Tomorrow is Judgement day for UK and EU. Britain is going to vote tomorrow to either exit or remain in the EU in an ‘in-out referendum’ – 43 years after it was inducted in the European Economic Community ((EEC) in 1973. A lot of speculation has been doing the rounds about the possible policies and its repercussions on the economy. Organizations feel that UK exiting the EU will trigger currency volatility, which will have a short term impact in the Indian industry. Also, many companies which use UK as a catalyst to do business in EU might have to re-evaluate their geographical presence in the region.
In a public statement, Jamie Dimon, CEO of J P Morgan had said, “One realistic outcome is that we lose the ability to passport our banking and trading services into Europe. But our clients will still need us to trade within what will then be the EU. So if the UK leaves the EU, we may have no choice but to re-organise our business model here. Brexit could mean fewer JP Morgan jobs in the UK and more jobs in Europe.” In a report titled ‘The impact of Brexit on UK Graduate Recruitment – A survey of top graduate employers’ conducted by Pathmotion , a senior executive at a global bank (who stayed anonymous in the Report) mentioned that his bank, which employs over 10,000 people in the UK, has recently decided to locate a new operation (that necessitates free EU access) to Germany given the uncertainty over the EU referendum. This itself is a costly affair for organizations -- shifting to a newer location involves financial decisions which will have an impact on the company bottomline.
Britain’s membership of the EU means that citizens are able to live and work anywhere within the 28 countries of the EU. But if Brexit happens, free access will be the first thing to go. Sorana Vieru, a Vice President of the NUS, thinks that leaving the EU would limit the job opportunities of young people in the UK. She told The Guardian, “Freedom of movement across the EU currently means young people have a wider pool of graduate jobs to choose from, as more and more organisations work across Europe or specific targeted industries graduates find attractive are booming in other EU countries,” she said. “Restricting freedom of movement means finding a job abroad becomes much harder for young people.”
A lot of EU immigrants are sceptical about the hassle of getting and renewing skilled migrant visas like their colleagues from India and non-EU countries have to go through. Because leaving UK also means one has to go through the layers of visa applications even for travel.
The Pathmotion report also mentioned that if UK votes to exit from EU, about 49% of top graduate employers are likely to lower their graduate intake – indicating there will be an overall dip in graduate hires. Of various sectors, Banking & Financial, Retail, Media, Technology and Law – in each of these sectors the respondents mentioned that their firms will downsize their graduate hires. These sectors together employ about more than 50,000 graduates per year which is about 25% of all graduate in employment.
Research also suggests that graduates who enter the jobs market during a recession earn less than those who do so in a buoyant economy, and that the differential persists for years. It is the low-skilled and young people who suffer. The reasons behind downsizing graduate hires post Brexit will be because the volume of business will suffer due to the impact on the economy, and also companies will not have a wider talent pool (EU graduates) to choose from with regard to jobs.
The report by Pathmotion suggests that while lack of free movement from EU workers would lead some employers to substitute British graduates for EU graduates; this effect does not appear to outweigh the overall reduction in graduate intake, indicating British jobs are also at risk under Brexit. According to a consultant at a leading management consultancy, a negative economic impact following Brexit will have at least a short-term impact on hiring. PwC Survey mentioned that 41% of respondents agreed that leaving the EU would have a negative impact on their career whilst 37% said they lacked information to form an opinion.
About 95% of the top graduate employers surveyed said that they find EU graduates beneficial because of language and skillsets that they possess – can cover global clients. Moreover, some reported that the uncertainty created by Brexit, even without immediate economic downturn, would be sufficient to slow down firms’ expansion decisions and therefore graduate hire requirements. Second, with the UK leaving the EU, there is likely to be a lower number of EU candidates applying for positions which in turn would affect the amount of talent UK companies are willing to hire.
A PwC report on 'Leaving the EU: Implications for the UK economy’ Over the longer term, total UK employment (the number of people employed) in 2030 could be between around 350,000 and 600,000 lower in PwC report of two exit scenarios relative to remaining in the EU. This equates to a reduction of around 1% to 1.8% in total projected UK employment in 2030 in these two exit scenarios relative to remaining in the EU, in large part due to lower inward migration of workers. In the short-term, unemployment could rise to around 7-8% in the next 3-4 years if the UK left the EU, compared with a rate of 5% if the UK remained in the EU. But the unemployment rate should return to around 5% in 2030 in the exit scenarios as the labour market adjusts.
The PwC report also mentioned that the introduction of tighter restrictions on migration is estimated to reduce UK GDP by around 1-1.6% of GDP in the two scenarios due to reduced labour supply. This will particularly impact sectors which are heavily dependent on low-skilled migrant workers at present, such as agriculture, food, and accommodation services.
From being the sick man of Europe, UK has over the years climbed to the top spot among the G7 nations because of its growth. Will Brexit help sustain the growth chart? Time will tell.