What does Brexit mean for employment?

Blog posts

29 Jun 2016

Jim HillageJim Hillage, Director of Research

Now the shock has subsided, speculation really begins as we try to work out what Brexit will mean for us and ours. The full potential impact of leaving the EU for the British labour market and employment will take time to emerge and will not become clear until we know what type of arrangements we agree with our erstwhile European partners and what elements of EU regulations are passed into UK law. That will not prevent all and sundry trying to second-guess the implications. So here are some quick thoughts from IES:

Impact on labour supply

Some 2.15 million EU nationals work in the UK – seven per cent of the workforce. Some will still be entitled to work here under any ‘Australian-style points-based’ immigration system, but many low and semi-skilled workers may not. EU citizens already in the UK are unlikely to be repatriated, but future labour supply from this group is likely to be affected and some EU workers already here could feel unwelcome and want to leave. Many employers are already concerned about where they will find new sources of  labour supply. It may also be more difficult to attract skilled workers too if public sentiment in general turns against overseas recruits.

Impact on labour demand

It is likely that, in the short-term at least, some organisations will shift operations overseas, particularly those who need to have a base inside the single market. Others will freeze hiring decisions until the economic uncertainty starts to disperse. Therefore in the coming months it is unlikely that the UK’s record-breaking employment rate will reach even greater heights. In the longer term the consensus among forecasters is that employment will fall as a result of Brexit. They may not be right if, for example, exporters benefit more than expected from a lower sterling rate and new trading arrangements with the rest of the world. However, only a relatively small proportion of the UK workforce directly or indirectly works for overseas markets, so the chances are that UK employment levels have or are about to peak.

Impact on pay

There are various estimates of the impact of immigration on pay levels. The general conclusion is that as immigration rises, pay levels fall slightly but, given the relatively low proportion of foreign-born workers in the UK, the impact is very small indeed – a few pence per hour for say a 10 per cent change in the ratio of foreign-born to UK-born workers. So presumably if immigration falls, wages might rise and indeed this may be essential to encourage UK citizens to take up low-skilled jobs they have previously shunned. However, the rising National Living Wage is likely to have an even stronger effect on low pay. Furthermore as sterling rates fall the rising costs of imports may lead to higher prices. In turn this could result in inflation-linked pay rises for everyone, although whether this results in real pay increases may be a moot point.

Impact on employment relations

Employment Minister Priti Patel suggested in the referendum campaign that some EU ‘employment rules’ could be scrapped delivering ‘a £4.3billion boost to our economy and 60,000 new jobs’. Many EU laws take the form of either Directives or Regulations. The former are already part of UK law and likely to remain so for the foreseeable future. EU Regulations apply in the UK without having to be passed into law. The tight Brexit timetable means that it is possible that all EU Regulations will be simply applied to the UK by a single Act of Parliament rather than each one being scrutinised for its effect and value. It is unlikely that, for example, UK law on equal pay will be repealed, but there is speculation that EU law covering aspects of working time, agency workers or the transfer of employees from one employer to another (TUPE) might.

There are likely to be many other implications for employing people in the UK from our departure from the EU and IES will be researching and monitoring these over the months and years ahead and we’d love to hear your views. Do get in touch and join the conversation.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.