A personal view from Ian Stewart, Deloitte’s chief economist in the UK.
One of the little noticed, but profound consequences of the pandemic has been in its impact on international migration. Migration flows into richer countries have fallen sharply this year. The OECD estimates that the number of new permanent residency permits granted across advanced economies fell by almost 50% in the first half of 2020.
The reversal is particularly striking in the UK. The UK has been a major net “importer” of people in the last 25 years, with immigration running well ahead of emigration. When the data finally become available next year, it is possible that we will find that in 2020, for the first time since the mid-1990s, net migration turned negative.
It is already clear that the foreign-born workforce in the UK is shrinking. In the third quarter the UK’s foreign-born workforce was more than 10% smaller than a year earlier, a decline of more than 700,000 people. This comes after years of strong inward migration, with the UK’s foreign-born workforce rising by an average of 5% a year between 1998 and early 2020, roughly ten times the annual growth rate in the UK-born workforce.
The UK economy and employers have become progressively more reliant on overseas-born workers. Before the pandemic they accounted for about 17% of the workforce.
The pandemic has made moving country a far less attractive proposition. Changing jobs, housing and country have become harder, and major companies are more cautious about moving staff. Uncertainty tends to keep people close to family and familiar support systems.
The fact that the UK has suffered such a severe toll in terms of deaths, the economy and restrictions, sharpens these factors. So, too, does the prospect of higher unemployment. Immigrants are heavily represented in hospitality, transport and food services that have suffered disproportionately from the lockdown. (The director of Pret a Manger told a House of Lords Select Committee in 2017 that just 1 in 50 applicants for jobs at the company were British.)
Britain’s unemployment rate, one of the lowest in Europe, is likely to rise next year, probably above levels in countries such as Poland and Hungary that have been significant sources of labour supply for the UK economy.
Predating all of this is the effect of Brexit. Since the referendum in 2016 migration from the EU to the UK for work more than halved. Brexit was accompanied by a sharp, 17% fall in the value of the pound, eroding the overseas value of UK earnings for foreign workers.
Overseas-born workers are more likely to be working in the most and least-skilled occupations and less likely to be working in medium-skill occupations. People born in India and western European countries are more likely to be in high-skilled occupations, those from central and eastern Europe more likely to be in lower-skilled occupations. This is not necessarily because they had low levels of education, however – some 56% of central and eastern European workers in lower-skilled roles were over-qualified for their occupation.
Foreign-born workers are strongly represented among the highest earners in the UK. A recent study by Warwick University found that almost one in four of the top 1% of the UK income distribution, equating to pre-tax incomes in excess of £120,000, are migrants. Among the super high earners, the top 0.01%, more than one in three are migrants. Banking, consulting, medicine and fund management are among the most popular careers for these high earners.
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The progressive nature of the tax system, with the top 1% of earners contributing 27% of all income tax revenues, means that this small group of overseas-born workers contributes disproportionately. The rapidly rising representation of overseas-born workers at the top of the UK income distribution, coupled with the growth in lower-skilled workers at the bottom of the distribution has contributed to widening inequality, leading the authors to claim that the UK is “importing inequality”. If the incomes of migrants are removed, the UK income distribution is less unequal and more similar to other European countries.
The strength of the UK economy will be a key determinant of future immigration as will a new immigration regime which comes into effect from 1 January 2021. It marks the end of freedom of movement between the EU and UK and means that, apart from Irish citizens, essentially the same immigration rules apply to all non-British citizens arriving in the UK to work, study or live.
This system will be significantly more restrictive for people from the EU who would have previously moved under freedom of movement but with lower skill and salary requirements for non-EU migrants. The rules are less stringent for shortage occupations and the NHS. A seasonal scheme for agricultural workers will be expanded.
Ensuring that the relatively small number of high earners who contribute disproportionally to UK GDP and tax revenues can maintain access to the UK ought to be relatively easy. Much harder judgements apply in the case of crucial, but lower paid work, for instance in the health and social care sector, where overseas-born workers play an important role.