Is the labour shortage really a result of Brexit?

Barely a day goes by without a stream of headlines about labour shortages, with many commentators rushing to blame the UK’s exit from the EU. Adrian Smith argues that they’re missing the point.

Over the summer, a string of firms have experienced staff shortages. Many experts seemed to conclude the same thing – that this is the result of Brexit.

But if you look at the research more carefully, it suggests these shortages are, on the whole, being an increase in demand for skills, rather than a shrinking supply of EU labour.

The big story is, of course, the number of HGV drivers. In June we were short of 65,000, according to the Road Haulage Association, and by September this had grown to 100,000. On the face of it, there appears to be a shortage of suitably qualified labour, caused by EU drivers heading home.

But look beneath the surface and the story isn’t quite so cut and dried. There are about 600,000 people holding LGV cat C (rigid truck) or cat C+E (articulated lorry) licences in the UK who do not currently drive trucks for a living.

EU-wide problem

That’s a lot of potential workers. So why aren’t these people driving any more? For many, it was a result of moving out of self-employment into employee status due to IR35 rules, which led some to see a drop in pay by up to 25%.

But even before Brexit, the RHA said there was a shortage of 60,000 drivers. Could we fill the gap with EU labour? I’m not so sure. Figures show that Germany is also short of up to 60,000 drivers, France needs 43,000 and Italy 15,000. Analyst company Transport Intelligence estimates that Europe as a whole is experiencing a shortage of 400,000 drivers.

We must also look at the rise in demand for drivers. Changing consumer habits means retailers such as Co-op are predicting a doubling in online sales by the end of the year. The US is so short of drivers that it is hiring workers from South Africa, according to a recent report in the Financial Times.

Dr Alan Manning, professor of economics at the London School of Economics, argues that the whole “Brexodus” story has been blown out of proportion. Estimates that the number of migrants in the UK fell by 1.3 million were skewed because there were changes in the way the data was collected.

And, as Madeleine Sumption, director of the Migration Observatory at Oxford University, pointed out, the figures do not show whether people actually left the UK, as EU citizens who had lost jobs “may still be here, unemployed”.

Dr Jonathan Portes, professor of economics and public policy at King’s College London, who drew attention to the drop in the non-UK workforce, admitted the new analysis “certainly suggests our ‘upper bound’ of 1.3 million is overstated”.

Less dramatic drops

ONS figures now suggest the employment of EU nationals fell by just 200,000, from 2.4 million in January to March 2020 to 2.2 million in April to June 2021.

Even when looking at the 200,000 number, it is conceivable that many of these workers left the UK in the depths of the pandemic to move closer to family, where the cost of living is lower – in that case, their departure would arguably have happened even if the UK had remained in the EU.

Interestingly, the UK’s settlement scheme for residents of the EU had, by the end of May, received about 5.5 million applications. In March 2020, the ONS estimated the population of EU citizens living in the UK at 3.7 million.

Obviously the 5.5 million figure does not include however many EU citizens living in Britain who are not applying for settlement. Researchers from the ONS and the University of Oxford Migration Observatory have also said the high number of applications might include millions not even living in the country at the moment.

Candidate power

Randstad’s latest research chimes with the academics – not the media. We examined the changes in the ratios of vacancies to applications for jobs in the UK’s private sector, using the volume of applications as a proxy for candidate volumes.

In the first half of 2020, Randstad had 14 applications for every private sector job advertised. In the first half of 2021, this ratio fell to eight applications per job.

But the change has not been driven by a collapse in candidate numbers. The number of applications for private sector roles fell by 15%, while the number of vacancies rose by a greater degree – by 60%.

In my view, the current labour market problems are not down to a constriction in the supply of labour. Workers are back in power because of the success of the vaccine rollout and the removal of lockdown restrictions – and the resulting economic bounceback.

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