The EU Jobs Myth
The twenty-first edition of the Heritage Foundation's popular survey of economic liberty
Christopher Snowdon debunks some of the myths on income inequality
New report debunks the EU jobs myth
- Politicians regularly claim that 3-4 million jobs either ‘depend on’ or are ‘associated with’ our membership of the European Union (EU). This is calculated as the number of jobs linked – both directly and indirectly – to exports from the UK to customers and businesses in other EU countries.
- It is further suggested that the UK leaving the EU would put 3-4 million jobs ‘at risk’. Yet these jobs are associated with trade, not membership of a political union. There is no evidence to suggest that trade would substantially reduce between British businesses and European consumers, even if the UK was outside the EU.
- Even in a hypothetical world where trade completely broke down between the UK and EU, there would still not be the loss of 3-4 million jobs, as ‘import substitution’ would partially offset the fall in exports and trade would develop with other parts of the world.
- The worst case scenario would be a failure to negotiate a free trade deal in the result of Brexit. If this were the case, both parties would be bound by the World Trade Organization’s ‘most favoured nation’ (MFN) tariffs paid by other developed countries. This would prevent the imposition of punitive tariffs by the EU following the UK’s exit, meaning job losses would not be significant.
- The UK labour market is incredibly dynamic, and would adapt quickly to changed relationships with the EU. Prior to the financial crisis, the UK saw on average 4 million jobs created and 3.7 million jobs lost each year – i.e. there is substantial churn of jobs at any given time. Indeed, the annual creation and destruction of jobs is almost exactly the same scale as the estimated 3-4 million jobs that are associated with exports to EU actors.
- A changed relationship with the EU could of course likely change the structure of the economy, so that jobs might not be in exactly the same industries as they are today. There is likely to be a substantial degree of trade diversion and distortion which occurs at the moment due to our membership of a customs union.
- Ultimately, whether EU membership is a net positive or negative for jobs and prosperity in the UK depends on what policies the UK pursues outside of the EU (in relation to employment regulation, welfare and tax); the way the UK decides to use its saved contribution to the EU budget; and the extent of new trade deals adopted with third parties. For a healthy labour market, liberal economic policies in each of these areas should be pursued.
- We can say with certainty that 3-4 million jobs are not at risk if the UK leaves the EU. There may well be net job creation or a range of other possible outcomes which should be debated rationally.
The publication was featured in The Guardian online, CityAM and The Daily Express. Ryan Bourne appeared also on BBC Radio Four’s Today Programme to discuss the report.
To read the press release, click here.
2015, Briefing Paper 15:02