Brexit and its impact on Immigration in the UK

In the previous article we looked at one of the biggest contributors to the Brexit vote by Brits, the PublicFinance. In this article, we are going to look at the impact of Brexit on Immigration.

First, we will look at the contribution of European Union membership to Britain’s labor force. And then, we consider the impact of Brexit on immigration and the likely economic implications of these changes.

Immigrants and the British Labor Force

As with any strong economy, the UK has been one of the hot beds that have been attracting immigrants from all across the globe for decades. With the UK allowing free entry into the country and eligibility to work for citizens of EU member states, the net migration into the UK has risen to significant levels. An average of 100,000 or more people have been migrating into the UK every year since the early 2000’s and after the economic crisis in 2008, the number has been steadily rising with last year (2015) seeing an influx of over 180,000 people. Most of these come to the UK in search of a Job and a better life.

This influx of manpower has been supporting the economy’s ability to grow without pushing up wage growth and inflation, keeping interest rates lower for longer.

The impact of Brexit on immigration

With immigrants from poorer EU nations being one of the big determining factors in favor of the Brexit referendum, it would be logical to assume that the UK would have to tighten its immigration policies to appease its citizens.

However, it is completely possible that the UK’s immigration policy may not change substantially. You may be wondering why isn’t it?

As I mentioned in my first article on Brexit – this immigration situation is like the chicken and egg situation. 

If UK wants to retain full access to the single market, it may have to keep the free movement of labour between the United Kingdom and the EU. EU Leaders have already made it clear that if the UK wants unrestricted access to the European Market, they cannot restrict the movement of EU Residents into the British job market. This kind of agreement between the UK and EU could potentially make the Brits unhappy so the UK will probably try to work out a deal of sorts which would be in the middle.

Nevertheless, the existing EU migrants who are already in Britain will most likely be given permissions to stay, just like the Brits who are living in EU nations. Predicting restrictions in entering the UK once the new immigration policy is signed, the UK labor market could see a near-term spike in incoming migrants. Emigration out of Britain could fall alongside a rise in immigration, perhaps leaving net migration little changed or even higher in the short term.

In the medium term, net migration from European Union countries would almost certainly fall if Britain was outside the single market, reducing the growth rate of the British labor force (of course, the extent of the fall would obviously depend on the new policy signed between UK and EU). This may lead to upward pressure on wages and inflation, benefiting some workers but to the detriment of some employers.

Most importantly, the government would gain the ability to implement a more robust migration policy, with criteria probably set according to people’s skills and professions, rather than where they come from. As a result, the quality of migrant labor could rise, boosting Britain’s productivity performance and plugging labor shortages in specific sectors.

Migration policy is not the only way in which Brexit would impact the labor market. The UK wouldn't have to implement some of the EUs restrictive regulations like the Agency Workers’ Directive, which gives temporary workers the rights of full-time workers. This boost to the overall flexibility of the labor market could offset some of the extra cost to firms from lower migration.

Some Last Words

Based on the look of things, the Brexit most likely WILL NOT stop migrant workforce from entering the UK because it would have much larger implications on its economy. However, the UK could try to restrict the number of people coming in, especially the low skilled workers category and move towards a system that attracts highly skilled workers (both from and outside EU).

This will have a short-term impact on industries that use low-skill/low-wage workers heavily ex: Agriculture but other industries that are waiting on skilled labor could benefit.

Lets see how the Brits shape their immigration policy.

Disclaimer: All views presented in this article are those of the Author and are not endorsed by anyone. While every effort has been made to ensure that the data quoted and used in this article is reliable, there is no guarantee that it is correct, and the Author accepts no liability whatsoever in respect of any errors or omissions. This article is only economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or investments.