Brexit and immigration

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by Steve Coulter

The UK’s vote for Brexit from the European Union last year was a clear response to the economic impact of free movement of labor on economically-deprived regions of otherwise prosperous countries. By far the clearest predictor of a vote to leave the EU was the lack of a university education and presence in low skill, low productivity sectors of the labor market.

When asked by pollsters, the economic ‘threat’ from low wage EU immigrants was cited by Leavers as a prime reason for their vote. The key questions then, are: why were the labor market issues that gave rise to the leave vote allowed to fester; and why were they linked so strongly to EU membership?  

In my recently published study I examine the UK’s skills regime and immigration policies, and suggest that the interaction of these factors produced the economic and political climate responsible for Brexit.

In a nutshell, I argue that the easy availability of cheap, energetic immigrant workers from newer EU members let successive UK governments – and employers – off the hook as regards tackling endemic failures in the UK’s vocational education system. The EU, to a large extent, was the fall-guy for this and bears some responsibility, but we should also look to the organization of the UK’s labor market and skills system.  

Free movement of labour is a core component of the EU project and the accession of a number of poorer countries from the former Soviet bloc in 2004, as well as the economic fallout from the Eurozone crisis, saw migrant numbers accelerate sharply over the following decade. But the UK has gone further than other countries in encouraging high levels of immigration, largely to make up for skills shortages in key sectors of its economy. Unlike Ireland, which took a similarly liberal approach but saw mainly high-skilled immigration into its software industry, the UK both saw high and low skilled immigration.

Of course, few in the UK minded much about French derivatives traders or Latvian computer programmers fueling London’s hyper-economy, or even the Portuguese baristas serving them coffee. But in the declining ‘rust belt’ of the North and Midlands the impact of mainly low-wage immigrants into under-capitalised, labor intensive manufacturing and service industries was felt sharply. Importantly, though, the impact of this did not operate directly in the way we might expect – through lowering wage rates.

Almost no serious study showed much downward effect of immigration on wages, even at the very local level and in micro-economies already characterized by low wages. While there was some disquiet about migrant competition for local services, such as housing and education, the blame for this was as likely to fall on government funding cutbacks as incomers from the East.  

Unrestricted low wage immigration from Europe was an important factor in Brexit. But its effect operated largely on the incentives of employers, who saw an opportunity to meet their personnel needs through employing cheap and temporary Eastern Europeans, rather than the riskier and costlier strategy of investing in training domestic workers.

Employers in sectors like agriculture, catering and manufacturing lobbied hard to remove entry restrictions. They met a very receptive response from Tony Blair’s center-left Labour Party government, as cheap immigration kept the lid on wage inflation while Labour concentrated on growing the economy in order to meet its manifesto commitments to spread the wealth and improve public services.    

One important reason why immigration was such an attractive safety valve for employers at all levels is that the absence of mechanisms for collective training in the UK discourages many low-margin firms from investing in their workforces, as they fear poaching by rivals who choose to free-ride on their efforts. This has tended to produce a bifurcated workforce in liberal-market economics like the UK, comprising well-educated graduates on the one hand, alongside large numbers of labor market entrants with inadequate skills and poor job prospects in an economy increasingly favoring those with higher skills.

The attention of policymakers has only latterly caught up with the need to address training issues at the bottom end of the labor market, as industrial and skills policies, egged on by the European Commission, have generally been geared to securing success for firms in high technology fields where the UK enjoys a competitive advantage, but which employ relatively few people.

This dualised structure appears to have contributed to occupational and social cleavages in the economy and labor market which turbo-charged the successful campaign to leave the EU. It goes without saying that similar observations can be made about the social basis of Donald Trump’s support in the US, with offshoring to China and Mexico by sections of industry taking the place of the EU in populist demonology.

There is some comfort to be had in the fact that economic causes of populism imply, at least in principle, economic remedies for them in the form of well-designed industrial and labor market policies, alongside adequate social safety nets. But this comfort is probably minimal when we confront the fact that these causes have deep roots in the organization of political economies and the incentive structures they create for firms, governments, and individuals, which are not easy to shift.  

Steve Coulter is Visiting Fellow at the European Institute of the London School of Economics and Political Science. The article summarizes “Skill Formation, Immigration and European Integration: The Politics of the UK Growth Model” in New Political Economy.

Image: Elionas2 via pixabay (CC0 Creative Commons)

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