Hope for the best but prepare for the worst on Brexit

 

Labour markets and Brexit is the subject of our latest think piece this time by Diarmid Campbell-Jack at Ecorys UK research and consultancy.

Closure is the worst case scenario for a small number of businesses that are heavily reliant on low skilled EU migrants. This was one finding from research into the impact of Brexit, we carried out by for the York, North Yorkshire and East Riding Enterprise Partnership, which paints a picture of an uncertain future faced by many businesses. Other findings however point to increased investment in up-skilling the domestic workforce, and the potential for new trade relationships.

The main concerns about Brexit expressed by businesses related to potential skills and labour shortages across the area. These views tended to be more prevalent among businesses with greater reliance on EU migrants for lower-skilled roles and those where staff turnover is relatively high, and hence were more widespread among agriculture, manufacturing and care businesses. Official statistics show that these sectors are important for the economy in York, North Yorkshire and East Riding, making concerns about labour supply a particularly relevant issue across the area.

“We find it very hard to fill our vacancies within our local community, and if EU migrant workers stop coming into the UK we would find it very hard to run our business operation” [York, North Yorkshire and East Riding Business]

These concerns were not shared by all businesses with some feeling confident that their employees would stay:

“We have no issues at the moment, we do not think that the EU migrants we employ will have to leave the country”
[York, North Yorkshire and East Riding Business]

The extent that Brexit will actually lead to labour shortages is currently unclear and will depend on the result of ongoing negotiations. However, discussions with EU migrants themselves showed that their attitudes, and those of their family and friends, to working in the UK have become increasingly negative. While not all of them were planning to leave the UK, almost all were aware of friends or colleagues who were making plans to leave. Official statistics showing decreases in EU net migration, particularly from EU27 countries, are therefore hardly surprising.

Should changes in EU migration lead to labour shortages, certain businesses reported to us that there may be potentially significant impacts. Some, mainly in the sectors noted earlier, stated there was the possibility of lower productivity, profitability and/or long-term growth. For a small number, closure (or worse) was not ruled out.

Due to the uncertainty around the outcomes of the Brexit negotiations, most businesses were adopting a wait and see approach at the time we spoke to them, with few having taken concrete steps in relation to any potential issues. Around a third were considering additional training for UK workers, with similar proportions examining the possibility of automating aspects of their work to take account of potential staff shortages. However, these businesses tended to recognise that any plans would take time to have any effect and would be unlikely to address a labour supply shock.

Businesses taking part in our research with more reliance on highly-skilled workers from the EU were also concerned around the departure of these workers, albeit to a lesser extent than those relying more on less-skilled workers. While there did not tend to be the same concerns around possible closure, certain businesses where these workers were concentrated in particularly important roles felt there was a notable risk of lost capacity and knowledge. As with businesses reliant on less-skilled EU migrants, planning for possible departures was felt to be difficult given the current uncertainty on the legal position of these workers in the future.

Of course, what may actually happen in reality could well look very different and depends on the outcomes of current negotiations. Moreover, this is only one aspect of Brexit and it is possible that a more positive outcome will occur for businesses in the area. Pro-Brexit commentators point more widely to the more positive GDP economic forecasts that exist, and major on the potential economic advantages of cutting or amending regulation, making UK-specific trade deals, and savings from not having to pay for European Union projects. Ultimately, however, Disraeli’s quote that one should hope for the best, but prepare for the worst, may well prove worth remembering.

Ecorys was commissioned by ourselves, Leeds City Region Local Enterprise Partnership and the Humber Local Enterprise Partnership to assess the business and skills implications of the LEP area as a result of the potential reduction in access to EU migrant workers following Brexit.

This study took place in mid-2017 and involved speaking to business in important sectors, recruitment agencies, key stakeholders and EU migrants in the three areas. It builds on other work Ecorys UK has undertaken in the UK and across Europe on issues such as enterprise, industry and migration.

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