Does Brexit mean permanent dislocation of the low paid workforce?

Den Howlett Profile picture for user gonzodaddy November 11, 2018
Summary:
HfS paints a dystopian view of what happens in a post-Brexit UK with a severe shortage of low paid workers leading to a crisis in many industry segments. True or false?

UK professions where EU workers are more than 10 percent of workforce

At the back end of last week, HorsesforSources pushed out a long story entitled Brexit will rip out the underbelly of the British economy - and we'll likely never recover. It's a rollicking good read in the mold of the analyst firm's penchant for strident views.

The essence of their argument is that expected changes to the status of migrant workers in a post-Brexit UK will make it impossible to fill many low-level job vacancies. They start with:

However which way you analyze all the economic indicators, and whatever your opinion may be regarding Britain's relationship with the European Union (EU), removing the movement of EU labour into the UK will create a perilous shortage of labour, particularly for low-to-mid skilled professions.

The assumption inherent in this position is that the many migrant workers who already have secure job status in the UK will suddenly be deprived of those rights and/or up sticks and return to their native lands. I can certainly imagine that scenario under the most draconian of post-Brexit UK labor law environments but the likelihood of that happening is zero.

The data upon which HfS relies is a year out of date and HfS analysis both cherry picks and ignores large parts of the original research. We don't yet know what the fear of Brexit has led to in terms of overall UK migrant worker populations.

Some reports suggest that the number of seasonal agricultural workers (for example) coming to the UK in 2018 declined significantly with anticipated shortages post-Brexit. But then the news is a constant drumbeat around skills shortages of one kind or another.

As the original report says - it's complicated and uncertain. What is clear however is that despite the many characterizations of the UK government as acting in an inept fashion, it is weighing a multitude of scenarios, all of which deliver different outcomes. In short, while HfS paints a dystopian picture, that is only one (unlikely) outcome. Here's why.

What actually happens

The original report talks extensively about what happens when migrant workers join the UK workforce under the current and possible legislation. Plenty of those migrants remain under current rules and while there will almost certainly be some dislocation on a case by case basis, there is no expectation of a mass exodus.

The report makes clear that:

Without new provisions for work visas of some kind in low- and middle-skilled jobs after free movement comes to an end, the number of non-UK nationals entering these jobs would not fall to zero. This is because people would continue to enter low-skilled jobs through non-work routes (as well as through the youth mobility scheme for those nationals already eligible). However, numbers would decline significantly, since EU citizens have made up a majority of workers in low-skilled work.

The two most likely models for a labour migration route after Brexit—youth mobility and a low-skilled work-permit scheme—operate in very different ways. The government does not face a direct choice between them and the two schemes could operate side by side. However, it is useful to compare the advantages and disadvantages of each model against the other, since even if the government used both schemes it would face the question what their relative size should be. (For example, there could be a EU-UK YMS with generous caps and a small agricultural workers programme, or a larger work-permit open to a wider range of occupations coupled with a small, tightly capped YMS.)

History is a great teacher

HfS also ignores several important historical facts that are peculiar to the UK and which suggest alternative outcomes and there is yet another possibility, albeit a wildly optimistic outcome.

While this has something of the flavor of folklore, it is often said that the UK's much beloved NHS and London Underground would not be functional without migrant labor. The fact that many of those came as Windrush people has added a further layer of complexity to the Brexit issue. Viewed through that lens, Brexit has nothing to do with economic issues but everything to do with an immigration 'problem' that underpins the current flavor of populism sweeping around the world. That fits well with people I have met who voted for Brexit and gave, as their number one reason, immigration and jobs being taken away by those immigrants.

As a side note, the fact that many of these 'mythical' immigrants do jobs that native Brits won't do seems to escape their logical understanding.

This is not the first time the UK has been there. I am old enough to remember the cultural convulsions and violence that are attributed to Enoch Powell's 1968 'rivers of blood speech.' As a nation, the UK got over itself but it was a painful period, just as Brexit is proving socially painful today. It won't last forever and it certainly won't lead to a wholesale destruction of the low end of the working class.

The robots (might be) coming

The part HfS missed which surprises me is the impact of roboticization. While many of the low-end jobs require manual labor, there are plenty of opportunities for the introduction of physical robots to replace manual work. Unfortunately, the UK has a relatively poor track record for the introduction of robots relative to other nations. But here is one recent example that plays directly to one of the key areas where migrant workers are currently in high demand.

AI equipped machines will also play a big part in the future of agriculture, reducing food production costs and improving land use. With an estimated 60% more food needed by 2050, the UK government is investing £90m to transform food production. This will include funding for demonstrator projects that show how innovative agri-tech ideas can be applied in the real world.

In projects funded by Innovate UK, researchers have already created an autonomous strawberry picker that does the job twice as fast as humans, and an entire barley crop has been planted, tended and harvested by robots.

The exchange rate hoax

exchange rates

HfS arguments about currency don't hold up either. When you take a long-term view, the UK's maintenance of a sovereign currency has had its share of ups and downs but none of those cyclical changes have contributed to long-term decline.

The tragedy of Brexit is that the UK seemed to collectively lose its mind when weighing the deal it struck many years ago when it said it would never give up the British pound. If anything, retaining sovereign currency status has acted as a shield against some of the worst that happened in mainland Europe during the Great Recession of 2008-10.

There can be no doubt that GBP has been bumping along the last couple of years but is that a bad thing? If you trade with the US (as we largely do) and are paid in USD (as we largely are) then I'd argue quite the opposite. Your New York Christmas shopping spree might not be as 'cheap' as it once was. Is that such a big deal?

The potential upside

But there is one remaining factor that's worth mentioning.

Nowhere in HfS analysis does it discuss the potential upside of labor shortages except to talk in terms of rising costs to business. That's true in a world where capital trumps (sic) labor. But when business needs labor to the point where the price of labor has to rise then will business cut off its collective nose to spite its face?

The evidence coming from the US suggests otherwise. Absent of mass roboticization, people in low paid but essential jobs should be the beneficiaries. That, in turn, feeds the economy in a positive way, provided that cost rises are contained within reasonable bounds, whatever that means. In an economy where there is virtually zero meaningful inflation then anything around 2% sounds good to me.

In the past, managing inflation has been very hard because labor cost increases were often tied to the actions of powerful labor unions. There is no evidence that those unions are coming back. But there is evidence that paying people well has a positive impact -

The benefits of poorly compensating your people begin and end at lower labor costs...whereas the benefits of compensating employees well are limitless.

In the end, business will act in its best interests and if that means labor costs have to rise then that's what will happen. It's not something of which anyone should be afraid. But it requires a management mindset reset about labor as a valuable asset and not a P&L account expense. That won't be easy in a world where stock prices are easily punished by activist investors whose only interest is maximum profit extraction and where the half life of a modern CEO is little more than two years.

My take

The world isn't coming to an end and the British migrant workforce isn't going to be slung out on its collective ear anytime soon.

The UK government can hardly be characterized as offering coherent strategies in a post-Brexit world but there is time to get it right. The Article 50 hammer deadline is not 2019 but 2021. The pace of change in technology innovation is such that anything is possible.

But - of one thing I am certain. The changes we see occurring in what is at best a fluid landscape will have a profound impact on the way we view labor and how that's managed in the enterprise. We are, for example, seeing instances where firms in the US are gearing up for on-demand payroll rather than the weekly, bi-weekly, monthly methods. Will the same happen in the UK? Quite possibly.

Paradoxically in a world where capital trumps labor, I get the sense that mindset is on the cusp of being upended. If I am right then the migrant labor 'problem' may simply evaporate as good sense prevails. Of course, I could be so wrong that this will seem like a risible argument.

All I know is that it makes sense to treat people as well as possible because when times DO get tough, that's when you call in some of the markers you've carefully laid out when times are good.

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