UK in a Changing Europe publishes working paper by Professor Jonathan Portes and John Springford
Interesting new analysis published this week by UK in a Changing Europe (UKICE) considers how the post-Brexit immigration system has impacted the UK labour market in the two years since its introduction.
Brief commentary is available here and a 26-page working paper can be downloaded here.
UKICE is based at King's College London (KCL), and the new analysis is authored by KCL's Professor Jonathan Portes and by John Springford of the Centre for European Reform think-tank.
The authors find that the post-Brexit system has functioned as designed to produce a clear break with pre-Brexit immigration trends and has reduced labour supply for some sectors, especially lower-skilled sectors. Work-related immigration from outside the EU has increased, but not by enough to balance out the fall in EU workers.
The UKICE working paper explains: "The new system … has, as expected, resulted in a large reduction in EU migration and an increase in non-EU migration. Our analysis suggests that, although migration overall is currently running at least at pre-pandemic levels, there remains a substantial 'shortfall' in migration for work; that is, that migration-driven labour force growth is substantially below plausible counterfactuals, even taking account (in a mechanistic way) of the impact of the pandemic and associated changes in labour demand, although these calculations are admittedly based on a very broad-brush methodology."
Using methodology outlined in their working paper, Jonathan Portes and John Springford estimate that the period from January 2021 to September 2022 saw a significant shortfall of 460,000 EU workers, compared to an increase of about 130,000 non-EU workers. This means a net loss of around 330,000 workers, which represents 1% of the UK's labour force.
Brexit's impact on work visas differs very considerably between sectors, with higher skilled sectors benefiting the most from the more liberal post-Brexit regime for skilled work visas.
The authors say: "In lower skill sectors, such as manufacturing, hospitality and wholesale and retail, very few work visas have been issued; in other words, the new system is providing little or no replacement for the fall in migration from the EU resulting from the end of free movement. […] By contrast, in some higher skilled sectors - ICT, finance, professional and technical, and education - visa issuance is comparable to the net change in non-UK employment seen pre-pandemic. These were also the sectors which relied heavily on work-related visas prior to the introduction of the new system."
Thus the significant increase in non-EU migration after Brexit has been concentrated in sectors and occupations which were already relatively open, especially the health sector. The sectors hit most by the loss of EU workers include transportation and storage, wholesale and retail, accommodation and food, manufacturing, construction, and administration and support. This is despite the fact that a substantial proportion of jobs in these sectors would in principle be eligible for skilled work visas.
The authors stress that they are necessarily limited in their overall conclusions, especially due to the difficulties disentangling changes driven by labour supply resulting from the new immigration system from those resulting from labour demand. They also highlight a number of important uncertainties, including significant recent increases in non-work-related immigration routes, such as Ukraine, Hong Kong and students.
Jonathan Portes and by John Springford said in summarising their conclusions: "Overall, the new system is working broadly as Leave advocates promised. EU citizens no longer have the automatic right to work in the UK, and must apply for visas alongside people from the rest of the world. The conditions of the new system, while liberal, are too onerous to compensate for the loss of free movement in low-skilled sectors of the economy, which is contributing to labour shortages."
The authors add that in the sectors most hit by the shortfall of workers there is, as yet, little evidence either of non-UK workers being substituted by UK ones or of wages responding: "Most of the adjustment is therefore likely to take place through lower employment, which is indeed visible; whether businesses can over time compensate with increased productivity, rather than simply reducing output, remains to be seen."