Employers’ perspective on post-Brexit Migration in NI

1. Employers’ perspective on post-Brexit Migration in NI Dr Owen Sims Senior Policy Advisor, CBI

2. Migrant inflows & natural Demographic projections 1

3. Contribution to employment The global financial crisis (2008/2009) brought with it a structural change to the make-up of the NI labour market. Over the past decade migrant workers from EU economies have driven employment in NI beyond the pre-crisis levels. NI has welcomed over 40,000 migrants to work within its borders over the past 10 years. Overall approx. 92,000 migrant workers pre-referendum.

4. Geography of Migrant inflows Net international migration by district, 2006–2016 Births to non-UK mothers by district, 2006–2016 Overall, 8% of Northern Ireland’s population was born overseas (149,000 people) – 5.5% from the EEA and 2.5% from the rest of the world.

5. Skill gaps of all levels are being filled When looking at the composition of migrant labour, we find that although the provide more low-skilled labour in Northern Ireland, they supply labour to industries that have a large multiplier effect. Not only direct effects, but also indirect and induced impacts from a fall in supply. These include critical industries, such as construction, and strategic industries such as agriculture, agri-food and waste management.

6. Population projections Population research from the ONS predicts declining natural change (births-deaths) to NI population. The projection suggests a sustained brain drain from NI to the rest of the UK. However, positive international inflows, particularly from the EU26, would boost NI labour market. Regardless, due to end of boomer generation and a fall in number of births, working age population is also declining.

7. Population Scenarios • Further research from the ONS provides migration projection variants for Northern Ireland. • Particularly, the consequence of Brexit converges to a low net migration variant. Suggests a future in which outflows from current migrants and the brain drain shock the Northern Ireland population.

8. The changing age cohort • Migrants coming to NI are typically of working age. • On aggregate, natural change is expected to exceed net migration. • Declining working age population, which is exacerbated by the projected reduced migration. • Increased proportion of the population will be of pensionable age, placing strain on Government budget.

9. Current trajectory of migrant workforce

10. Understanding the implications of the White paper proposals 2

11. Skill gaps of all levels are being filled There will be a new route for skilled workers –which will effectively replace the current Tier 2 system. Open to all nationalities: As part of the single future immigration system-open to EU/ non-EEA nationals. Widen the route to encompass those in medium skilled occupations – any job above RQF 3 (essentially, A-level and above). No requirement to undertake a resident labour market test. The MAC recommended retaining the existing minimum salary thresholds that apply to the current Tier 2 – i.e., minimum £30k for workers.

12. Threshold: Average industry wages in NI The median (mean) wage in Northern Ireland is £22,016 (£25,704) compared to the UK’s £24,006 (£29,832). Taking median wages, 83% of industries currently do not provide a salary equal to or above £30,000. This is compared to 55% of industries, on average, in the UK as a whole. Importantly, 37% of workers in food and drink manufacturing and 11% in manufacturing are EEA nationals.

13. Threshold: Average industry wages in UK The median (mean) wage in Northern Ireland is £22,016 (£25,704) compared to the UK’s £24,006 (£29,832). Taking median wages, 83% of industries currently do not provide a salary equal to or above £30,000. This is compared to 55% of industries, on average, in the UK as a whole. Importantly, 37% of workers in food and drink manufacturing and 11% in manufacturing are EEA nationals.

14. Threshold: Industry wage distributions in NI The distribution of wages in NI shows that: • Even at the top scale, 35% of industries would not be open to migrant workers even at the top end of the wage scale. • Other industries require workers to be in the upper 60%-70% to be open to migrant workers. • A lot of wage data is missing in Northern Ireland compared to the rest of the UK. • The public sector provides the most prosperous wages; even compared to growth sectors, such as Information & Communication.

15. Threshold: Industry wage distributions in UK Significantly different to the UK average. Basically all industries can facilitate migrant labour at some level. The composition of industry wages is remarkably different: financial & insurance activities, construction and manufacturing are more prosperous. Importantly, public sector wages do not dominate other sectors.

16. Threshold: Public / Private wage differential Public sector wages distort the averages for NI compared to the rest of UK. Average wages in the private sector are typically over 20% lower in NI compared to public sector wages. This is a real anomaly. Taking this into account, the median (mean) wage in NI private sector is £19,738 (£22,713) compared to the UK’s £23,628 (£30,779).

17. Threshold: Impact throughout the UK Using this public/private differential, combined with the mean wages from the throughout the UK we can mock up what regions will be impacted in the short-run. Although NI seems to be impacted the most, particularly since industries impacted the most have the highest output and employment multipliers and supply chains throughout the Island. It is not the only region.

18. Most impacted areas in Northern Ireland (1) Geolocation of all NI companies registered with Companies House, 2019 Companies House have a very nice API, which can be used to request data on all firms operating in NI and across the UK. Each company registers a 5-Digit SIC code, which can be aggregated up to the industry sectors, like, Communication and Information. Also able to extract balance sheet data (by parsing PDFs).

19. Most impacted areas in Northern Ireland (2) Heatmap of short-term impact for Manufacturing Heatmap of short-term impact for Agriculture

20. Impact on real GDP Structural change to the Northern Irish labour market generates a new long-run steady state with a falling real GDP. Leads to: (1) Fall in taxation and Government revenue; (2) Reduction in derived domestic demand; and (3) Further reduction in internal investment & FDI.

21. Current CBI proposals 3

22. From the White Paper… White Paper asked for a year-long engagement with industry throughout the region. Over past 6 months we have had regular conversations with the Home Office (every few weeks) to discuss issues from industry. Sponsorship, systems, thresholds, visitors, etc. Particular interest from industry: • Threshold levels • Post-study work visa • Seasonal workers

23. CBI Position Current threshold is inappropriate for the region. This was even claimed by the MAC report itself. Proposal: • Initial logic from the MAC was to place threshold at the 25th percentile RFQ 6. • But the current logic nor the threshold coincides with the change in skill set (6 to 3) • Using the same logic, the 25th percentile for RFQ 3 is £20,100. Comfortable for any region. • This could be coupled with occupational thresholds to protect wages (remove incentive for undercutting) and protect opportunities for both the resident population and of international workers. But, with a change of leadership, anything could change…!

24. Any questions?