A new report analyses the impact of Brexit on the labour market and outlines key recommendations based on what employers should do to attract and retain new talent, especially in sectors which will face staff shortages. 

New research conducted by Resolution Foundation, a think-tank focussed on improving living standards for those on low to mid incomes, analyses the various ways the labour market may be affected from January 2021, following the end of free movement between the EU and UK.

It further states that, due to skill shortage in certain sectors, employers will have to improve pay and working conditions to fill this gap.

In particular, it cites research that shows, between 1996-2019, migrant workers accounted for 60 per cent of net employment growth. In particular, these workers accounted for over two-thirds (67 per cent) of net employment growth in the South East, almost three-quarters (74 per cent) in the West Midlands and 107 per cent in outer London.

However, the impact of Brexit has meant that the number of migrant workers from the EU has dramatically fallen. Data suggests that between summer 2019 and summer 2020, the influx of EU migrant workers has fallen by 16 per cent.

This creates a significant problem as the new points-based immigration system, prior to the pandemic, was expected to occur in an active labour market. However, recent ONS statistics show that the end of free movement will now operate in the context of elevated unemployment.

According to the report, this means that migrant-reliant firms and sectors will now have to adjust to the new points-based immigration system and the shortage of workers this will cause by introducing new business models, investing in automation, raising prices or shrinking.

A key way of attracting and retaining workers in sectors that rely heavily on migrant workers is by increasing wages and boosting working conditions. This comes after research finds that over the 2015 to 2019 period, one-in-seven (15 per cent) of all those employed in the hospitality sector reported they received no paid holiday (a legal right), while a similar share (14 per cent) in the same industry said they were issued no payslip.

The report also warns that the need to fill labour shortages could encourage some employers to circumvent migration law and employ irregular migrant workers.

Due to this, the think-tank warns that employment laws and rules must be more strictly enforced to ensure that vulnerable workers are protected. It states that certain models must be adopted which encourages irregular workers to report unscrupulous employers who violate their rights at work. In particular, it cites the Memorandum of Understanding between the NHS and the Home Office where reporting of migrant patients with insecure status to Immigration Enforcement only occurs when ‘serious criminality’ is suspected, as a positive model that could be adopted in 2021 and beyond.

Kathleen Henehan, Senior Research and Policy Analyst at the Resolution Foundation, said:

Migrant workers have played a big role in the growth of the UK labour force over the last 25 years, particularly in major cities like London, Birmingham and Manchester. But the UK has been attracting fewer migrant workers since the referendum, and has likely seen an exodus of them during the pandemic.

The new immigration regime being introduced in just a few weeks’ time will reinforce this major change for the UK labour market.

Firms reliant on lower-paid migrant labour will need to change how they operate over time. Higher unemployment may allow them to delay such decisions, but they can’t be avoided altogether.

Government too will need to change how it works in the face of this labour market change, with the enforcement of employment rules needing to be strengthened given that some firms may respond to the tighter rules by hiring irregular migrant labour.

*This research was taken from Resolution Foundation’s report ‘Home and Away: The UK Labour Market in a Post-Brexit World’ which was published in December 2020.