June 23, 2016

As the UK votes on EU, how would Brexit affect the labor market?

British voters go to the polls today to answer the question of whether the UK should stay in the EU, a decision that will have major implications for immigration, jobs, and wages.

On Monday night, IZA World of Labor hosted a debate on the labor market implications of Brexit at the Bloomsbury Publishing offices in London. On the panel were IZA World of Labor author Alan Winters of the University of Sussex, Jonathan Portes of the National Institute of Economic and Social Research, and the Conservative Party MEP Geoffrey Van Orden. The moderator was Phillip Coggan, columnist for The Economist.

The panel agreed that the most likely scenario in the event of a leave vote was that the UK would leave the European Economic Area (the European single market that also includes non-EU countries such as Norway) entirely. Winters argued that this would inevitably lead to less trade, and therefore fewer jobs or lower wages. He predicted that, after the initial shock, the UK’s flexible labor market would allow it to recover in terms of employment, but with a reduction in wages of 3–4%.

Portes agreed with this prognosis, remarking that in the short term Brexit could lead to lower immigration and increased emigration, which could mitigate the impact on employment but exacerbate the impact on productivity.

Van Orden, a self-described Eurosceptic but never the less backing a remain vote, described Brexit as a “leap in the dark”, and that it was not clear what kind of trade tariffs would be imposed. He said that, due to the imbalance in trade between the UK and the rest of the EU—with UK exports to the EU currently in decline, while imports remain steady—it may be possible to achieve a favorable trade deal, but he couldn’t imagine the UK negotiating a better arrangement than it already has.

Winters rejected the trade imbalance argument, which he described as “deeply fallacious”. He said that UK-based companies, who may export half their goods to other European countries, would be lobbying urgently for some kind of trade deal in the event of a Brexit, whereas European firms would be more relaxed about losing access to the UK, which may account for only 5% of their sales.

Video clips of the debate are available to watch now at IZA World of Labor’s YouTube channel, while an audio podcast of the entire event is available at Soundcloud.

What is the impact of migration on the labor market in the UK?
What would be the trade impact of a Brexit?
Is Britain a particularly regulated labor market?