UK economy feels pain of missing EU workers

Migrant workers

It would be impossible to tell the story of Britain’s labour market without acknowledging the outsized role that migrant workers have played in recent decades.

In 1996, just 5 per cent of Britain’s workers were born outside the UK but by 2019 this figure had more than trebled to 17 per cent. Overseas workers accounted for 60 per cent of the UK’s net employment growth during that period, a figure that rose to 67 per cent in the southeast, 74 per cent in the West Midlands and 107 per cent in outer London.

A robust economy, good comparative wages and the expansion of free movement drew workers to the UK, while high unemployment on the Continent in the second decade of the new millennium encouraged many to look here in search of better opportunities.

However, Brexit and the pandemic are bringing this chapter to an end. The value of the pound slid after Britain voted to leave the EU in 2016, lowering the value of remittances home by foreign workers and making low-paid jobs in Britain — disproportionately filled by overseas workers — less appealing. Since the referendum, the number of EU workers coming to the UK has been in decline, a trend that accelerated dramatically when job opportunities dried up during the pandemic.

Data on migration is difficult to collect and notoriously unreliable but official estimates suggest that the number of EU citizens in the UK fell by 100,000 last year. The consequences of this are being felt now that the economy has reopened and demand has returned. Sectors that disproportionately employ overseas workers, such as the hospitality and food manufacturing sectors, are now feeling the pain. Many roles in these sectors, such as chefs or meat packers, have a higher than average turnover rate and fall outside the government’s list of eligible occupations for the skilled worker visa, making recruitment even more challenging.

Points of tension are appearing across the labour market, forcing policymakers to loosen rules in order to allow businesses to fill key positions. On its own, however, this is not enough. The government recently made 300 visas available for HGV drivers in the fuel industry but only 27 fuel tanker drivers from the EU have applied to the scheme.

Rod McKenzie, director of policy at the Road Haulage Association, said: “People don’t want to come unless it is a really attractive alternative. You don’t give up a well-paid job for a better-paid job if it will only last a few months.”

Economists accept that businesses will have to adapt to the decline in overseas workers by either investing in productivity-enhancing technologies or improving pay and working conditions in order to attract workers. “Improvements in conditions would be very welcome given the poor record that many migrant-dense industries currently have when it comes to labour market rights,” the Resolution Foundation wrote in a recent report. It found that between 2015 and 2019, 15 per cent of workers in the hospitality sector said they received no paid holiday.

In a politically expedient move, the government has also emphasised this point. Speaking at the Conservative Party conference in Manchester, Boris Johnson said: “What I think should happen is that organically business and industry should be paying people a little bit more in order to help them.”

Higher wages could go some way towards attracting UK citizens to take on jobs formerly filled by migrants. Britain’s labour market is smaller than it was before the pandemic, not only because of a fall in the number of migrants, but also because of high levels of economic inactivity.

Many older workers who left the labour market last year opted for retirement and students opted to stay in education instead of entering the world of work. Millions of people were also still on furlough before the scheme came to an end last week. Higher wage rates could draw some of these people back into work.

Sanjay Raja, senior UK economist at Deutsche Bank, said: “The eventual return of students should support the labour force, and a resumption of cross-border labour flows will also be helpful. Our base case, however, is that the labour market may take some time to get back to where it was prior to the pandemic, given lingering health concerns, the slow rise in immigration, and a perhaps somewhat more permanent jump in inactivity owing to the rise in retirement.”

As businesses continue to point out, higher wages alone will not address the problem. It is impossible to train up butchers and lorry drivers overnight and many argue that the government is not doing enough to attract workers to come to the UK. Wage rates in these sectors have already started to rise and European workers are resuming their search for jobs in Britain but interest from the Continent is still far lower than it was before the pandemic.

According to the job search platform Adzuna, the number of EU residents seeking work in Britain was 48 per cent lower in August than it was in the same month in 2019, but the trend has risen since hitting a floor in April 2020. In January, when the UK was in the middle of lockdown, searches were 66.7 per cent below pre-pandemic levels, according to Adzuna.