Think-tank says any wage boost from a Brexit fall in migration will be dwarfed by corresponding slowdown in the economy
The Resolution Foundation, a non-partisan think-tank, said in a report this week that a likely drop in immigration in the wake of the vote to leave the European Union will throw up a number of significant new challenges for the labour market, but will not reverse the earnings squeeze.
Image credit: UK GovernmentYou can read the report, A brave new world How reduced migration could affect earnings, employment and the labour market, here.
The report finds that the effect of immigration on wages as a result of free movement over the past decade been small: "The increase in inward migration experienced over the course of the past decade coincided with a stagnation and then a fall in earnings, which some have linked. Our analysis indicates that while it is wrong to say migration had no effect on the earnings of native workers, specifically for those in low-paying sectors, the effect was very small, and was eclipsed by the wider squeeze on earnings experienced during the period. Looking forward we find that a fall in inward migration will not significantly help boost wages, which are more likely to be suppressed by sterling's depreciation in the short term and the wider impact of Brexit on growth in the years ahead."
A decrease in immigration from Brexit, however, will create a number of other significant challenges for the labour market, with some sectors facing the danger of significant labour shortages.
According to the report, EU nationals make up 30% of workers in the manufacturing of food products sector, the vast majority of those being from the 2004 EU accession countries. The report also identifies the fourteen other sectors with the highest concentration of EU workers.
"Given the high numbers of EU migrants in these sectors it is imperative for the government to resolve any immediate uncertainty about the residency and employment rights of these workers. In the short-term clarification will prevent any immediate shock to these sectors. Looking forward, the end of freedom of movement could make recruitment in these sectors much more difficult," the report warns.
Pay in these sectors averages £9.32 an hour, and the Resolution Foundation says it is unlikely that native British workers will totally fill the gap at such rates.
The report states: "Assuming no wider immigration system changes, there seems to be three courses of action that businesses could pursue: one; recruit more natives, two; change business models to invest in skills and/or labour-saving technology or three; reduce output in the UK."
Resolution Foundation director Torsten Bell told the Guardian the report showed the impact of migration was complicated: "People who say that everybody benefits from migration automatically are wrong, but so are those who suggest ending migration will solve all our problems."
Bell said that other factors as a result of Brexit, including the potential economic downturn, would have a much bigger impact on the wages of British people.
Bloomberg quoted Stephen Clarke, a policy analyst at the Resolution Foundation, as saying: "Those expecting a wage boost off the back of a post-Brexit fall in migration are likely to be disappointed. Any such gains will be dwarfed by the losses caused by the post-referendum slowdown in the economy."