A new report has revealed that major challenges, including skills shortages and an ageing population, are posing a risk to Scotland’s economy.

The Skills for Today and Tomorrow report, put together by the Fraser of Allander Institute on behalf of law firm CMS, provides an analysis of Scotland’s current skills landscape, as well as outlining the demographic and technological challenges facing Scotland, to identify labour market trends.

The report highlights an increase in job vacancies and a growing mismatch between the skills available and those demanded by employers, with one in four Scottish employers reporting vacancies, and nearly a third of these (31%) classified as skill-shortage vacancies, a sharp rise from 2020.

Skilled trades, associate professionals, and professionals claimed to be the most affected areas, with shortages in technical, analytical, and digital skills reported as most prominent.

Only 21% of Scottish firms felt employees were fully equipped to meet the changing digital technology needs of the business, yet almost half (46%) of employers were not taking any action to develop the digital skills of their employees.

Looking ahead, 66% of employers said they anticipate upskilling needs in the next 12 months, driven primarily by new technologies, legislative changes, and new working practices. 

The report also highlights a disconnect between the skills being taught and those needed by fast-growing sectors like technology and renewable energy, but with total training expenditure falling to £4.1 billion in 2022, down from £4.8 billion in 2017, there are concerns about addressing this skills gap and securing funding for future workforce development.

As well as a lack in technical training, the study raises concerns about deficiencies in soft skills, such as adaptability, creativity, and communication within the current education system.

Despite these problems, Scotland maintains a thriving startup ecosystem, particularly in high-growth sectors like life sciences, software, and space technology. In 2023, Scotland incorporated 1,553 new tech companies, a 21% increase from the previous year, matching the UK’s national growth rate.

Maintaining this growth will prove challenging in years to come. With the number of over-65s in Scotland expected to rise by a third over the next two decades, the retirement of experienced workers will be a critical gap in the labour market, creating skills shortages in key industries and occupations that will impact the wider economy. 

The report claims that Scotland’s ageing population is putting key sectors such as construction, health care, and transport under threat, and highlights an urgent need for workforce planning to mitigate impending staff shortages.

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Professor Mairi Spowage, director of the Fraser of Allander Institute, said: ”As well as highlighting key economic challenges, this analytical report explores how Scotland can leverage its world-class education system, burgeoning tech hubs, and leadership in renewable energy to ensure its workforce can meet the challenges of today and seize the opportunities of tomorrow.”

New data from this year’s Business Barometer report backs up some of the most concerning findings, with over half of Scottish organisations reporting worrying skills shortages, especially in areas of emerging technology such as AI, with 77% of employers saying skills shortages have increased the workload of their employees.