The end of free movement and the low wage labour force in the UK

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In December 2020, the Work Foundation looked ahead to the likely impacts of the end freedom of movement within the EU, which was to come into force on 1 January 2021 when the UK moved to its new points-based immigration system that treats EU citizens in the same way as non-EU citizens.

Its report – based on analysis of pre-pandemic data from the Annual Population Survey (April 2019 - March 2020) and the Quarterly Labour Force Survey (October - December 2019) – concluded that this would, over time, fundamentally change the profile of EU workers participating in the UK labour market. The Work Foundation suggest it would have a particularly high impact on certain sectors, like hospitality, transport and storage and administration and support services, where the highest proportion of EU workers were employed. The report also predicted acute workforce challenges for sectors where workers from outside the UK would not be eligible for work-related visas in the future, such as social care.

Looking at the current UK labour market, it is clear that many of these predictions have been borne out, with vacancies reaching record high levels, and with labour shortages causing severe difficulties in a number of key sectors. But what has been the role of Brexit in this, and how important have other factors , been?

New report reveals Brexit not the only factor in current labour shortages

A recently released report from the Migration Observatory at Oxford University and ReWAGE - a work and employment expert group co-chaired by the Universities of Warwick and Leeds - has examined the latest evidence in its recent paper: ‘The end of free movement and the low-wage labour force in the UK’. While its conclusions chime with the predictions that the Work Foundation made back in 2020, it found that other contributing factors are also important.

The report highlights that employers have faced recruiting difficulties and high vacancy rates in many different occupations across the economy, including in industries that relied heavily on EU workers such as hospitality and transport and storage. The end of free movement is certainly contributing to labour shortages. Net migration of EU citizens fell sharply after Brexit. Significant job losses also occurred during the pandemic, particularly in sectors where EU migrants were concentrated, such as hospitality and transportation. Whereas under free movement we might have expected EU migration to bounce back during the economic recovery, the new immigration system provides few options for EU workers to take up low-wage jobs, as they do not meet the salary threshold for employer-sponsored visas.

However, alongside these factors, the ongoing impact of the pandemic, international sector-specific labour shortages, higher inactivity levels, and an increase in early retirement are other important factors that are contributing to the current labour shortages. The report also found that recruiting difficulties are not unique to the UK and several other countries have experienced high vacancy rates post-pandemic.

Some evidence of employer adaptation, although not without challenges

The report also found some signs of adaptation by employers within the job market, although all of these posed significant challenges. This was particularly true in sectors where, prior to Brexit, there was a high share of EU migrants, or in sectors where average pay is low and employers are unable to recruit workers from the EU or beyond via visa schemes.

Early evidence indicates that a small minority of employers have looked to improve pay packages, although pressures on employers in terms of rising raw material and energy costs may have impacted upon this. There is no evidence that the end of free movement has increased wages across the board. Employers in some industries, such as agriculture, have been able to switch from EU to non-EU workers after the end of free movement. But in most low-wage industries, the new immigration system does not permit them to do this.

Other employers have looked to adopt strategies to reduce their long-term need for workers, by producing less or by turning to automation. Ongoing research for the ESRC Labour Migration in Transition Project reveals that such automation strategies are not a straightforward panacea to labour shortages. For employers in some sectors they are not feasible or affordable , and still require considerable investment from employers in skill development and retention of staff.

Processes of ‘adjustment’ for employers, which are often assumed in migration policy making to be straightforward, are likely to be disruptive. This is particularly the case where employers have limited alternative strategies and this has led to calls for work visas schemes to mitigate the impacts for employers.

Policy solutions would need efforts by multiple government departments

The report also examines the options available to policymakers who want to adjust immigration policy to help address labour shortages. These options include making more employers eligible to sponsor workers in more low-wage jobs through changes to the criteria in the visa system or changes to the Shortage Occupation List, reducing the costs and bureaucracy employers face, and expanding the Youth Mobility Scheme.

However, immigration policy may also be a very crude instrument to address labour market mismatches and shortages, particularly in terms of its ability to respond quickly to crises whether the problem is airports, lorry drivers, the pork industry, or something else.

Many other policy areas affect supply and demand for workers, including tax and benefits, minimum wages, education and training, and decisions about public services such as health and social care that rely on migrant workers. The reality is it would need a concerted effort by multiple government departments to ease the pressures being faced by UK employers.

Chris Forde is Professor of Employment Studies at the Centre for Employment Relations Innovation and Change, University of Leeds and Deputy Director of the ESRC Digital Futures at Work Research Centre. His research interests focus on migration, the changing nature of work, and the effects for workers.

ReWAGE is a group of experts, co-chaired by the Universities of Warwick and Leeds, which analyses the latest work and employment research to advise the government on addressing the current challenges facing the UK's productivity and prosperity.

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