Brexit: Lower Immigration = Lower Growth
The uncertainty around Brexit is worsening the UK migration balance with the EU. This can have negative consequences for the British labor market.
January 9, 2019
Two and a half years after the Brexit referendum, the terms of the “divorce” are still unclear. This creates uncertainty not only for companies, but also for employees.
Net migration from the EU to the UK has declined since the plans for a EU-referendum started to materialize in mid-2015 (Figure 1).
Not only are fewer EU citizens coming to the UK, but the number of EU citizens leaving the UK has reached historic highs. To the contrary, net migration from non-EU countries has increased over the same period.
The uncertainty surrounding Brexit has diminished the attractiveness of the UK as a destination for EU migrant workers, particularly for Poles, who are among the strongest migrant group in the UK.
The proportion of Poles leaving for the UK over total Polish emigrants has declined by almost five percentage points since 2014. During this time, the attractiveness of Germany as destination country for Polish emigrants has increased (Figure 2, left).
Similarly, Poles returning from the UK as a share of total Polish immigration increased by over five percentage points. The reason is clearly the Brexit uncertainty: the share of emigrants returing from Germany has declined significantly (Figure 2, right).
Effects on the British labor market
This development of migration will be seen as a triumph for Brexit supporters, as the commitment to curb immigration was one of the central goals of the Brexit initiative.
However, this should come at a cost for the British labor market. Indeed, as a reflection of growing uncertainty, foreigners with a job both arriving in and especially leaving the UK started to decline/increase, respectively, around the Brexit referendum (Figure 3).
This is a negative outcome, given the growing number of job vacancies economy-wide. For manufacturing, the proportion of vacancies per 100 employees has increased significantly since the end of 2015.
But also in services, the back-bone of the British economy, the share of job vacancies has widened over the same time period (Figure 4).
This effect can hardly be attributed to cyclical factors, since the hot phase of the cycle was between 2012 and 2015, followed by a stabilization phase thereafter and until the Brexit vote.
In sum, Brexit has made the UK less attractive especially for skilled migrants from EU countries.
It is uncertain to what extent skilled UK workers will be able to fill these vacancies. After all, the benefits of more, better payed jobs are likely to be less than the wider welfare loss from Brexit.
The drain in qualified but also lower-skill labor is likely to reduce British potential GDP growth and to make British residents worse off. Brexit has many prices, and this is one of them.
The uncertainty around Brexit is worsening the UK migration balance with the EU.
The attractiveness of the UK as a destination for EU migrant workers has diminished -- particularly for Poles.
Lower migration will be seen as a triumph for Brexit supporters. However, it should come at a cost for the British labor market.
The drain in qualified but also lower-skill labor is likely to reduce British potential GDP growth and make British residents worse off.