First signs of falling migration after the Brexit vote

Last month, we heard that net migration had fallen below 300,000 for the first time in two years in the third quarter of 2016. In addition to this, experts are predicting further falls while businesses – particularly in sectors that employ significant numbers of migrants – are voicing concerns that they will soon face labour shortages. Are we seeing the beginning of a post-Brexit decline in migration?

With the release of the latest data from the Labour Force Survey and the data on national insurance registrations (NINO) to adult overseas nationals we now have more, and more recent, data with which to begin to answer this question.

First the NINO data. National insurance registrations to migrants appear to be plateauing at the end of last year (if not yet falling). The data showed that registrations for EU8 workers are falling while registrations for EU14 and EU2 workers are flat or rising marginally – mimicking in some respects the trends evident in the quarterly migration figures.

What can we learn from the quarterly Labour Force Survey? This covers developments to the end of 2016 and, as well as being timelier than the net migration figures, it also captures the stock of foreign-born workers in the economy. It therefore provides a better indicator of  migration shifts on the labour market because it measures the stock of those in work, rather than just the net flow of people (as the migration figures do) or the gross flow of those registering for national insurance (as the NINO data does). However, while it is extremely important for firms and policy makers to get a handle on such shifts, we do need to be careful because over shorter periods the LFS can fail to pick up modest changes in numbers.

With this important caveat in mind, there is again some evidence of a post-referendum turning point, with the number of EU-born workers in the UK dropping by 50,000 in the final three months of last year. As the chart below shows, this fall was driven by reductions of around 45,000 EU8 (accession) workers and 30,000 EU14 workers, offset by a rise of 25,000 EU2 (Romanian and Bulgarian) workers.

Given that all three sources point to falling or plateauing migration flows, or indeed actually falling migrant worker numbers, we can be fairly confident that a shift is underway. But it is important to bear in mind that as we pointed out at the time, the changes to date have been small (the ONS stated that the year-on-year drop of 49,000 wasn’t statistically significant) and some experts are sceptical of the degree to which the NINO data is a good indicator of future trends.

Yet if we can be relatively confident about numbers falling what do we know about the migrants leaving, or coming in fewer numbers? Looking at the industries affected in the next chart, we find final quarter of 2016 falls across a range of different sectors. However the biggest falls were in the public sector, finance and construction. Aside from construction neither sector is usually associated with migrant labour nor employs large proportions of relatively low-skilled migrant workers.

Single-quarter falls in a sector are not uncommon, however simultaneous falls across a range of sectors alongside other data does corroborate the finding that a shift is underway. There were 25 per cent more vacancies in construction in the final quarter of 2016 than in the third and 7 per cent more vacancies in hotels and restaurants. Furthermore we recently learned that there has been a 92 per cent fall in EU nationals registering as nurses since the referendum.

The final chart looks at migrant workers disaggregated by educational attainment. By far the biggest fall (50,000) in the fourth quarter came from highly educated migrants (those who left education after 21 years of age). The number of those who left education between 16 and 21 (who form the largest group of EU workers in the UK) actually rose by 20,000.

So, we’ve seen falls in more highly educated workers and drops in the numbers born in the EU14 and EU8. In contrast the number of workers born in Bulgaria and Romania has continued to rise, as has the number with intermediate qualifications. Add in the fact that reductions have been shared across very different looking sectors and so – while we can be relatively confident that numbers are down – it’s hard to conclude that we’ve yet seen evidence of large-scale falls in lower-skilled, low-paid migration. If anything, we might speculate that the opposite has happened: fewer bankers, builders and nurses?

This perhaps should not come as a surprise. Higher skilled workers from the EU are more likely to be longer-term migrants and so Brexit may make them question whether they will enjoy the same employment rights, or economic prospects, when the UK departs the European Union in a couple of years. Relatively short-term migrants may be less concerned about this. Furthermore highly educated workers have more employment opportunities and so may choose to work elsewhere, lower skilled workers have traditionally been attracted by the relative flexibility of the UK’s labour market, which the referendum vote had no effect upon.

Though the current evidence suggests that sectors that rely on relatively low skilled EU workers may not yet be seeing a large fall in the supply of labour we should not dismiss the concerns raised by some sectors. For one, the sectors that have reported shortages to date – such as farming and haulage – are too small for the LFS to capture what’s happening to their workforce over such a short time-frame. Furthermore, in industries with high staff turnover it does not take long before a small fall in available labour – which we may be beginning to see in these figures – can turn into a serious labour shortage.

Now, of course, Brexit hasn’t happened yet. We don’t know what the future looks like, but it’s highly probable that businesses will have to adjust to a world of lower migration at some point in the coming years and certainly once the UK leaves the EU and Theresa May has significantly more latitude to choose a migration policy. Planning for that, highly uncertain, world is exactly what firms and policy makers should be doing. For sectors such as agriculture, construction and food manufacturing that have been particularly reliant on lower paid migrant labour that could mean investing more in machinery, but the initial evidence is that change may be coming to a wider range of sectors where adjustment will require different strategies including training that for some roles can take several years. Now is as good a time as any to get started.