Brexit vote requires migrant-reliant firms to rethink business models

The decision to leave the European Union may fundamentally change the business models of firms reliant on migrant labour if promises to end freedom of movement are delivered.  Some sectors have the potential to respond with greater automation while others will require a smart immigration policy from government to prevent damaging staff shortages.

This is according to a new Resolution Foundation report published today (Monday) ahead of a major conference on the future of robotics and its impact on the labour market. The report recognises that while robots and automation bring with them challenges in fast changing sectors they may in fact be more needed than ever, given flat-lining productivity and the potential for significant changes in migration policy.

The report analyses the impact of automation on the labour market to date, and considers which parts of the economy might see wider adoption of new technology if leaving the European Union reduces the availability of migrant workers.

In particular it highlights sectors – including food manufacturing, domestic personnel services and agriculture – where at least one in eight workers are EU migrants. The report notes that most of these sectors also have a high proportion of low paid staff and already face a significant challenge, with the introduction of the National Living Wage set to affect two in five workers by 2020.

The Foundation says that while it is not yet clear what controls on immigration the UK will have after leaving the EU, sectors that are particularly reliant on EU migration will need to plan for a reduction in labour availability.

The report highlights big differences in strategies that will be open to different sectors, combining its own analysis with research on automation by economists Carl Frey and Michael Osborne to show that further automation is most likely in sectors such as food processing and agriculture.

The need for further investment in technology is likely to prove most critical in food manufacturing, where almost a third of the workforce are EU migrants. The Foundation notes that this has traditionally been a low-investment sector that may require new approaches if a significant tightening of migration policy takes place.

However, the report adds that not all sectors will be able to respond to labour shortages with further automation. It notes that some migrant labour reliant sectors, such as domestic personnel work and transport support, have much less scope for automation.

Firms in these sectors will need to think more broadly about how they respond and have a particular interest in government introducing a smart new immigration policy that takes into account how labour shortages may develop in the coming years. It adds that these firms will also have to look more closely about how they train and promote existing employees.

The report notes that while automation, whether motivated by leaving the European Union or otherwise, brings with it challenges for individuals affected it does not follow that overall employment will suffer. It points to the examples of plant and machine operators where the share of hours worked has fallen by 50 per cent in the last 20 years, along with a general ‘hollowing out’ of middle-skilled occupations such as secretaries. However it says that this has not prevented overall employment from continuing to improve as new jobs have been created, particularly in high-skilled occupations such as science, engineering and technology.

Adam Corlett, Economic Analyst at the Resolution Foundation said:

“People have long warned about the rise of the job stealing robots, but they haven’t had much effect to date in a country that has record employment and a terrible record on productivity.

“But the decision to leave the European Union could force many companies to fundamentally rethink their business models, particularly those reliant on migrant workers who might not be so readily available in the future.  Changes on this scale take time, but many firms will still need to start preparing now.

“For sectors like agriculture, further automation could provide part of the answer to coping with the changed labour market, though it will require a major shift in investment to become a reality.

“However, automation and robotics can’t provide the answer in more people-focused sectors such as domestic services. These firms will instead rely on government changes to migration policy recognising sectoral differences in setting a new immigration policy.

“The decision to leave the European Union will force business and government to make some pretty big calls on what investment and labour supply will look like in a post-Brexit economy.”

Industries most reliant on migrant workers