Securing the people that Scottish businesses need is proving to be one of the toughest challenges facing the economy.

Quite simply, there are two ways to bring more people into the workforce. One is domestically, through education, skills and training. The other is through immigration, by attracting international talent to live and work in Scotland.

Immigration should be viewed as a tool for economic growth. We are not the only ones that think this. The CBI agrees too.

As does a recent survey by the Institute of Public Policy Research which shows that the Prime Minister Rishi Sunak and the Leader of the Opposition Keir Starmer could adopt a more open approach to migration without damaging their electoral prospects. This all matters because the scale of the problem facing businesses cannot be underestimated.

Businesses have been telling us that labour challenges are among their top three concerns, alongside energy costs and inflationary pressures. Our latest data also indicates that at least half of all Scottish businesses are facing labour market difficulties, with this rising to six in ten for manufacturing and tourism firms.

Interlinked to this is the growing cost-of-doing-business crisis, with seven in 10 of all firms telling us that labour challenges are piling increased cost pressures on their business. This is not only preventing firms from investing and expanding their workforce, but also contributing to fears of business collapse because they cannot get the people that they need.

Although official labour market statistics would indicate that the overall employment and unemployment figures have remained stable as we have come out the pandemic, our data indicates that businesses continue to face challenges when it comes to hiring and retaining people.

This is further evidenced by ONS data that indicates that there are nearly 1.3 million job vacancies in the UK. There are more vacancies than there are people available to fill them.

Research by the Chartered Institute of Personnel and Development (CIPD) has highlighted what actions Scottish companies are taking to recruit people.

Nearly four in ten (38%) say they have increased wages to support existing staff with the cost-of-living crisis, the same proportion say they have brought in flexible working. But others are not in the same position, particularly when it comes to raising wages.

Companies are feeling the brunt of record levels of inflation, the tightening of fiscal and monetary policy as well as consumer purse strings, all contributing to great uncertainty.

Scotland’s labour market has also tightened over the past half-decade. Economic inactivity in Scotland has been higher than in the UK for more than five years, and that gap has widened throughout the pandemic. The Annual Population Survey indicates that economic inactivity for people aged 16-64 increased by 5.4 per cent over the course of the pandemic.

Long-term sickness, including long Covid, has invariably played a key part in discouraging people, particularly older workers, to staying in the labour market. This has been a large driver in the rise in economic inactivity over the past two years, along with those taking early retirement.

Another factor has been a shift in lifestyle choices, brought upon the societal changes accelerated by the pandemic, in areas such as the nature of work post-pandemic.

Domestically, while Scotland’s career services are of a high standard, they must flex to attract older workers back into the workforce and provide viable routes to employment for young people, many of whom have stayed in education since the pandemic.

Looking more widely at Scotland’s demographic trajectory, an ageing population combined with the prospect of reduced net migration to Scotland poses a substantial challenge to Scotland’s long-term economic prosperity and the efforts of businesses to access the necessary skills and talent.

The impact of Brexit and the Covid-19 pandemic has laid bare the workforce and skills challenges facing Scottish businesses with shortages of staff across multiple sectors. While new efforts to increase the domestic workforce are welcome, these take time and it will be many years before they come to fruition.

The UK Government must be realistic, open and pragmatic to using immigration policy productively to boost economic growth, which can be done far more quickly and would help struggling firms now.

Liz Cameron is chief executive of Scottish Chambers of Commerce

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