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The latest official figures on migration, released recently, indicate that net migration from the EU has declined in 2017 to its lowest level since 2013. In particular net migration from the A8 countries, has declined significantly following the 2016 referendum.

Figure 1: Net migration into the UK

Figure 2:  Net migration from the EU 

Source: ONS Provisional Long-Term International Migration estimates

Whilst some of this reduction can undoubtedly be attributed to uncertainty surrounding potential migrants’ access to the labour market once the UK leaves the EU and the depreciation of sterling, which has fallen by around 19 per cent relative to the Euro since its peak in the third quarter of 2015, stronger economic growth in the A8 countries relative to the UK reduces the incentives for migration (figure 3). Additionally, Germany has experienced stronger economic growth than the UK in 2016 and 2017, increasing its attractiveness as an alternative destination for migrants.

Figure 3: Annual GDP growth 

Source: Eurostat

Note: EU8 includes the Czech Republic, Hungary, Poland, Slovenia, Slovak Republic, Lithuania, Latvia and Estonia 

Associate Research Director Heather Rolfe said: “The UK is becoming less attractive as a destination for migrant workers. One indication is the balance between those EU citizens who come to the UK with a definite job offer against those who come to look for work. The latest figures show a fall of 14% in the number of migrants coming to work in the UK in the year to December 2017. They also show that 72% came with a definite job offer, compared to 58% between June 2015 and June 2016, with a steady change in between. The growth in definite job offers is likely to reflect increased use by employers of agencies and other proactive measures initiated by difficulties recruiting workers – migrants and locals alike – from within the UK. Indeed, there are anecdotal reports of an increase in this kind of activity to entice EU migrants to the UK.”

Migration and Brexit – calculating the impact on the economy

The government’s latest Brexit White Paper, published last Thursday, emphasised the end of free movement of labour between the UK and the EU. There is little detail in the White Paper but the government’s overall objective to reduce net migration into the UK to the tens of thousands each year remains unchanged.

NIESR’s Head of UK Macroeconomic Forecasting, Amit Kara, said: “The impact on the economy will depend on the number of migrants, the type and the response of businesses to a smaller workforce. We estimate that UK GDP will be some 1.7 per cent lower in the long run if net migration drops by 100,000 each year.  At the broadest level, lower migration reduces the productive capacity of the economy as well as demand for goods and services but the impact is more nuanced than that. Sectors that depend on relatively unskilled migrant workers, such as agriculture, on the one side and highly trained immigrants such as those that work in the healthcare sector, on the other, will be affected disproportionately.”

Setting aside any of these sector specific effects, our results also point to a more benign impact on GDP per capita. The lower level of GDP, as a result of lower net migration, will be spread across fewer people which implies that GDP per head will fall by much less than the 1.7 per cent impact that we estimate for overall GDP.

The impact on wages will depend on the response of businesses. Employers may decide to invest in plant and machinery in response to labour shortages and that will result in higher labour productivity. Higher labour productivity in turn tends to be associated with higher real wages.

That boost to labour productivity might however, be diminished by other Brexit-related effects. Chief among these is the impact on productivity from lower international trade. Research suggests that a reduction in international trade lowers whole-economy productivity.

Notes for editors:

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