The most biddable of them all?

This piece originally appeared on Times Red Box.

Today’s headlines tell us once again that net migration from the EU to the UK is down significantly since the Brexit referendum, with record levels of emigration of EU citizens and a large drop in the number of people coming from the continent looking for work. In the year to June 2016, 190,000 EU citizens moved to the UK either searching for, or with, a job; in the year ending December 2017 that figure fell by one quarter to 141,000 as the number coming looking for work halved. But at the same time, the upward trend in the number of agency workers born in the EU does not appear to be abating (see Chart 1).

Chart 1: Number of agency workers by country of birth, 2011-2018: UK

Source: RF analysis of ONS, Labour Force Survey 2011-2018

There could be a number of reasons why this is the case. While the prospect of Brexit may be dissuading continental Europeans from moving to the UK for long term jobs, perhaps it is not yet affecting those who plan to be here on purely a temporary basis? Or maybe EU workers are using agency work as an entry point into the UK labour force ahead of any future cut off point? But whatever the explanation, the fact that over one in five agency workers currently hails from an EU country is something that should be giving both businesses and policy makers pause for thought.

To begin, any contraction in this small but important part of the labour force post-Brexit will be felt differently across industries. Chart 2 suggests that manufacturing is most exposed to a fall in the number of EU agency workers as it has the highest density of agency workers overall, with close to four in ten of them currently coming from the EU. Likewise, around one-third of agency workers in the wholesale, retail and motor trade and in the hospitality industry are EU-born (although both sectors are less agency worker-dependent than manufacturing). But even education, health and social work – the sector with the lowest share of European agency workers – could be sensitive to future falls in the number of EU migrants given the sheer number of agency workers in these professions.

Chart 2: Agency workers by sector and country of birth 2015-2018: UK

Source: RF analysis of ONS, Labour Force Survey 2015-2018

The pressure at the firm level could be even more acute. We have shown before that a significant minority of agency worker-employing businesses (one-third to be precise) takes a strategic rather than a stop-gap approach to their use. When we look further into the data we also see that firms that view agency workers as a core part of their business model also employ more migrants in these roles than those firms who use agency workers in an essentially ad hoc manner.

All of which begs the question why so many EU migrants are clustered in agency work in the first place. After all, over 7 per cent of all EU migrants who work in the UK are agency workers, compared to less than 2 per cent of those who are UK born. Is it because agency work is the easiest way to find a job in the absence of native networks and knowledge? Or because the temporary nature of agency assignments suits those who do not have long term plans to stay? Three focus groups we ran with agency workers of all nationalities in recent months suggest these are both important considerations, but there could be something less benign at work too.

While agency work can be an active choice, our focus groups made clear that for many it is far from ideal. Participants spoke of the stress of agency jobs cancelled or curtailed; of having to take inconvenient assignments if they wanted more work in the future; of poor treatment in the workplace where they are often seen as “second class citizens”; and of struggling to access entitlements from agencies such as holiday pay. However, such concerns were notably less of an issue for migrant agency workers who took the ups and (more frequent) downs of agency work much more in their stride.

The findings of our focus groups echo studies of the broader migrant worker population. In a recent report the Migration Advisory Committee showed that employers believe migrants work harder, are more flexible and accept less attractive jobs than UK-born workers (although these perceptions are difficult to confirm with hard data). Moreover, while workers from original EU member states are paid the same as an equivalent UK-born worker, those from accession states in low-skilled jobs are paid 4 per cent less.

While agency workers are an easy-to-flex, compliant part of the workforce for many businesses, it appears that migrant agency workers are the most biddable of them all. Small wonder, then, that many businesses are keen to expand their agency workforce in the future. When we look at firms’ intentions we found that one quarter that make use of agency workers already plan to hire more in the future, rising to one-third for firms that take a strategic approach to their use (Chart 3). But those firms that have a high proportion of migrant agency workers have an even more expansionary outlook: 4 in 10 such firms hope to grow the agency worker share of their workforce in coming years.

Chart 3: Proportion of firms that expect to grow the agency worker share of their workforce in next 5 years

Source: RF analysis of agency worker business survey, ComRes 2017

Notes: n=500

They may be disappointed. As the Brexit White Paper made clear last week, freedom of movement as we know it today will end in March 2019, with a new migration regime set to come into force after at the end of the transition period. The paper indicates that EU citizens will be able to travel freely for ‘temporary business activity’ after this date, but the full meaning of this phrase is not yet clear. It is very unlikely to cover agency workers, and will do little to enable the large number of such workers who consider themselves to be permanent rather than temporary to continue to enter the UK. Even if the government were to make an exception for temporary agency workers, this looks unlikely to be enough to maintain current levels let alone allow firms to increase their agency worker share.

So what to do? Three things spring to mind. First, policy makers could think harder about how to improve conditions for agency workers, thereby making this type of work more attractive to UK-born workers (as well as benefiting the migrant workers who continue to work in this form). Implementing the agency worker recommendations of the Taylor Review – note least banning Swedish derogation contracts and reforming holiday pay legislation – would be a good place to start. Second, the government needs to recognise that migrant agency workers are often at the sharp end of this world and are likely to continue to be so. Given this, investment in bodies like the Labour Market Enforcement Directorate looks more important than ever. And third, businesses planning on the basis of significantly increasing their use of EU agency workers might want to think again about how sustainable such an approach is.