Economics, Politics & Society — October 17, 2016 at 12:07 am

Now That You Have Brexit, Prepare for Brexodus

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As a foreigner living in the UK, the move to Brexit has been something of an eye-opener. Nearly three decades ago, I wrote a book that was deeply skeptical about the single market programme.  Entitled, European Markets After 1992, it sold as many copies as one would expect for an academic tome (not many).  The main thesis of the book was that the EU single market programme was not about grand political aspirations but about the growing weakness of Europe in terms of its competitive positioning in new markets – most notably services, computers, software, medicine, telecommunications, etc. – against competitors from North America and Asia.  In the book, I argued that ultimately the desire to reduce business transaction costs would lead to an inevitable competition within the EU for social services and people, and this would be most noticeable where the gaps in living standards where the largest.  What I got wrong in that book was the extraordinary extent to which the movement of people and goods altered the human dynamic in Europe – for both good and ill.  On the good side was the explosion in the number of ordinary people speaking English and hence being able to work across borders more effectively.  On the bad side, was the extent to which this would lead to a politically fragmented and tribal Europe and an economically bifurcated Europe with those without those skills becoming more marginalized and embittered. The reasons for the Brexit vote were complex and my point in this article is to focus not on the vote itself but one aspect of its consequences – what I am terming Brexodus.

One of the reasons that the UK is such a sanctuary for migrants is quite simple – the fact that English is the lingua franca of modern economic activity implies that it is the first port of call for many looking for opportunities in Europe.  I personally have worked in Denmark, France, Germany, Norway, the Netherlands, Finland, and Austria and as an academic could easily have settled in any of those countries.  However, my family does not speak any of the local languages and for them living and working in an English speaking country is a necessity.  Therefore, the UK it was.  However, it was not just language that drove our decision but also the access to the social and economic environment of Europe at large, which is why we did not move back to the US.  By moving to the UK, we were gaining access to the ability to get an EU passport and work more effectively across all the countries of Europe.  For me, this entailed not just access to European research funds, but also the ability to move freely without having to queue endlessly, work at other institutions more freely, engage with colleagues more seamlessly and also get all the benefits of being able to own property and get healthcare without having to be taxed at every turn.  Because of this English language factor, the UK also provides a more heterogeneous work environment – unlike other non-English speaking universities in the EU, over 30 percent of my colleagues are from outside the UK, providing a diversity that is both refreshing and challenging.

In the post-Brexit reality, however, one must expect this to change and to do so dramatically rather than marginally.  Indeed, the fall of the Pound is, by definition, a repricing of all things British.  Not only is UK land, housing, and production being viewed as less valuable, so too is UK-based labour.  Anyone now working in the UK is essentially being told that their productivity – i.e., their economic value – is not on par with what it would have been pre-Brexit.  This must ultimately lead to one of two effects.  The first is that that UK-based labour with non-UK alternatives will need to be ‘marked’ to market – in more prosaic terms, their local salaries must be increased.  If, like me, you are an Australian working in the UK who has the opportunity to go back to Australia, this implies a post Brexit premium of more than 20% in Australian dollar terms.  If, also like me, you are an American with opportunities in the US, this premium is over 15% in US dollar terms.  The second effect is that those with these opportunities will simply take them – i.e., they will become part of the Brexodus.  Because, individuals with mobility are likely to be those with high skill levels, the inevitable effects are that: (a) the salaries of more skilled people will increase, making the gap between those with the most valuable human capital even more differentiated from those at the bottom of the economic ladder – potentially further exacerbating political and social divisions – and (b) many of those with mobility will simply leave, reducing the overall economic value and vibrancy of the UK economy.

The other aspect of this that Brexiters do not understand is that most migrants do not show up via Calais, but via Heathrow, and do so by making a choice where there are alternatives.  While Amber Rudd and others talk about wanting the ‘right’ type of immigrants (of which, I suspect, I am one), they do not understand that there is both a supply of labour and a demand for labour.  Migrants like me have a choice and the fact that I might be wanted does not imply that I will come or even stay.  For example, at my university we are constantly hiring.  My group advertised three positions before the Brexit vote and got hundreds of applications from all around the world.  We ultimately hired an Italian and Romanian, both with overseas PhDs.  After having lost two junior colleagues (one from Ireland and one from Finland), we advertised again after Brexit.  We received dramatically fewer applications and none from the EU, North America or Oceania.  We ended up rejecting them all.

So while the UK can demand all it wants, it is ultimately the choice of those with the valuable skills to supply them.  If the social and political environment is hostile, the salary and benefits are substandard, and the rules of engagement in the society are stacked against you, it is quite understandable that those possessing the skills the UK needs will simply choose the other alternatives.  This is made worse by the nature of modern economic activity, which is hugely dependent on the spillovers from complementarities – i.e., other people you work with and the capital attached to your labour.  It is telling that all of the UK’s Nobel prize winners this year were at US universities and all the US Nobel Prize winners were immigrants.  Skilled people go where there are other skilled people and the resources to do their jobs well.  So not only will the Brexodus include skilled migrants but also skilled locals who know they too are better off working in an environment that provides them with opportunities rather than constraints.

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