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Working Together? The impact of the EU referendum on UK employers

On 23 June 2016, citizens of the United Kingdom will vote to either leave or remain part of the European Union; the outcome of this referendum is likely to have long-lasting implications for the UK’s regulatory relationship with the EU, and consequently, impact UK employers in ways that remain to be seen.

A vote to leave Europe could theoretically lead to the deregulation of the UK’s labour market, and to the end of the free movement of workers. Citizens of member countries of the European Union, or the European Economic Area (EEA), have the right to live and work in other EU and EEA countries. As a consequence of its membership of the EU, UK employers are also bound by a range of labour market rules and directives determining working practices, such as the Working Time Directive.

But what might happen in actuality? Which job roles do European workers currently fulfil? And what effect would Brexit have on UK employers? These are the questions this report, in partnership with Adecco Group UK & Ireland, aims to answer.

KEY FINDINGS 

UK employers are significantly reliant on EEA workers, who make up 6% of all UK employees, and number some 1.6 million.

  • EEA employees represent one in eight of all employees in London. Specific sectors in the capital are especially reliant on EEA workers: they make up a third of employees in London’s accommodation and food services (33%), represent a high proportion within manufacturing and construction, and constitute one in eight of all managers and directors, one in six of those in skilled trades, and one in five of all elementary employees.
  • A wide range of jobs in the economy are carried out by EEA employees. They constitute a higher proportion of workers in low level occupations − such as elementary and process, plant and machine operatives − whilst also representing 5% of all employees in high occupations, including managers, directors, professionals and associate professionals.
  • In sectors such as financial services and insurance, information and communication, and professional and technical activities, a majority of the jobs occupied by EEA employees are in the highest three of the nine occupational bandings, such as ‘Managers, Directors and Senior Officials’, ‘Professional Occupations’, and ‘Associate Professional and Technical Occupations’. In sectors such as accommodation and food services, transport and storage and administration and support, a large proportion of employees occupy one of the lower six occupations.
  • EEA employees are, on average, educated to a higher level than UK-born employees. Only 15% of EEA employees left formal education before the age of 17, compared to 44% of UK-born workers. Meanwhile, 42% of EEA employees were educated beyond the age of 21, compared to 24% of UK-born workers.

What are the potential consequences of leaving the EU for UK employers? There are three plausible outcomes for the UK’s regulatory relationship with Europe if the UK were to leave the EU.

  • Option 1: If the UK remained in the European Economic Area (as with Norway), there would be no direct consequences for the UK’s regulatory relationship with the EU, and the UK would continue to have to meet EU-related employment regulations, as well as free movement.
  • Option 2: If the UK became a member of the European Free Trade Association this would mean that EU employment legislation would no-longer bind the UK government, although free movement of labour would still apply.Theoretically, this scenario could have major implications for UK employers: regulation that stipulates working hours, holiday entitlement and time off work could all be removed. However, in practice, the effects on employers and employees are likely to be modest. The UK Government would be unlikely to repeal established aspects of employment legislation, such as minimum holiday entitlements – evidenced in part by the fact that successive UK governments have gone beyond the minimum EU requirement in terms of employment law. What is more, it is not clear that many employers would alter their employment packages even if they had the regulatory opportunity to do so.
  • Option 3: If the UK were to negotiate a bilateral trade agreement, similar, for example, to that negotiated by Canada, the UK would be bound by neither EU employment legislation nor free movement of labour.This outcome could provide by far the most radical disruption of the UK’s labour market. We do not know what regime would take the place of free movement, although it is likely that there would be some form of immigration policy to determine the conditions under which EEA migrants could work in the UK. These conditions might be based on criteria such as earnings, qualifications, skills, occupations or other factors.

To illustrate the potential impact, we analyse what would happen if EEA employees had to meet the visa requirements that currently apply to non-EEA workers. This shows that:

  • Only 12% of EEA employees currently working in the UK would qualify, and an even lower share of private sector employees.
  • While the accommodation and food services sector has the largest proportion of employees from the EEA, only a negligible number would qualify and meet the requirements.
  • Manufacturing, agriculture, administration and support and transport also employ large numbers of EEA workers who would fail to fulfil the requirements.
  • In sectors such as information and communications, finance, and professional activities, where EEA employees account for around 6% of employees, higher levels of pay mean that a larger proportion of employees would meet the requirements.
  • At around 13%, London has the highest proportion of EEA workers as a share of its workforce. A relatively large proportion of these are on high salaries and in graduate occupations. However, around three quarters of these EEA workers would not meet the visa requirements.
  • Applying an annual earnings qualification penalises part-time employment particularly. Although 5% of all part-time workers are from the EEA, almost all would fail to meet the current visa requirements. This means that the potential effect of replacing free movement with an immigration policy similar to the one we currently have in place for non-EEA workers could mean a loss in flexibility, with fewer workers available for part-time hours.

There is much uncertainty as to what any new relationship between the UK and the EU would look like in the event of the UK leaving the EU. For employers, the most significant potential effect is the change in their ability to freely recruit workers from the EEA. Should EEA workers no-longer be able to freely move to work in the UK, we may see a number of changes in the labour market, including: pay and conditions; investment in training; recruitment of non-EEA workers; and changes in business models, such as a move towards greater automation.

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Nigel Keohane
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