Will a squeeze on labour push up wages?

You can enable subtitles (captions) in the video player

[MUSIC PLAYING]

Hello and welcome to Brexit Unspun, the podcast where we debunk the political spin around Brexit. I'm Siona Jenkins.

Many of those who voted to leave the European Union believed a curb on European migrants would improve employment opportunities for British workers. But will British workers be able to fill the gaps left by Europeans leaving the UK, and will employment opportunities shrink as businesses relocate to rival European cities? In this episode, we're going to attempt to answer these questions and to look at the changing employment landscape as we head out of the EU.

To discuss this, I'll be joined today by Sarah O'Connor, employment editor, Helen Warrell, public policy correspondent, and Heather Rolfe, an employment expert at the National Institute of Economic and Social Research. As usual, we're going to start with a couple of contributions from listeners. They're worried about workforce gaps in the care and health sectors.

Mark Steele, who runs a care home in the UK, asks, how are we going to plug the gap in staffing with no applications from abroad or from the local neighbourhood? Staffing recruitment from the EU is now 0 with effectively no carers willing to take positions here in the UK. This has resulted in agency staff costs dramatically increasing to plug the gap. But this is not sustainable, and already nursing and care homes are closing because we are unable to recruit a safe and mandatory level of staffing.

Stephen Manning says, I work for the NHS, and I get the feeling we're watching a slow car crash. We're hugely understaffed in low skill caring roles, and it's even worse in social care. We must guarantee the right to remain for health care workers from Europe. Helen, what's the evidence so far that Europeans are opting to leave, even before the details of the final deal are settled? And what do the latest migration statistics tell us?

Well actually, the latest statistics show us very similar things to what Mark and Steve have noticed, which is that there are fewer people coming from certain parts of the EU to work in the UK. And in fact, some of those who've already been here for a while are leaving. So for instance, according to the figures which came out in August, overall net migration was down by a quarter.

And this was driven partly by a 60% rise in immigration from nationals from Eastern European countries. So that's places like Poland, Latvia, Lithuania. And this is also backed up by separate data from the labour force survey, which tells us that the growth in the number of Europeans who are working UK jobs has slowed very, very significantly since the Brexit referendum.

Heather, what Helen says is backed up by employers on the ground. So they say that they're receiving fewer applications from European migrants, and they're having higher turnover levels. I mean, some of them reported that before the referendum. So I think some of what they're talking about is an actual slowdown in migration from Eastern Europe. Because we always assume with migration it's going to go up and up.

But I think actually we were already starting to see a levelling off before the referendum. But of course, now the result of that has probably discouraged more migrants from coming. What we have had is a continual slight increase in migration from Bulgaria and Romania. And I think you would expect that because, of course, those countries have joined relatively recently in 2014, had full rights to come live and work in the UK. But employers generally are reporting a falling off of applications or interest in taking up jobs from EU migrants.

If I could just add one thing on that. It's actually quite difficult to tell whether or not that slowdown is directly as a result of the referendum or due to other factors which have come out of it, like obviously the UK currency is not as strong as it was. So for people, especially in Eastern Europe, the advantages of working in the UK, as opposed to other European countries like Germany, might not be as great as they once were.

Yes, I don't think employers are saying it's because of the hostile environment for migrants in the UK. Obviously, that is a factor. But it's hard currency. It's hard cash. Because we do know that the vast majority of migrants from Eastern Europe, in particular, are motivated by money.

They come over here to earn as much money as they can, and maybe they'll settle here, maybe they go home. So the wage is hugely important. And they will actually leave a job for as little as 10 pence extra per hour, and that shows their motivations. So that's something else that employers do report. So I think that Helen is right, that it's financially driven in a lot of cases.

Sarah, which are the areas of the economy that are most affected? It seems that the NHS and care sectors are going to struggle, at least initially. What other sectors are hard hit, and are there any solutions in sight?

So there are a range of sectors, absolutely health and social care are among them. The other really big ones are agriculture, obviously. So we have huge numbers of low paid migrants come over here to harvest things in our fields. There's also really quite a high proportion of migrants working in things like manufacturing, particularly like low end manufacturing, so food manufacturing, that sort of thing, packaging.

So that's not so much the JLRs, the kind of fancy cars. But in the sort of lower end, then really there is an awful lot of reliance on migrant workers. And then also, you hear at the, kind of, other end of the scale. You hear from high end computing companies, banks, financial services, startups, that they also have grown to rely on tapping really high skilled people from Europe. And they're worried, too, about them going home.

And obviously, as Heather and Helen were discussing, the currency is a big issue for people at the lower end. But for people further up, you know, they can command good salaries wherever they go. So for them, often, the reason they're now more worried about coming is that they just don't know what their migration status would be. They don't know how long they'll be able to stay, whether they would feel welcome.

Helen and I wrote a piece not very long ago about the restaurant sector. We spoke to a very high end restaurant, which had thought that they'd secured a really top class chef to move over from Paris. And then he called up and said, actually, I've decided I'm not going to come, because I don't know how long that would last. And I've got plenty of other opportunities in other parts of Europe, thank you very much.

Can I just add to what Sarah has said about the sectors most affected? We've focused our research on the sectors that surround food production. So for agriculture, food and drink, and then right through to hospitality, because those are sectors with quite a high proportion of migrants. So we see that in the hospitality sector, 28% of employees are migrants, 12% from the EU. In food and drink, 35% are migrants, 21% from the EU.

And the other reason for focusing on those sectors-- and also, we've looked at social care, as well-- is that existing immigration policy will not allow those workers in. And we'll have to rejig our immigration system to take account of low skill, which we have not done for some years in the UK.

Heather, why have employers been so reliant on migrant workers from the EU?

The reason why employers are so heavily dependent on EU migrants, it's simply because they cannot attract sufficient UK applicants to those jobs. Some of that's about pay. A lot of it is about the nature of the work, the low status of the work. So young people are not attracted to go and work in care homes, on food production lines. They certainly aren't attracted to go and work in agriculture and in hospitality.

And so employers have recruited who they can. And it is a myth that employees have a preference for EU migrants. It's often said that they do it out of preference. That they're better workers, they have a better work ethic. Research consistently shows that not to be the case.

Where EU migrants are considered to be better than UK workers, it's in their ability to be more flexible. So we have something like 50% of EU migrants are working more than 40 hours a week. And of the UK population, that's about 32%.

So migrants are able to flex up and down their hours as the businesses require. And I think that's very relevant, then, to why there are such large numbers in hospitality, food and drink, and agriculture. They are very flexible, and they've bought a huge advantage to employers in those sectors.

What do employers need to do to entice British workers into lower paid jobs, and is there any sign that employers are making the necessary changes to their employment practises?

Well, employers always say that they would have a preference for attracting more UK workers and young people, in particular. And I think historically, they have blamed parents, schools, careers advisers for misrepresenting their sectors. They say our sectors are misunderstood. People don't realise what opportunities there are. But I think the fact is that those sectors are inherently unattractive to young people. They don't offer the career opportunities and the opportunities for pay advancement that other sectors do.

And I think Brexit has been a bit of a wake up call to those sectors. And they are now wanting to look more at the offer and, particularly, the development opportunities for young people. I think they're doing more work with colleges, with universities to try to map out qualification routes and career structures. And the government is introducing T levels, which is a sort of reinvention of an earlier diploma that, actually, previous government supported. But now those industries are saying, actually, that that should be brought forward, and it's a little bit too late.

So what more do you think the government could be doing to ensure these employment gaps don't hold back key sectors of the economy?

Well, I think it needs to make sure that future immigration policy enables employers to recruit the labour that they need. And I mean their labour, not just skills, because our existing immigration policy is very much geared up to highly skilled migrants and not low skill workers. And I think there are challenges in designing such a system, making it easy for employers and at the same time meeting people's expectations for reductions in immigration, which were obviously part of the referendum result.

So I think it is quite a challenge for the government, but employers are saying that they will need some form of immigration post-Brexit. Otherwise, they're going to experience severe problems, severe labour shortages, and there'd be no sign that actually those could be met from the existing UK workforce.

Let's bring in another couple of listeners now. John Waterton, who works in biotech in the UK, says, our roles are very specialised, and our motive for innovation is powered by post-doctorals, typically individuals aged 25 to 35 with unique CVs on fixed term contracts. We scour the world for talent, and many of our employees are EU nationals.

But I already see that non-UK EU citizens are A, not applying, B, leaving the UK, and also the drop in the value of the pound hasn't helped. Helen, how will new visa regimes affect these kind of high skilled workers?

Well, it's actually very difficult to tell, because the government has been incredibly secretive about its plans for post-Brexit EU visa controls. What we do know from a leaked home office document, which came out over the summer, is that there were various options on the table. They might bring in the same sorts of salary thresholds that have to be met by non-EU workers. There will probably be various qualification levels that you have to meet if you're coming over. So for very highly skilled workers, coming into the UK from Europe shouldn't be too difficult.

As Heather said earlier, the real problem and the real unknown is what happens for low skilled workers. Because these are the people who, traditionally, those who are concerned about levels of high immigration in the UK have always been worried about. They don't particularly like large numbers of people coming over from Eastern Europe to do very low paid jobs.

But we do need these people in our economy for all the reasons that Sarah and Heather have set out. And it's going to be quite hard for the government to devise a system which gives appropriate carve-outs for the sectors like health, social care, potentially agriculture that need the most.

I mean you, could end up with a situation where the government gives a carve-out to every sector. [LAUGHS]

Exactly.

And it will turn out that migration will look not much different to before, and the business community would love that. But the question is, how would the British population feel about it, given that 52% of them voted to leave? And for a lot of them, it was because they thought it would put an end to migrations close.

I feel like, almost every week, there's a suggestion of a different carve-out that we should see. So first of all, it's started out with barista visas, because we suddenly realised that there would be no one to make our coffee.

[LAUGHTER]

And then someone suggested [? bricky ?] visas. And there have also been suggestions that we need a, sort of, tech visa for people who don't necessarily earn very much money, don't necessarily have very high qualifications, but are coming over to work in tech startups in the city, which obviously, are vital for the development of our digital economy. As Sarah says, it's kind of difficult to see where, if you embark on this sort of path, where do you end up? Is there anyone who you're not allowing into work at that sort of level?

Another listener, Anna [INAUDIBLE], says, I have chosen to take the plunge and return to Germany. My current employer will recenter its operations in Berlin with all new staff, most likely to be recruited for our new office there or for our smaller office in Paris. Current staff who want to relocate have been offered the choice to move to any other location across the EU where we have an office.

Now Sarah, business leaders have warned that an agreement on a transition is needed as soon as possible as companies are preparing to make serious decisions at the start of 2018, which will have consequences for jobs and investment in the UK. It sounds like some businesses are not waiting that long, regardless of what the final deal looks like. What signs are there already that we are losing jobs to other European cities?

So there have been some small, kind of anecdotal reports, things like that story that your listener has sent in, of companies relocating their headquarters. Often, the ones I've heard have been fairly small startups. I guess they're the most nimble. It's the easiest decision for them. What we haven't seen yet is any big major employers announcing that they're going to move to Frankfurt, or Paris, or Berlin, or anything like that.

There have been lots of threats of that. We had Lloyd Blankfein the other day, who is the chief executive of Goldman Sachs, went on a trip to Frankfurt. And then wrote a very provocative tweet saying that he'd really enjoyed it, and he might need to get used to spending more time there, #Brexit.

So there have been these threats and that sort of thing. But I think, for the time being, most employers are waiting to see what happens. They're clearly nervous. They are making contingency plans. But it's a really big deal to move. And it's costly, and I don't think they'll do it unless they absolutely have to.

And you can see that in the employment data. So the latest data on the state of the labour market shows that employment continues to rise, unemployment continues to fall. So there's no sign yet of any serious damage to the labour market.

Just to add to what Sarah has said, a survey of employers after the referendum found that 11% had decided at all-- were considering moving some or part of their operations outside the UK. And a further 9% said that they would concentrate future investment and developments outside the UK. But I think it's very much a question of wait and see.

So some of that's about what kind of trade arrangements the UK can make, and some of it is about whether they can continue to source the labour that they need. When we did case studies with employers, a big toy manufacturer said that it was considering moving its call centre outside the UK.

And a meat processing company said, also, it was considering moving to Germany, where it could get the skills that it needed should it be difficult to recruit people from within the UK. And the meat sector is very, very heavily dependent on EU migrants, and restrictions on immigration would be a big problem for them. So I think it is very much, for the moment, a case of wait and see once the future deals are done.

Thank you for that. Helen?

I think one thing that's worth pointing out is that this wait and see approach might actually change the longer the uncertainty goes on for. And actually, one thing that I really feel strongly talking to employers is that they had thought that there would be a future direction set for the post-Brexit immigration system by now.

And we had expected this to come in the immigration white paper that's going to be out at the end of this year. I'm now told by people who have seen some of the details of that, there really isn't going to be anything about what happens post-Brexit. It's mainly going to concentrate on the arrangements for EU residents who are already here.

And what this essentially means is that we're going to have months and years, potentially more, of a limbo situation. And I wonder whether the longer that goes on for, the more likely it is that employers who are, at the moment, sitting on the fence will actually start taking some firm action one way or the other, just because they don't know what lies ahead.

I think so. And I think the big problem is that employers at the moment are quite reluctant to invest, particularly in areas like automation. So you could say, well, if they're having problems recruiting labour, then the logical response to that is to invest in technology, labour saving technology, up the skill levels, make the jobs more attractive to UK workers. But of course at the moment, with all the uncertainty, that's the last thing that they're going to be doing.

So Sarah, what impact could all this have on wages in the UK?

So Brexiteers would tell you that this will be amazing news for wages, because their thesis is, basically, that we've had this flood of low skilled migrants from the EU thar has increased the supply of labour. Even someone who's had one day's worth of economics training knows that if the supply goes up, then the price goes down. So they say that migration has been holding down wages. And so if you limit migration, wages will go up.

There's a couple of problems with that. The first one is that there's not really any evidence-- and academics have looked over and over again-- to show that this has actually happened on the ground. That there really has been some kind of link between migrants being here and people in those areas experiencing lower wage growth. And if it didn't happen that way around, it's hard to think why the reverse would happen. So if migrants didn't hold wages down, why would sending them away send wages up?

Does anyone have anything to add to that. Heather?

So when employers were asked, what would you do if you're not able to recruit the labour that you need, the commonest response to that is that I would just leave the vacancies open. And basically, everyone has to work harder in the organisation. So around 25% of employers say that they would do that. I think around 7% of employers say their response would be to put up wages.

When you talk to employers they say, well actually, the degree to which they're able to put wages up-- and these are, particularly, in jobs where you have these European migrants or the people in low paid jobs-- they would put them up only a small degree. And that's very unlikely then to make a difference to their ability to recruit UK workers. Because as I said, UK workers are deterred from those jobs by a whole load of reasons, not just by pay. But in any case, employers know that that's actually not going to make much difference.

So thanks to Sarah, Helen, and Heather, and thank you for listening. We'll be back next week for another unvarnished look at what Brexit will mean for Britain's trade, economy, public institutions, and private sector. We hope you'll join us then.

And in the meantime, we'd be delighted if you wanted to review or subscribe to our podcast on iTunes, Stitcher, or your favourite podcast app. You can also email us at brexitunspun-- that's all one word-- @ft.com if you have a question or would like to suggest a topic for future episodes.

[MUSIC PLAYING]