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Scotland’s Productivity Challenge: Exploring the issues

The Productivity Institute’s eight Productivity Forums have written an extensive agenda-setting analysis for each of the five English regions and the devolved nations of Wales, Scotland and Northern Ireland. This includes historic regional context, key issues and future research priorities. Alongside this is an executive summary: a high-level overview highlighting the productivity picture in their area, including a scattergraph showing the disparities within on a NUTS3 level in comparison with the UK average, the primary drivers and bottlenecks, a SWOT analysis and a look to the future. Both can be downloaded on the right of this page. These were written with the support of the Scotland Productivity Forum.


Productivity matters greatly for the wellbeing of every person in Scotland. It is key to supporting high quality and rewarding jobs, and funding public services. Unlocking Scotland’s productivity potential will help build a stronger more resilient economy that delivers inclusive and sustainable growth. But the story of Scotland’s productivity performance is one of puzzles and apparent contradictions, with strength in some areas but below average performance elsewhere.

For example, Scotland has one of the most educated workforces in the Organisation for Economic Co-operation and Development (OECD) through its renowned group of world-leading universities. At the same time, Scotland has a high percentage of adults without any qualification compared to the UK as a whole. Indeed, Glasgow is in the bottom 10 UK cities for the highest percentage of its working age population with no qualifications.

Scotland has had great success in high productivity sectors such as energy, finance and other knowledge intensive service industries. However, highly productive firms account for a small number of employment and employers report various skills gaps that hold back their growth potential. But the majority of Scotland’s business base is clustered at low levels of productivity. Like other parts of the UK, whilst employment growth has been strong in recent years, the majority of this growth since 2009 has been in the relatively low value-added service sector.

The contribution to research and development (R&D) by Scottish universities is among the best in the OECD, but this has yet to translate into a step-change in innovation in the Scottish economy. Overall R&D expenditure has been chronically low in comparison with the OECD and below the UK average. Indeed, Scotland lags the UK in key metrics of innovation from new products and processes to workplace innovations. Over all levels of private investment in the Scottish economy are typically lower than in the best performing countries.

These observations impact on a range of outcomes. A significant challenge is the persistently low rate of business start-ups and the lack of a critical mass of large scale-ups. Employers report various skills gaps that hold back their growth potential. A small number of about 100 companies accounts for 60% of Scottish international exports. Unlocking Scotland’s productivity potential will therefore help build a broad, stronger and more resilient economy that delivers inclusive and sustainable growth.

Authors John Tsoukalas


  • Productivity Studies




J. Tsoukalas (2021) Scotland’s Productivity Challenge: Exploring the issues. Productivity Insights Paper No. 006, The Productivity Institute