Labour market set for significant post-Brexit change with migrant workers numbers already falling

Migrant workers accounted for 60 per cent of net employment growth between 1996 and 2019, but the number of migrant workers is now falling, highlighting the scale of change in store when the UK’s post-Brexit immigration regime comes into effect on 1st January, according to new Resolution Foundation research published today (Thursday).

The report Home and Away – supported by Unbound Philanthropy – examines the role of migrant workers across the UK labour market over recent decades, how that has changed since the EU referendum in 2016 and during the pandemic, and what these trends mean for the UK’s new immigration regime and post-Brexit labour market next year.

The report notes that migrant workers have played a large role in the UK labour market in recent decades – accounting for 67 per cent of net employment growth in the South East, 74 per cent in the West Midlands and 107 per cent in Outer London. In contrast, migrant workers have accounted for just 27 per cent of employment growth in Wales.

However, inflows of migrant workers have waned since the EU referendum, with the net migration of EU workers falling by almost three-quarters, from 207,000 in 2015-16 to 58,000 in 2019-20. The number of workers from EU8 countries such as Poland actually started falling during this period – with net migration dropping from 69,000 in 2015-16 to -16,000 by 2019-20.

The overall number, not just the inflows, of migrant workers is likely to have fallen during the pandemic. Official, but highly uncertain, data suggests that the number of EU migrant workers has fallen by 16 per cent in the year to Summer 2020, driven by migrant workers leaving the UK.

While the expectation had been that the new immigration regime would reduce net migration in a booming labour market, it will now operate in the context of elevated unemployment.

This may delay, though not prevent, the need for migrant-reliant sectors – particularly those with fast staff turnovers who are dependent on new arrivals – to adjust to this major change for the UK labour market, says the Foundation.

Recently arrived migrant workers soon ineligible for work permits form a significant part of the workforce – including 5 per cent of all employment in London and the East Midlands – in the UK. The Foundation shows that one-in-ten employees in food manufacturing are recently arrived EU migrants, and that these workers are ineligible for work permits under the new points-based immigration regime.

Migrant-reliant firms and sectors will need to adjust to this new immigration regime by introducing new business models, investing in automation, raising prices or shrinking, says the Foundation.

One obvious – and positive – way for these labour shortages to be filled would be to boost conditions, as well as pay, to entice new workers into these roles. In the migrant-dense hospitality sector for example, one-in-seven workers report not receiving any holiday pay.

But the Foundation also cautions that while the need to fill labour shortages could provide an incentive for some employers to raise standards, it could entice some to circumvent migration law instead and employ irregular migrant workers.

This is especially true given that – if all irregular migrant workers were employed in an average sized firm – fewer than one-in-a-thousand rogue employers would be detected every year, and that when discovered, one-third are subject to no financial penalty.

The Foundation says that the post-Brexit labour market should therefore include stricter enforcement of employment rules so that workers, and firms that do the right thing, are protected from unscrupulous behaviour.

Kathleen Henehan, Senior Research and Policy Analyst at the Resolution Foundation, said:

“Migrant workers have played a big role in the growth of the UK labour force over the last 25 years, particularly in major cities like London, Birmingham and Manchester. But the UK has been attracting fewer migrant workers since the referendum, and has likely seen an exodus of them during the pandemic.

“The new immigration regime being introduced in just a few weeks’ time will reinforce this major change for the UK labour market.

“Firms reliant on lower-paid migrant labour will need to change how they operate over time. Higher unemployment may allow them to delay such decisions, but they can’t be avoided altogether.

“Government too will need to change how it works in the face of this labour market change, with the enforcement of employment rules needing to be strengthened given that some firms may respond to the tighter rules by hiring irregular migrant labour.”