Britain should prepare now for the end of unlimited cheap labour 7 July 2017 Britain should prepare now for the end of unlimited cheap labour The UK labour market is at a tipping point, with the coming together of falling migration and the rising cost of low-paid labour set to fundamentally reshape the world of work over the coming years, according to a new book published today (Friday) by the Resolution Foundation. Work in Brexit Britain shows how our labour market is on the brink of fundamental change, and that Brexit preparations must mean more than just negotiations in Brussels. The book says that far-sighted policy action could enable Britain to successfully navigate these shifts as we leave the EU. However, a failure to plan and prepare could be hugely disruptive; leading to business closures, job losses and even weaker pay growth over the coming years. The Foundation says that two major shifts that are underway and set to strengthen in the years ahead could mark an end to the era of firms relying on relatively cheap and readily available low paid labour. This era has consistently meant one in five of a fast-growing workforce being in low-paid work. First, welcome government plans to raise the National Living Wage are set to significantly increase the relative cost of low paid labour in Britain. Fast wage increases at the bottom of the labour market contrast starkly with muted wage growth elsewhere. The National Living Wage is expected to rise three times faster than typical wages over the next three years (10 per cent against 3.3 per cent), with overall wage bills among affected firms increasing by £4.5bn in 2020. Auto-enrolment of workers into pension schemes is also raising the relative cost of low paid labour. Second, Work in Brexit Britain shows that Britain is set for not just a rise in the cost but also a reduction in the supply of low paid labour. A significant fall in migration is likely to be felt most acutely in many of the same firms most affected by the NLW. A third of EU migrants earn within £60 a week of full-time earnings on the NLW, compared to just one in five UK-born workers. Falling in migration is already underway – net migration has fallen below 250,000 for the first time in three years – and is likely to continue given government promises to reduce it further, uncertainty about future migration status, improved employment opportunities in Europe and the fall in the pound. The Foundation says that the impact of these shifts in low-paying sectors such as food manufacturing (in which 41% of the workforce are migrants), domestic personnel (39%), hotels and restaurants (30%) will be so big that it could fundamentally change how firms in these sectors operate. While some firms – for example in farming – should be exploiting opportunities to invest in more technology, others – such as those in hospitality – will be more likely to look to recruit from pools of British workers they have not previously considered. A survey of firms commissioned for the book found that 38% said they’d respond to a fall in migration by substituting them with British workers, while 15% said they would change their business model. However, the Foundation says that recruiting more British workers, upskilling existing staff and raising productivity are easier said than done, especially with unemployment already at a 40-year low, and are likely to require long-term planning and support from government to make them a reality. Worryingly, firms seem unprepared for lower migration, with only a quarter (26%) reporting that they expect the number of EU nationals they employ to fall over the next 12 months. Work in Brexit Britain makes over 40 recommendations for firms and policy makers across Whitehall, Metro Mayoral offices and local government to make a success of our post-Brexit labour market including: A roadmap for our future migration policy communicated to businesses well ahead of Brexit to spur forward planning. This should include a greater role for the Migration Advisory Committee in identifying sectors with skills shortages, a streamlined immigration system for EU nationals in those sectors, and linking any shortages to government decisions on training schemes for UK workers. A renewed full-employment drive to ease pressures of labour shortages that firms may face in a world of lower migration. This should include greater support for post-16 education to improve employment rates among low-skilled younger workers. A new 12-month right to return after a period of ill-health would help older workers to remain in the labour market for longer by retaining the link with their employer should they need to stop working temporarily. An employment system that fits the fast changing world of work. This should include a new right to guaranteed hours after three months for workers on zero-hours contracts, low pay protection for gig economy workers and rethinking the incentive structures in Universal Credit to lift more people out of low-paid work altogether. Torsten Bell, Director of the Resolution Foundation, said: “Leaving the EU will have a profound effect on people’s lives, and nowhere will this be felt more strongly than in the workplace. The British labour market is at a tipping point, with big Brexit and non-Brexit related changes from lower migration to a higher minimum wage coming together over the next few years. How government and firms respond to these changes is as central to preparations for Brexit as negotiations in Brussels.” Stephen Clarke, Economic Analyst at the Resolution Foundation, said: “Low-paid labour will no longer be as cheap and will no longer be as available as British firms have grown used to. Businesses will respond to these changes in a number of ways, depending on their ability to automate or recruit more workers. But in almost all cases, they’ll need a helping hand from government to get the wider economic conditions right. “With Brexit negotiations finally under way, that support for business should begin right now. This means clarity over the government’s new immigration regime, a renewed drive to bring older and lower skilled people into the labour market, and action to ensure our employment and benefit regimes keeps pace with these changes in the world of work.” Notes to Editors Embargoed copes of the e-book, along with individual chapters (on migration, human capital, full employment, precarious work and pay progression) are available from the press office.
