Labour Market

Come Hard Brexit, come Soft Brexit – EEA migration to Britain will continue


Expectations about the impact of Brexit on the flow of people into and out of the UK are unrealistic. This is true for both anti-immigration Brexiteers and pro-(EU-)immigration Remainers. The former salivate at the prospect of a precipitous drop in arrivals from the rest of Europe after the UK’s departure from the EU. The latter throw their hands up in despair every time there are media reports of a transnational EU family leaving the country in the wake of the referendum. Yet, neither is a good estimation of what is likely to happen to UK migration flows after Brexit.

Firstly, consider that the overwhelming majority of people who move countries do so to work for better remuneration. The evidence in Britain bears this out: EEA immigrants have higher employment rates than native Britons, and they contribute more to the Exchequer in taxes than they take out in benefits. Immigrants tend to have been educated abroad – or, if educated in the UK, have done so at their own expense –, they are more likely to leave the country if they face unemployment than natives, and in many cases they arrive in Britain young and without their families, meaning lower-than-average use of Britain’s public healthcare and education system.

Refutations of oft-repeated arguments about the alleged adverse impact of migrants on the UK’s public finances have been rehearsed over and over. The question of interest here is: what will happen to migrant flows after Brexit?

Once the chief motivation for migration – well-paying work – is understood, the implication is unavoidable: people will move wherever their potential economic prospects are greatest. Of course, there are search costs – finding out about a country’s economic climate, job opportunities, and so on – and transaction costs – uncertainty, learning the local language, the physical and emotional cost of moving – associated with migration. But if the rewards sufficiently outweigh the costs, migration will happen.

Thus, future flows of people into and out of the UK, whether Britain is inside or out of the EEA, will primarily be determined by two factors: i) economic prospects in Britain; ii) economic prospects in the countries of origin and – for UK outflows – in the countries of destination. This relationship will be particularly strong for people in countries which, due to being Anglophone, or due to geographical proximity, or because their labour force offers a skill set similar to what the British economy needs, are sensitive to changes in comparative economic conditions.

The effect of Brexit is ambiguous and will likely be negligible. Much will depend on the UK’s ability to carry on its trading relationships in a more or less similar fashion to the status quo ante-Brexit – which is probable – the likelihood of continued and accelerating recovery in the EU, and change in the UK policy climate on issues such as housing, regulation and the cost of living. This is because, absent regulatory reform, Britain is slated to become an even more expensive place to live relative to other countries, which will deter migrants and drive away natives. But note that all of these factors have to do with Britain’s relative economic performance, not Brexit per se.

The obvious objection to this argument is that there is a likelihood of legislative barriers to entry by migrants increasing sharply with Britain’s departure from the EU. Whilst this point is true as far as it goes, we should keep in mind that barriers to migration are not independent of the needs of a country’s labour market. If there is demand for foreign labour – and Britain’s low unemployment rate, high labour participation rate, and ageing population suggest there is and will continue to be – then pressure will build up to ensure the required amount of foreigners can come to the UK. Otherwise the cost of labour shortages will be borne by British firms and consumers.

The fundamental point is that our brains are hard-wired to generalise anecdotes and think about total effects, whereas economic decisions are made on the margin. This means that, for the marginal EU migrant, Brexit may well – at least temporarily – make coming to the UK less attractive, a possibility compounded by the fact that the economic environment in major source countries such as Spain and Italy has improved somewhat. But the quantitative effect of Brexit is likely to be just that – marginal.

So, despite the cheerful – or ominous – newspaper headlines, expect migration into and out of the UK to keep calm and carry on after Brexit.

 

Policy Analyst at the Cato Institute's Center for Monetary and Financial Alternatives

Diego was educated at McGill University and Keble College, Oxford, from which he holds degrees in economics and finance. His policy interests are mainly in consumer finance and banking, capital markets regulation, and multi-sided markets. However, he has written on a range of economic issues including the taxation of capital income, the regulation of online platforms and the reform of electricity markets after Brexit. Diego’s articles have featured in UK and foreign outlets such as Newsweek, City AM, CapX and L’Opinion. He is also a frequent speaker on broadcast media and at public events, as well as a lecturer at the University of Buckingham.


3 thoughts on “Come Hard Brexit, come Soft Brexit – EEA migration to Britain will continue”

  1. Posted 01/03/2017 at 13:36 | Permalink

    Very simplistic article; disregards the social cost of mass migration, the debilitating effects of Euro on, for example major source countries Spain & Italy and the actual cost of EEA migrants to the economy; repatriation of sterling, working tax credits together with other social security costs. There may be a need for migration, but not subsidized migration. If employers wish to import labour then they should pay the full bill(health care etc etc) Today, there is an unemployment rate of 1.6million UK nationals. 10 Years ago that would have caused a national out cry. Yes Some EU countries will attain accelerated recovery but as such a flawed organisation this will be to the benefit of the few rather than the many.

  2. Posted 02/03/2017 at 09:30 | Permalink

    Interesting article, thanks.

    Two points:

    1. Changes to the in-work benefits system etc. for EEA migrants could reduce the economic incentives for the less well-paid, meaning fewer arrive.

    2. Britain has had a notoriously bad productivity problem of late. One hypothesis explains this by suggesting that employers have tended to import another cheap pair of hands rather than invest in productivity improvements. If the pool of cheap, unskilled labour is reduced, employers may turn to these investments instead, thus reducing the amount of labour they need.

  3. Posted 05/03/2017 at 15:10 | Permalink

    I’d like to see someone model the effects of free market approaches to reducing net migration. Abolishing stamp duty, reducing the taper rate of benefit withdrawal and making entitlement to social housing transferable in some way would mean more labour movement within the UK to where jobs are created. The 2 child rule on new child tax credit claims comes in to force in 4 weeks time will have an effect. And the end of the odd situation where the UK spends more subsidising foreign agricultural producers than its own, ( ditto convergence funding ) will have an effect as the subsidies mean the landowners of the east have mechanised and shed jobs at a rate faster than would be the case in a capitalist free market system.
    I want to keep free movement rights with the EEA though – God forbid the government sets up more committees deciding what people the economy needs.

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