005, at 72.2% and 74.1% respectively. Whereas, at the upper end, four areas had EET proportions above 84.0% in 2005: East Dunbartonshire (86.1%); Aberdeenshire (84.4%); City of Edinburgh (84.6%); and East Renfrewshire (84.4%).

Table 2: Employment rates at Local Authority level

Although Scotland's employment rates are at historically high levels, again this masks big variations by locality. Within the region, employment rates vary significantly as Table 2 shows. Above-average rates have been recorded in rural areas such as Aberdeenshire, Dumfries & Galloway, Midlothian, Perth & Kinross and Scottish Borders as well as Aberdeen City, East Dunbartonshire and East Renfrewshire, although the figures for rural areas do not take full account of levels of under-employment in these areas. The lowest rates of employment tend to be concentrated in urban areas such as Dundee City, East Ayrshire, Glasgow City, Inverclyde, North Ayrshire, North Lanarkshire and West Dunbartonshire, suggesting that the key cities of the region are not acting fully as economic drivers for labour market growth.

Unemployment Rates

The variation in unemployment rates mirrors the pattern for employment rates. Using the Annual Population Survey, Scotland's 2004-05 official unemployment rate was 5.4%, with 132,700 people of working-age unemployed. The highest unemployment rates are in Scotland's larger cities with 8% in Glasgow, 7% in Dundee and 6% in Edinburgh.

On long-term (over 12 months) unemployment rates, South-Western Scotland has the highest rate in Lowlands & Uplands Scotland at 24% while North-Eastern Scotland's rate is below 15%. Unemployment rates amongst 15 to 24 year olds varies from 13% in Eastern Scotland to 15% in South-Western Scotland.

Under-employment

Under-employment is a particular problem in rural areas. It can take a variety of forms, including taking on a job for which a lower qualification is required, or working for less time than one would like to. A measure of under-employment that captures the latter is the amount of people in work that would like to work more hours for the same pay. According the Annual Population Survey, when individuals were asked if they would want to work longer hours for the same pay, the Local Authorities with the highest share of respondents were those most characterised as 'rural' using the six-fold classification. This lends support to the idea that there is more under-employment in rural areas.

Labour Market in Deprived Areas

Within this regional labour market, there are worrying geographical variations, particularly between the 15% most deprived areas in the region and the rest of Scotland in terms of economic activity and qualification attainment, marginalising these individuals from the labour market. People living in the 15% most deprived areas were less likely to be in employment in 2005. 56.7% of working age people living in the 15% most deprived areas were estimated to be in employment compared to 77.9% for those living in the rest of Scotland.

People living in the 15% most deprived areas were also more likely to be unemployed in 2005. 13.3% of economically-active people living in these areas were estimated to be unemployed compared to 4.3% in the rest of Scotland. Relative to the average, unemployment rates have remained constant over time in relative terms.

This concentration of individuals marginalised from the labour market is evident at NUTS 3 area level, as seen in analysis of the Scottish Index of Multiple Deprivation ( SIMD). The SIMD is a combination of six stand-alone indicators: current income; employment; education, skills and training; health; housing; and access to local services. The employment, education and health indicators are more relevant in identifying disadvantaged urban areas.

Table 3: Concentrations of Scotland's 15% most-deprived data zones by LUPS Local Authority area (2006)

Source: Scottish Index of Multiple Deprivation.

Not surprisingly, given the nature of the measures, urban areas are more likely to display the worst concentrations of social exclusion and poverty as defined here. Other measures can capture problems which are more endemic to rural areas. For example, the access to services indicator measures drive times to key services and is a proxy for rural disadvantage, including variations in access to local services, such as General Practitioners, primary school and supermarkets, across Scotland. However, it remains the most robust measure of social exclusion, particularly in an urban context.

Table 3 gives an overview of the concentrations of social exclusion in Scotland using the SIMD (ie. the combination of all six indicators) at NUTS 3 level for the region's Local Authority areas. Concentrations are the areas where the different processes measured by the indicators combine to create particularly persistent areas of economic and social poverty - so, for example, poor educational performance, bad housing, low levels of health and limited access to key services (such as childcare and transport) can result in high rates of worklessness and manifested in relatively large numbers of claimants of state benefits. Because the factors tend to work together, areas that 'score' highly on several if not all indicators are likely to be those most resistant to initiatives to raise economic activity, whether in terms of the creation of wealth within the area itself or the ability of individuals/organisations within the communities to access neighbouring areas of opportunity.

The table concentrates on the worst concentrations of deprivation as measured at the 15% level, examining the incidence in terms of shares of data-zones relative to Scotland as a whole and relative to the Local Authority in question. From the table, deprivation has been concentrated in some parts of the region. Glasgow City shows a particularly high concentration - whether measured in national or local terms - and there are similar above-average concentrations in surrounding areas such as Inverclyde, North and East Ayrshire, North and South Lanarkshire, Renfrewshire and West Dunbartonshire. In the eastern part of the region, Clackmannanshire and Dundee City have relatively high concentrations as well as the City of Edinburgh, despite its relative overall prosperity.

Despite the continuing severity of the problem, there has been some positive change in recent years. To measure change over time, the Jobseeker Allowance claimant count rate for Scotland's 10% worst wards has been tracked against Scotland's rate. Between 2000 and 2004, the JobSeeker Allowance ( JSA) claimant count in Scotland's 10% poorest wards fell from 15.1% to 12.2%. For Scotland as a whole, the rate decreased from 4.5% to 3.5%. The gap in unemployment rates has also fallen in this period from 10.6 to 8.7 percentage points. Measured in proportionate terms, however, the rate in the high unemployment wards has risen from 3.4 to 3.5 times the Scottish average.

From an area perspective, the Social Exclusion Unit's (2004) Jobs and Enterprise in Deprived Areas report found that many people living in these areas have:

• multiple barriers to employment;
• low aspirations for work and study;
• extremely low travel horizons (limiting the extent to which they can gain employment outside of these geographical areas);
• two or three generations out of work in the same family and neighbourhoods; and
• less contact with people in work and so do not benefit from informal routes into employment.

Concentrations of disadvantaged households take hold for different reasons in different places, but there are three main explanations put forward by the Social Exclusion Unit:

• Changes in the nature and location of jobs
  • A key local employer or industry closes down.
  • Lack of accessible jobs.
  • The informal economy can provide income opportunities which make formal work less attractive, especially when combined with benefits.
• Residential sorting
  • The housing market 'groups' the most disadvantaged people together.
  • Residents with sufficient financial resources can choose to move out of poorer neighbourhoods.
  • Housing policy can unintentionally exacerbate residential sorting.
  • Over half of all people moving into Scotland's 10% most deprived data zones were previously living in the 10% most deprived.
• Area effects. Residents' chances of finding work can be reduced simply because of where they live.
  • Place effects - these include location, poor infrastructure, lack of transport, competition for limited number of job or training opportunities, and variation in the quality and quantity of local services - these can combine to making such areas unattractive to businesses moving to these communities as well as stifling indigenous enterprise development.
  • People effects - these relate to the damaging effect of living with many other jobless people - for example, residents receive little information about jobs or encounter area-based discrimination by some employers.

In turn, these three explanations can lead to a:

• skills mismatch - an imbalance between the characteristics of potential workers and the attributes required by local employers; and
• spatial mismatch - a geographical mismatch between residences and potential workplaces.

The Social Exclusion Unit, in reviewing UK and international studies, argued that it matters if jobless people are concentrated in the same areas.

• Living in these areas can damage a person's life chances - especially those of children and young people.
  • Individuals living in deprived areas are significantly more likely to be out of work than similar people living elsewhere.
  • Children's educational attainment is closely linked to the level of neighbourhood poverty. For example, only 46% of pupils living in Scotland's 15% most deprived data zones attained expected standards in writing at the end of primary school. The Scottish average is 61%.
• Residents have lower expectations of finding a job and a lower probability of actually starting a business.
• A significant number of children are in danger of growing up in families and neighbourhoods with little contact with the world of work and a lack of positive role models.

In addressing these barriers and constraints, research undertaken by the CEEDR ( ODPM, 2003) on the evidence for successful enterprise-led regeneration in deprived areas looked at the contributions of different types of enterprises. Economic growth for these areas is dependent on a combination of indigenous enterprise development, the attraction of outside businesses to the areas to act as significant local employers and the ability of residents to access good employment opportunities outside of the region. The latter activity is more appropriate to interventions through the ESF Programme for the region. However, with respect to the first two activities, the benefits can be summarised as follows.

• Enterprises provide employment opportunities to local residents. Their earnings can then be spent in the local economy which increases demand.
• Enterprises can boost the local economy by purchasing their requirements for materials, components and services locally.

Employability

Inactive and Unemployed Target Groups

Individuals make up the raw figures on unemployment, economic inactivity and employment deprivation. However, as with the geographic areas which contribute unevenly to these figures, certain client groups are more likely to be excluded from the labour force than others. Every individual within a client group will not necessarily experience the same barriers. For example, one lone parent may only face childcare availability as a barrier, whereas another lone parent may have poor qualifications, no work experience and no access to affordable childcare. The workless client group work-stream for the Employability Framework has also identified that a large proportion of workless individuals fall into multiple client groups. Low skills or qualifications, lack of self-confidence and work experience are personal barriers common to many of the workless client groups. The benefits system and stigma are also common to many of the client groups

The problems arising from worklessness are particularly acute among young people who are workless. The number of 16-19 year olds " not in employment, education or training" (or ' NEET') was approximately 36,000 in 2005 which equates to 14% of the total 16-19 year old population. The NEET group is of particular concern as they represent a part of the population where worklessness can become entrenched through an absence of any history of employment. The proportion of NEET in the region has not significantly changed in any year since 1996 with the proportion fluctuating between 13% and 15%. Males generally have a higher proportion of NEET than females.

In terms of scale, the most substantial workless group is the 346,000 sick and disabled benefit claimants, which equates to 67% of all claimants and 11% of the total region's working population. The client group effectively consists of two groups - sickness and disability are distinct - but from a policy perspective, it can be useful to consider them together. Between 2000 and 2005, the client group increased by 2%. However, that still leaves 189,000 claimants in the area, 55% of Scotland's total. Breaking this down further by NUTS 3 area, the highest rates have been found in Glasgow (18%), and in both North and South Lanarkshire at over 12%.

In 2001 it was estimated that in Scotland only 30-40% of disabled people are in work, compared to 51% in the UK as a whole. This figure reduces to only 28% of people with a mental health condition and 24% of people with a learning disability ( DRC, 2005). Statistical evidence is not readily available on benefit claimants with mental ill health. However, data from the research work-streams for the development of the Employability Framework suggests that approximately 119,100 people claimed Incapacity Benefit in Scotland due to mental and behavioural disorders in May 2004. It has been estimated that only 8,250 opportunities on training and employment programmes exist for the working-age people in Scotland with mental health issues.

It is very difficult to find reasonably accurate figures for individuals with chaotic life styles, homeless, abusing drugs or alcohol, or ex-offenders. These individuals tend to be concentrated in the most deprived areas, with 60% of Scotland's declared homeless are in Glasgow. Some idea of the scale of the problem can be extrapolated from specific figures. For example, by applying the overall prevalence rate of drug misuse to the Scottish population, it can be estimated that there are approximately 58,000 working-age people with drug problems, and data suggests that nearly 73% are either long term unemployed or have never worked. Scotland had a prison population of 6,569 in 2003, the equivalent of 129 per 100,000 of the total population, and again high proportions of these individuals find it particularly difficult to enter work on release from prison.

Gender

The working-age employment rate in Scotland was higher for males than females in 2005. The rate for males was estimated at 77.6% compared to an estimate of 72.1% for females. The total number of working-age males in employment, in 2005, was estimated at 1.235 million with a further 24,000 over working age in employment. The total number of working-age females in employment was estimated at 1.104 million with a significantly larger number of 52,000 over working age in employment. The NUTS 3 area which had the highest male employment rate estimates in 2005 was Aberdeenshire (84.6%).

Lone parents also make up a significant group. There were 66,400 lone parents claiming state benefits in 2005, which is a 17% decrease from 2000. However, this still represents 2.1% of the working-age population, and lone parents are concentrated in areas of deprivation. Lone parents living in deprived areas are much more likely to be unemployed or inactive and face important barriers to their participation in the labour market, particularly with respect to their caring responsibilities. At NUTS 3 level, every area has a rate below 3% except East and North Ayrshire, with 4%. East Lothian and Midlothian have the lowest rate at just under 1%.

The balance between employment and home-life caring responsibilities continues to be a significant problem for many women. Although around 110,000 economically-inactive women in Scotland would like a job, approximately 36% of these were prevented from returning to work because they had to look after their family. Issues around caring responsibilities for elderly and ill relatives are now becoming a common problem for more and more people in the 45-to-64 year age group.

Ethnic Minorities and Asylum Seekers/Refugees

Ethnic group and asylum seekers/refugees have distinctive issues relating to their participation in the labour market, arising from lack of qualifications (or recognition of the qualifications they have) and in some cases, lack of key skills such as English language. The region's ethnic minority employment rate was 56.4% in 2004 - this had shown only an increase of 1% since 1999. Indeed the gap between the total employment rate and the ethnic minorities relies on a small sample size, it indicates that the group's employment rate had widened marginally in that period. In addition, in the most recent data from the Annual Population Survey, the employment rate amongst non-white females in Scotland is 48% - well below the rates for non-white males (59%) and white females (72%). The economic inactivity rate is higher for each ethnic minority group than the 'White' rate of 20%. The 'other' and 'Pakistani/ Bangladeshi' groups have the highest rates with both over 38%. Of the 29,700 ethnic minority population who are economically inactive, 18,700 live in Glasgow or Edinburgh.

The largest number of asylum seekers are resident in Glasgow with a report for the COSLA Refugee and Asylum Seekers Consortium stating that there were 5,798 asylum seekers living in the city in 2005. A recent skills and aspirations audit by the Scottish Executive (2004) found that only 5.7% of the refugees and asylum seekers in Scotland who responded to the audit indicated that they were in employment. Many referred to their lack of language skills, and a lack of language courses for them. Others noted employer discrimination and lack of cultural awareness among support staff as barriers to their participation in the labour market.

Key messages

• The region has shown an overall good employment performance in recent years. Employment rate of 72% exceeds EU Lisbon target of 70% and is at a historical high, driven by an expanding employment base and linked to low unemployment rates. Indeed, employment rates have risen for the major groups of the population, including the more disadvantaged groups such as lone parents.
• There is still a substantial gap between the employment rates for the more disadvantaged groups and the workforce as a whole. Worklessness is a more acute problem than unemployment in many cases. The NEET Group constitutes a particularly difficult problem, as well as those working-age jobless people described by their benefit status as 'sick and disabled'.
• Relative to the average, unemployment rates for people living in the most deprived areas have remained constant over time in relative terms. Areas with concentrations of worklessness often present a greater policy challenge because there are a number of environmental factors reinforcing the lack of employability characterising some communities.
• Ethnic minority employment rate at 56.4% increased only marginally (1%) and the gap has actually widened. Employment rate for non-white females in Scotland is 48% - well below the rates for non-white men (59%) or white females (72%).

2.3 Workforce Skills

To improve the region's relatively poor productivity performance, one important component is the skills profile of the workforce. In examining the skills of the workforce, there are several broad areas that need examination: the composition of the workforce; their skills level; and the ability of the workforce to improve those skills. Headline features of these different issues are presented here against EU averages.

Examining the composition of the workforce in Scotland as a whole, there are 608,000 part-time employees, an increase in absolute and in percentage terms since 2001. The proportion of part-time employees in Scotland (25%) is much higher than the EU-25 average of 18%. Part-time employment is not in itself an issue that needs to be addressed by Structural Funds intervention, but can be concerning in the context of low income and skills levels associated with some part-time jobs, especially under-employment in rural areas.

If the region is to make a full contribution to the Lisbon Growth and Jobs Agenda, the number and skills level of potential and actual entrepreneurs in the economy is another important consideration. If the region is to have a enterprise base that is regularly replenished and generates innovative ideas for high-growth economic activity, the stock of entrepreneurs needs to be monitored. The evidence suggests that Scotland has a clear challenge with creating and sustaining entrepreneurs. There are around 240,000 self-employed people in all of Scotland, 10% of all employment - a rate well below the EU-15 and EU-25 averages of 15%. There are significant variations here: the highest proportion of self-employed is in North-Eastern Scotland, while the lowest is in South-Western Scotland. One measure of entrepreneurship is given by the Total Entrepreneurial Activity ( TEA), which is the percentage of adults either actively starting an enterprise or running a new enterprise (less than 3.5 years old). In 2004, the Scottish TEA figure was 5.1%, up from 4% in 2000, but still in the bottom half of a 'league table' of those EU countries participating in the survey. The number of business start-ups per 10,000 population, one of the main indicators of entrepreneurship in an economy, was 28 in Scotland in 2005, which was significantly lower than the UK average of 38 (Small Business Service, 2006).

With the accelerating developments in internet technology and e-commerce applications of that technology, it is essential that enterprises are able to make full use of the nearly universal broadband coverage in the region (to which investment infrastructure by past Structural Funds programmes have made significant contributions). Enterprises are making increasing use of broadband in Scotland - the share of business activity transacted through e-business rose from 17% in 2001 to 20% in 2004, higher than the UK average ( DTI, 2004). However, Scotland continues to lag behind key competitor countries in other parts of the EU and North America, with continuing challenges in enterprises recognising the potential of e-commerce and having the skills to make full use of the technology. This challenge is particularly relevant for new enterprises, especially in non- ICT sectors, where enterprise growth and survival could be improved through a better use of e-skills and opportunities.

Similarly, in looking at the overall skills level of the workforce, the region shows a mixed picture. Reliable international comparisons on low/no skills are difficult because of the problems of comparing different education and qualification systems, and it is not possible to calculate EU averages because data are not available for all countries. However, for those countries where comparison is possible, Scotland as a whole appears to perform well. On the proportion of the 15-plus population whose highest qualification is ISCED level 2 or below (equivalent to lower secondary education), the Scottish figure is amongst the lowest, at just 10.7%, above only the UK, Lithuania, Estonia, the Czech Republic and Slovakia. However, as the sections below show, there are still significant issues for the region in the numbers of those with low or limited skills entering into sustainable employment.

Finally, as a measure of the region's capacity to improve the skills level of its workforce, Scottish participation in training is well above the average involvement in the EU-25 with 15.3% of adults aged 25 to 64 years undertaking education or training in the previous four weeks. However, according to Eurostat, the average for the Scandinavian EU economies was 25.7% in 2004, and the Scottish percentage has dropped 2% over the last four years.

Overall skills performance

One measure of the need to improve the skills of the workforce is the concept of 'skills gaps'. Skills gaps exist within organisations when a current employee is judged to be not fully proficient at his or her job. Results from Futureskills Scotland (2005b) skills survey reveal employer perceptions of three areas in which inadequately skilled staff are deficient. Planning and organisation, customer handling, problem solving and team working are all identified as weaknesses in over 50% of staff that are less than fully proficient; then written communication is deficient in almost 35%; and finally, numeracy and literacy, although among the least common skills deficiencies, are both still identified as a problem amongst almost one in five employees with skills gaps.

Evidence from Futureskills Scotland's employer survey also shows employer perceptions of the skills gap varies by broad industrial groups. They see skills gaps as most common in the hotel and restaurant sector, with 14% of employees judged to be less than fully proficient. This is significant as these industries are characterised by short-term and part-time employment. Other services, public administration and transport all report skills gaps over 10%. However, the largest number of employees with skills deficiencies - nearly 25,000 - are in the manufacturing sector where the survey suggests that employers perceive 10% of employees as not fully proficient. In terms of employers addressing these issues, people employed in the public sector are more likely to receive in-work training than those in the private sector. The agriculture & fishing, distribution, hotels & restaurants and transport & communications sectors have considerably lower levels of training.

Another important measure of skills is basic skills such as literacy and numeracy. On the available evidence, while few adults have a complete lack of reading and writing ability, many more may have very low literacy or numeracy skills. The International Adult Literacy Survey ( IALS) estimated that 800,000 - or 23% - Scottish adults have low literacy or numeracy skills, while another 30% may have inadequate skills to meet employers demands. The Scottish IALS identified characteristics likely to be associated with individuals having low skills as those who left education 16/earlier, are on low incomes, in manual social class groups, living in a deprived area, and/or over 55.

Lastly, it is useful to consider low skills more widely. In the absence of reliable data on skills levels, the highest level of qualification held is often used as a proxy. The report of the Employability Framework, Workforce Plus low paid/low skilled research work-stream considered the low skilled group as people with qualifications below SVQ Level 2. In 2004, there were almost 580,000 working-age people, or 18.5% of the working population, whose highest qualification was below SVQ level 2. At NUTS 2 level, the highest number and concentration of this group was in South-Western Scotland, with over 300,000 people, or 22% of the working-age population, with another particularly high proportion (27.5%) in North Lanarkshire.

Groups with specific skills issues

Within the workforce, different groups face different skills issues and challenges in securing sustainable employment. The groups facing the most distinctive disadvantages are the following:

• low paid workers and workers with low skills levels;
• those facing acute gender issues;
• ethnic minorities and asylum seekers/refugees; and
• older workers.

Low Pay/Low Skill

Low pay is defined by the OECD as earnings below two-thirds of the median level. Data from the Annual Survey of Hours and Earnings shows that around 486,000 people, or 22% of all employees in Scotland, earn below the low-pay threshold. It also shows that the highest concentrations of low paid jobs are in distribution, hotels and restaurants and agriculture and fishing, and that the majority of low paid employees are in either sales and customer service, or elementary occupations.

The Institute for Employment Studies (2003) found that there was no UK research into the opportunities for progression amongst low-paid, low-status employees. However, because of the limited training on offer, people in these jobs are unlikely to gain any formal qualifications. As a result, there are two possible paths for career progression, either promotion opportunities that do not require additional formal applications and are not likely to be taken by better qualified external applicants, or similar but slightly better jobs with other employers. It is considered that there are likely to be few opportunities in the first category, although as a result of the current buoyant labour market and the premium placed on work experience and references by employers, there will be more 'horizontal' movement.

Low pay is often associated with part-time working, and evidence from the Employability Framework's low-paid/low-skilled research work-stream indicated that both female and male part-time workers receive 40% less training than their full-time counterparts.

Gender

Data from the Annual Population Survey show that around 110,000 economically-inactive women in Scotland would like a job. Approximately 36% of these were prevented from returning to work because they had to look after their family. It is estimated that women returners to the labour market make up around a quarter of the female labour force at the UK level. Around 35% of mothers are employed part-time, compared to 21% full-time. Women returning to work part-time are concentrated in low-status jobs, particularly in administration, sales and customer services, and caring and personal services. Hourly rates of pay for women are only 84% of the male figure, and for full time jobs female weekly pay is only 82% of the male average.

Women returners tend not to have the opportunity to make full use of their past training and experience when returning to work in less-skilled jobs, often because of the absence of a recent work record. Full-time returners average a loss of wages (per hour) of 12%, correcting for their characteristics, while the penalty for part-time returners was 22%. There is evidence to suggest that women tend to return to lower-skilled part-time work because of the inflexibility of full-time employment. This is not helped by persistent gender differentials in Scotland's labour market. Gender segregation in sectors persists with only 11% of workers in the construction industry who are female and only 27% in manufacturing, transport and communications.

Approximately 277,000 Scottish women aged between 16 and 64 are 'would-be' entrepreneurs. Of these 34,000 have a current active interest in setting up an enterprise. In general, however, Scottish women have lower growth ambitions for their enterprise than their male counterparts. There are 67,100 self-employed women which is 27% of total self-employment. Taken as a whole, women set up around 30% of Scotland's enterprises. These firms continue to be concentrated in 'traditional' women's sectors.

Gender imbalance does not simply apply to women entering male-dominated sectors. To address the perception that there are gender-specific occupations, it is important that men are encouraged to enter into jobs and sectors traditionally associated with women, such as the caring profession.

Ethnic Minorities/Asylum Seekers/Refugees

The 2001 Census provides data on people from ethnic minorities with low qualifications. 32,000 people from ethnic minorities lack qualifications at SVQ Level 2 or above. The greatest number of non-white people with low qualifications are concentrated in Glasgow and Edinburgh. The proportion of non-white people with low qualifications is higher in Glasgow, Falkirk and Ayrshire.

The availability of earnings and employment data on ethnic minorities in Scotland is hampered by small sample sizes. At a UK level, both men and women in certain ethnic minorities, particularly Pakistanis, tend to earn less and are more likely to have no qualifications than their white counterparts. Amongst ethnic minorities, the rate of female self-employment is much lower than that of men (12% compared to 24%). However, it is worth noting that this is still much higher than the rate of female self-employment for Scotland as a whole.

Older Workers

Data from the Labour Force Survey show that people aged over 50 are much more likely to have low skills than other age groups. The number of economically-active people in this age group with no qualifications is 106,500, around 20% of the age group. There are variations across Scotland in the percentage of this age group with no qualifications - ranging from 17% in Eastern Scotland and North-Eastern Scotland to 23% in the South-Western Scotland.

As noted earlier, using qualifications as a proxy for skills means that that some people will be classified as being 'low skilled' because they lack accredited qualifications, even though they may have high levels of unaccredited skills. This is likely to be especially true for people aged over 50.

Skills in SMEs

The number of small enterprises employing less than 200 in Scotland overall is 166,600 with particular concentrations in Glasgow and Edinburgh. SMEs face a range of quite specific barriers to increasing skills in their workforce or managers such as the cost of losing staff time off the job while they undertake training. The cost of course fees and the need to pay for staff cover are major issues for around one in five employers. There is often limited money set aside for training within the organisation, a lack of perceived relevance of external training, and a fear that staff might be 'poached' when they gain qualifications. The smaller the workplace size, the less likely it is that training will be provided.

The most widely perceived constraint to setting up an enterprise is finance. Beyond finance, no single constraint affects the majority of 'would-be' entrepreneurs and most face more than one constraint. However a major constraint for them all is a shortage of skills - specific skill shortages vary between individuals, but cover a wide range of issues such as accounting, marketing, e-skills, and purchasing expertise. Self-employed males are less likely to have undertaken adult learning than male employees. The opposite is true for women.

Social Enterprise Skills

The skills of the social economy is another important issue to consider, not least as social enterprises and voluntary sector organisations are often the bodies addressing the employability issues identified in the Labour Market Analysis above. Studies conducted by McGregor et al. (2003), Glass et al. (2002) and Futureskills Scotland (2005b) highlight some of the main support needs of social economy organisations. Around a third of organisations see the need to develop the skills of the workforce, employed or volunteering. Strengthening the skills of managers was the main support needed for over one in five of the largest organisations. Smaller organisations are much more concerned to tackle long standing issues of board or management committee capacity, but this is reported as main support need by only 10% of large organisations. There are increasing needs for financial skills and marketing and enterprise training to help staff become more entrepreneurial.

Key messages

• It is estimated that 23% of Scottish adults have low literacy or numeracy skills, while another 30% may have inadequate skills to meet employers' demands.
• There are almost 580,000 working-age people considered to be low skilled.
• 22% of all employees earn below the low pay threshold, with the majority of these employees in either sales and customer service, or elementary occupations.
• Around 110,000 economically-inactive women would like to work, with 36% of these women prevented from returning to work because they had to care for their family.
• Only 10% of all those employed in Scotland are self-employed, compared to a EU-25 average of 15%. Entrepreneurial activity is increasing in Scotland, but is still lower than many other EU countries.
• Social economy organisations report that their key needs are developing the skills of their employees and volunteers, and the capacities of their managers.

2.4 Lifelong Learning

Although Scottish adult participation has fallen marginally between 2000 and 2004 to 15.3% undertaking education and training in the previous four weeks, and 20% in the previous 13 weeks, this rate remains significantly higher than the EU average. In the EU-25, only 8.6% of adults had participated in education or training in the previous four weeks, and only 9% for the EU-15 in the previous 13 weeks, although the EU figures are increasing.

In 2003, the region's percentage of population in further education ( FE) had increased to 11.1%, more than double that of the EU-15 and EU-25 at 5.2%. Participation in higher education ( HE) was 5% of the total population in the region by 2003, again significantly higher than the rate of 3.7% in both the EU-25 and EU-15. According to Eurostat, at 20%, Scottish participation in workforce training was more than double the 9% figure in the EU-15 in 2002. Scotland, although starting from a higher base, has seen a similar slight increase in these participation rates over time to that in the EU.

Geographical variations

Within Scotland, DTZ Pieda's (2005) Supply and Demand of Further Education in Scotland report found substantial variations in participation rates at FE colleges in different areas across Scotland. Scotland's average participation rate was 153 per 1,000 of the working-age population. However, the rate was significantly higher in Glasgow, Fife and Clackmannanshire, Dundee City and Angus, and significantly lower in Edinburgh, the Lothians and Lanarkshire.

The Scottish Index of Multiple Deprivation Education Indicator shows concentrations of education deprivation in Scotland using both the proportion of the working-age population with no qualifications and school-age performance. Within Lowlands & Uplands Scotland, South-Western Scotland has the highest concentration with 22% of its data zones in Scotland's 15% worst areas of education deprivation. Eastern Scotland has 12% of its data zones in Scotland's 15% worst, while North-Eastern Scotland performs well with only 6% of its data zones. The NUTS 3 breakdown shows that urban areas perform significantly worse on this measure than rural areas. Glasgow has the most severe problems with 30.5% in the worst 5%, 43.1% in the worst 10% and 48.8% in the worst 15% areas. Three NUTS 3 areas in Eastern Scotland have over 15% of their data zones in Scotland's 15% most-deprived areas - Edinburgh, Falkirk, and Angus and Dundee City.

The SFEFC/ SHEFC (2005) Learning for All report found participation at higher education level by people from the most deprived areas has grown but very gradually. People from the least deprived areas were still about twice as likely to be participating in higher education as people from the most deprived areas.

Low participation neighbourhoods for entrants to First Degree Courses in HE institutions are defined as areas where the participation rate among 18-19 year olds is less than two-thirds the UK average rate. Scottish HE institutions have increased the proportion of their young entrants who are from low participation neighbourhoods to 19%. This is significantly above the UK average. However, there has been a drop in the proportion of mature entrants, those aged 25 years or over, from these neighbourhoods. (Scottish Executive, 2005c).

Participation in different forms of lifelong learning

Post-Compulsory School-Age Lifelong Learning

The Labour Force Survey estimated that in the academic year 2003-04 there were 2.3 million people of working age (74%) in Scotland involved in some form of learning activities. This included 700,000 undertaking courses in educational institutions; 34,000 taking courses outside of Scotland; 750,000 receiving work based training; and a further 750,000 engaged in more informal learning activities.

On reaching school-leaving age, many young people continue in education and training at school, college or with an employer. Staying-on rates, that is the number of pupils who continue into post-compulsory education, divided by the total number of pupils in the entire cohort, is an important lifelong learning indicator. In 2004-05, about 76% of those entering S3 in 2002 stayed on until S5. The figure drops to 67% after Christmas, when education becomes voluntary for all S4 pupils. Only 44% of those entering S3 in 2002 stayed on until S6. Females have higher staying on rates than males. The staying-on rates have remained fairly steady over the last five years.

Half of school leavers went on into Further or Higher Education in 2003/04, which represents a 2% fall since 2002-03 for those going into HE and no change for those going into FE. In 2003/04 there were a total of 467,170 enrolments in Scotland's 46 FE Colleges. Of these, 84% were part-time; 352,290 were vocational enrolments; 59,270 were for non-vocational classes; and 55,160 were in higher education courses.

In terms of the demographic breakdown of vocational enrolments, 57% are female, 43% male; 40% of vocational enrolments are aged 24 years old or under; 43% are aged between 25 and 49 years old; and 18% are aged 50 or over.

In 2003/04, there were 172,875 first degree or postgraduate students who were domiciled in Scotland and studying in UKHE institutions. That equates to 6% of Scotland's working-age population. 126,605 were enrolled on first degree courses. 46,270 enrolled on postgraduate courses. 71% of the total 172,875 students attended Scottish HE institutions.

The Age Participation Index measures the proportion of Scots under 21 years old who entered higher education anywhere in the UK for the first time in a given year. In 2003/04, 48.9% of young Scots entered a full-time higher education course for the first time. This has fallen slightly since its peak of 51.5% between 2000 and 2002. However, over a longer time period, the figure has doubled since 1990. 30% of young Scots enter at degree level, with 19% entering at sub-degree level, 78% of whom were aged under 24 years old. In contrast, 71% of postgraduate entrants were mature students aged over 25 years of age.

Students with disabilities participate broadly in proportion to their numbers in the total population. 5.3% of students at Scottish HE institutions declared a disability in 2003/04. In 2000/01, this figure was 3.8%, though this increase can partly be put down to refinements in data collation.

Taken from HESA (2001) Statistics Focus, 6% of Scottish-domiciled first-year higher education entrants in 2000/01 were non-white, which compares favourably with the proportion of non-white individuals living in Scotland, which is 2%.

Other Post-School Lifelong Learning

14,855 people aged 16 to 24 years of age entered Modern Apprenticeships in 2004/05. The majority of participants are male, reflecting the fact that more females stay on at school or enter further FE. 7,333 achieved an MA.

Of the 8,469 people aged 16 to 18 years of age participating participants in the Skillseekers programme in 2004/05, 5,556 achieved a vocational qualification. The numbers of male and female participants in the Skillseekers programme are about even.

During the period April 1998 to December 2004, 13.5% of the 144,350 18 to 24 year olds in Scotland starting on to New Deal for Young People ( NDYP) chose to move onto a course of full-time education or training. About 74% of the participants in the NDYP programme are male (Lifelong Learning Statistics, 2005).

8,543 young people joined the Get Ready for Work ( GRfW) programme in 2004/05. Of these, 3,011 participants achieved Positive Outcomes. GRfW is dominated by males with only around 35% of participants achieving positive outcomes being female.

The Executive's (2005) Lifelong Learning Statistics define adult learning as all types of learning excluding that undertaken by full-time students of school, university or college. Adult learning includes all individual learning, in-work training and training programmes that improve the chances of employment or progression.

Using these statistics and Annual Scottish Labour Force Survey ( ASLFS) data shows that for women aged 16-54, the proportion undertaking training in the last three months is around 34-35%. Whereas for men, the proportion undertaking training varies between 37% for 16-24 year olds and 25% for 45-54 year olds. There is a definite downward correlation between age and the proportion of people undertaking training, with older people less likely to undertake training. Older people are less likely than younger people to have undertaken some sort of adult learning in the past year.

Economically-inactive people who are sick, disabled or are looking after the home are the least likely to have undertaken any adult learning.

Qualification level is positively correlated with the likelihood of undertaking adult learning. Over 90% of people with qualifications above SVQ Level 4 have undertaken adult learning compared to 69% and 38% of people with SVQ Level 2 qualifications and no qualifications, respectively.

The numbers participating in the Training For Work programme have been falling over time, experiencing a significant fall since 1998 when the New Deal for 25+ was introduced. Of the 9,589 participating, 46% of all leavers achieved a positive outcome in 2004/05, with 44% of male leavers and 50% of female leavers achieving a positive outcome.

The people aged 25 or over joining the Adult Modern Apprenticeship programme are predominantly female, in contrast with the 16-24 Apprenticeship age group. Over 60% of MAs achieved are by females for this age group. This compares to only around 40% of female participants aged 16-24.

In-Work Training

In-work training can be both on-the-job and off-the-job training. On-the-job training includes supervised training at the workplace; while off-the-job training includes training away from the workplace at the employer's premises or at an educational establishment or other training provider (Lifelong Learning Statistics, 2005). Using data from the Annual Scottish Labour Force Survey (2004) it is estimated that in the last three months, 687,000 (31%) of working-age people in employment have undertaken job-related training. A greater proportion of female than male employees have undertaken job-related training in the last week, month and three-month period.

Further evidence on work related training is obtained from surveys of employers, including the Scottish Employer Skills Survey which shows that 64% of establishments in Scotland provided some training in the previous year, in the survey for 2003 and again for 2004. The proportion of establishments giving some off the job training has decreased slightly, but remains at over 50% while the proportion offering no training of any sort remained at 36%. The 2004 Annual Scottish Labour Force Survey shows that in the previous three months, 687,000 (31%) of working-age people in employment had undertaken job-related training.

The incidence of training increases significantly with workplace size. 96% of establishments with 250 or more employees provided training in the previous 12 months. Less than half the establishments with less than five employees provided training.

Key messages

• Scotland's participation in education and training at 15.3% is well above the EU-25 average.
• Over one-quarter of the working-age population is not involved in some form of learning activities.
• People from the most-deprived areas are about two times less likely to participate in higher education as people from the least-deprived areas.
• Economically-inactive people who are sick, disabled or have caring responsibilities are the least likely to access adult learning.

2.5 Summary of Key Challenges

In this final section of the socio-economic analysis, on the basis of the statistical evidence presented above, a summary of the key issues to be addressed in the Programme is presented: first, an analysis of the main strengths, weaknesses, opportunities and threats for the region's labour market; and second, a more detailed identification of the key challenges for the Programme under the employability, workforce skills and lifelong learning headings.

SWOT analysis

Regional Strengths

• The region has shown an overall good employment performance in recent years. Employment rate of 72% exceeds EU Lisbon target of 70% and is at a historical high, driven by an expanding employment base and linked to low unemployment rates.
• Employment rates have risen for the major groups of the population, including the more disadvantaged groups such as lone parents.
• The proportion of economically-active Scots educated to SVQ level 4 or above is rising as is participation rates in education.
• Scotland's participation in education and training at 15.3% is well above the EU-25 average. Overall, there is a high percentage of young people in higher education.

Regional Weaknesses

• There is still a substantial gap between the employment rates for the more disadvantaged groups and the workforce as a whole. Worklessness is a more acute problem than unemployment in many cases.
• There are big geographical variations in employment rates with, for example, Glasgow's employment rate is only around 65% compared to 76% in Edinburgh and 78% in Aberdeen.
• The NEET Group constitutes a particularly difficult problem. There are around 33,400 16-19s in this group, the majority in South-Western Scotland with high concentrations in the Glasgow area. The group represents a particular policy challenge given the entrenched nature of worklessness among the individuals.
• The numbers of working-age jobless people described by their benefit status as 'sick and disabled' have fallen by only 2% - and at 346,000 people now make up 67% of all working-age jobless people. Around 119,000 people claiming Incapacity Benefit have mental ill health and behavioural problems.
• Relative to the average, unemployment rates for people living in the most deprived areas have remained constant over time in relative terms. Areas with concentrations of worklessness often present a greater policy challenge because there are a number of environmental factors reinforcing the lack of employability characterising some communities.
• Ethnic minority employment rate at 56.4% increased only marginally (1%) and the gap has actually widened. Employment rate for non-white females in Scotland is 48% - well below the rates for non-white men (59%) or white females (72%).

Regional Opportunities

• The region benefits from macroeconomic stability providing a foundation for further employment growth.
• There is a regulatory framework that sets clear standards, such as the national minimum wage, anti-discrimination and equal opportunities legislation.
• The Scottish Government is committed to new strategies on employment, regeneration and tackling the NEET group.
• A significant part of the working-age population in the region is willing to work if they can overcome barriers such as affordable available care for relative, health issues, or discrimination.
• Although the measure of entrepreneurship in Scotland is in the bottom half of the EU, in 2004 it was up from 4% to 5.1%, showing signs of improvement.
• Although there are demographic concerns to the long-term labour market, the influx of migrants into the region provides new opportunities for employment and productivity growth.
• Because a number of areas within the region have a combination of economic problems acting to reinforce problems of poverty and social inclusion, spatial and co-ordinated targeting of additional resources could provide an effective means of intervention.

Regional Threats

• Macroeconomic instability or a change in interest rates might affect the economic climate and the employment levels.
• Increased migration from new accession EU members might make employers less prepared to work with the local workless population trying to enter or progress in the labour market. The challenge will be to turn migration into an opportunity for the Scottish economy to gain from new skills sets and a potentially larger pool of entrepreneurs.
• The population is ageing and older workers tend to have less recognised qualifications and are less prepared to undertake training. There is a need to retain older workers in the workforce, but also to increase their productivity. At present there is a market failure as employers will not provide this training as the private costs to either the employer or the individual are likely to exceed the benefits to them personally.
• Social attitudes still need to be tackled to overcome gender segregation, recruitment and progression for some groups within the working population.

Key Programme challenges

The SWOT analysis - and the key messages highlighted above - suggest that there are a number of key strategic challenges which the Programme should address.

1. Reducing the acute levels of worklessness in certain groups and areas. Significant efforts are still required to reduce the 520,000 working-age people who are on state benefits. Although pathways to work should not be the preferred solutions in all cases, securing sustainable employment can be critical in helping individuals out of poverty. Efforts are needed to provide individuals with the opportunity and skills for entering/re-entering the labour market. At the same time, there are parts of the region where worklessness is at acute levels, resulting in self-reinforcing poverty cycles that can hinder the employment prospects of individuals located in particular communities.

2. Improving employment rates in those groups which are the 'hardest-to-help'. Linked to the above issue, there is a case for support to concentrate on those individuals and groups which face multiple and severe barriers to their participation in the workforce. Domestic support is more available for those 'close' to the labour market. As the 'hardest-to-help' require more intensive forms of assistance, resources should be targeted to allow them to access the full set of services they require to enter the labour market. While sustainable employment may not be the right solution for all individuals in these groups, there is scope for helping those who want to enter the labour market. This may mean focusing on improving 'soft', basic skills in entering the labour market and aim to further their progress towards achieving sustainable employment, rather than focus exclusively on supporting individuals to get jobs immediately. At the same time, employer attitudes need to be addressed to ensure that employment opportunities will be extended to this group.

3. Increasing the ability of the low-waged and low-skilled to progress through the labour market. Only a small proportion of low-waged/low-skilled employees appear to progress in the labour market. For some groups though, the issue is not simply one of supply but demand as well, particularly with respect to employer attitudes to certain groups (such as ethnic minorities, migrants and older workers).

4. Tackling representation in key occupations and sectors of under-represented groups. Persistent gender earnings gaps and strong gendering in specific occupations and industries need to be addressed more effectively, both to widen opportunities for women and increase the labour supply to occupations and industries dominated by particular genders. Similar issues apply to ethnic minorities. At the same time, there is a need to encourage greater retention and retraining of groups such as older workers and migrants to ensure a thriving, growing supply of labour. As a market failure in the region, the issue relates to both labour supply needs (such as training) as well as demand (such as employer attitudes).

5. Increasing the skills levels of entrepreneurs and new enterprise managers. Entrepreneurialism is less common in the region's labour market relative to the rest of the UK and the EU. General skills/training support is needed to help raise the new firm formation rate, but there is also a strong case for specific measures to help move under-represented groups into self-employment, including the currently employed. At the same time, new enterprise managers often lack sufficient management, e-business and knowledge economy skills.

6. Providing social enterprise managers and workers with greater skills to sustain their organisations. The capacity of the social economy to deliver services more effectively to vulnerable groups and develop the skills to achieve long-term enterprise survival is important.

7. Increasing lifelong learning participation rates among the most disadvantaged groups. In terms of headline figures, the region compares favourably for overall participation rates in lifelong learning, but they vary considerably by group. This underlines the need to focus on the most disadvantaged. It also confirms that working intensively to address these disparities is essential to make in-roads into closing the opportunity gap that currently exists.

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