Reflections on the Coming Brexit Labour Market Disaster (Or Not)

April 2, 2017

In the wake of Article 50 being triggered I want to reflect on how the business pages have covered the labour market consequences of Brexit over recent weeks.

The coverage has been overwhelmingly gloomy, accurately reflecting the views of business sectors that have got used to the benefits of an open border with what the Marxists used to call “a reserve army of labour” from the EU. But it has also, between the lines, been grudgingly optimistic. With farmers, restaurant owners or house builders admitting that they will just have to pay higher wages or spend more on training. What a disaster!

The Observer business section two page spread of March 26th was as classic of the genre. The tone of the piece was unrelentingly mournful. (And this from Britain’s main left-of-centre newspaper group, revealing the topsy-turvy nature of current politics.) In its tour of farming, hospitality, construction, manufacturing and social care the paper uncritically reflected the negative sentiment of employers who talked of the “haemorrhaging” of EU staff following Brexit and the falling pound.

There will, of course, be some labour market friction as a result of Brexit and the consequence of the over-reliance in some sectors, in recent years, on EU labour. Some businesses may become unviable or see their profit margins squeezed; maybe we will return to importing more fruit and vegetables rather than importing a workforce to pick them here. But the numbers are less frightening than many people think. Only in Hospitality and manufacturing are the EU employment numbers over 10 per cent, and then only just. In social care the EU-born workforce is just 7 per cent (though higher in London and the south-east).

So how will business adapt, according to the Observer? Most of the business people are reported as saying with long faces that they will have to pay higher wages and invest more in machinery. How simply awful!

Denis O’Donnell who owns a restaurant in Stockport reported that at the last meeting of the British Hospitality Association “people were doing a lot of hand-wringing” but added that the obvious answer was to pay higher wages, which is what he thinks will happen after Brexit.

Laurence Olins of the trade body British Summer Fruits told the Observer that where a job had been attracting 10 applicants it was now only attracting three or four and the workers might be of lower quality. When did employers ever like tight labour markets?

Ian Wright of the Food and Drink Federation complained that one in 12 food manufacturers report that some of their EU staff are planning to leave and that this will create skill gaps. Perhaps it will. But then his members could always do something really radical and train some local people.

Large scale immigration and EU freedom of movement has exacerbated the long-standing British failure to invest in training employees—according to Francis Green of UCL the amount spent on training has declined by anything between 15 and 30 per cent in recent years (see the paper with the pleasingly blunt title “What has been happening to the training of workers in Britain?”). Last year only 8,000 construction apprenticeships started, in a country that is meant to be building many more houses. This is a scandal.

Food manufacturing employs about 115,000 east Europeans out of a total of 400,000. Ian Wright says: “They are vital to keeping the UK fed. If you can’t feed a country you haven’t got a country.” But the vast majority have only been here since 2004 and I don’t recall people starving in the street before that date.

Higher wages, investment in automation and more training. Hold on to your hats a true catastrophe lies ahead!

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