Economy is booming but wages have scarcely risen in past decade

Wages have been “stagnant” despite Shetland’s billion-pound economy enjoying robust growth in the past decade, council figures have shown.

An SIC-commissioned piece of research, carried out by the Hutton Institute and published last week, estimated that the islands enjoyed “robust” above-inflation growth of 27 per cent from 2003 to 2011.

However, the development dep­art­ment this week provided this newspaper with statistics demonstrating how wages rose by only two per cent more than inflation during that time.

Shetland’s gross regional dom­estic product (GRDP), a combin­ation of profits and wages, jumped in size from £407 million to £485 million over the eight-year period. But wages only rose from £274.8 million to £279.4 million. That means pay packets, as a proportion of GRDP, slumped from 67.6 per cent to 57.6 per cent.

Councillors broadly welcomed the rosy overall picture painted by the report, which highlighted that the economy grew to nearly £1.1 billion by 2011. But North Isles member Gary Cleaver said he was intrigued to know how much of that activity was actually benefiting people living locally.

Some industries – most notably seafood – have witnessed a shift from local to foreign ownership. Oil and gas prices also rocketed in that time – likely to have led to rising profits without necessarily inflating workers’ pay.

Meanwhile the retail trade’s value swelled from £46 million to nearly £58 million. A huge propor­tion of that – many sources estimate well over half – is accounted for by supermarket giant Tesco, which took over Somerfield’s Lerwick store in 2008. Other local retailers point out that, aside of staff wages, much of Tesco’s profits flows out of the South Mouth and into shareholders’ pockets.

SIC official Tommy Coutts said it was difficult to pinpoint precisely what was causing wages to remain flat.

“Wage stagnation is a serious issue despite the otherwise healthy economic picture painted by the output figures,” Mr Coutts admitted, “which is demonstrated by the minimal growth of wage values in real terms and the decreasing prop­ortion of GRDP attributable to wages.”

Mr Cleaver said it was only possible to “speculate” as to the cause. But it seemed likely that much of the wealth being created would go shareholders and companies “whose tax affairs may have little to do with the UK”, let alone these islands.

“My concern is that the picture we might be presenting outside of Shetland … is that we’re really cook­ing on gas as far as the econ­omy is going,” Mr Cleaver said. “But it gives a slightly skewed vision of what we actually have in the way of available wealth in Shetland to do things like develop new business, new sectors of the economy.

“It’s a generalisation, because there are some locally-owned operations, but there aren’t many. Some of [the proceeds of growth] won’t even go to the UK Exchequer, so we won’t even get a secondary benefit from that.”

Development committee chair­man Alastair Cooper agreed that pay may well be lagging so far behind because large profits are being generated by multinationals which “do not reside in Shetland”.

The up-side of that, he noted, was that when an industry such as salmon farming – now largely owned by Norwegian seafood giants – encounters problems such as disease, “multinationals can ride the short-term effects”.

During Wednesday’s meeting councillors broadly welcomed the “good news” figures, showing average growth exceeding three per cent over a time span including the global economic downturn from 2008 onwards.

Councillor Billy Fox said the report highlighted just how impor­tant the marine industry was. At £317 million its total value repre­sents almost a third of the islands’ productivity.

See this week’s Shetland Times for more.