The UK’s skills squeeze poses an­other Brexit dilemma

There was a par­tic­u­lar irony in the re­cent profit warn­ing from the JD Wether­spoon pub chain, which said it was hav­ing to in­crease wages in the face of a tight labour mar­ket

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY THE FT ED­I­TO­RIAL BOARD

Gov­ern­ment must bal­ance im­mi­gra­tion curbs with com­pa­nies’ needs

There was a par­tic­u­lar irony in the re­cent profit warn­ing from the JD Wether­spoon pub chain, which said it was hav­ing to in­crease wages in the face of a tight labour mar­ket. Tim Mar­tin, the Wether­spoons chair­man, was a prom­i­nent sup­porter of Bri­tain’s exit from the EU — which is set to make the labour mar­ket even tighter.

Mr Mar­tin sug­gested Wether­spoons would not be fur­ther squeezed by

Brexit as many of its pubs were in low­im­mi­gra­tion towns or ru­ral ar­eas and 90 per cent of its work­ers were Bri­tish-born. But across the econ­omy, com­pe­ti­tion will only in­ten­sify as the gov­ern­ment pre­pares to curb im­mi­gra­tion in re­sponse to what it sees as one of the driv­ing forces be­hind the Leave vic­tory in the 2016 ref­er­en­dum.

The UK is al­ready at its clos­est to full em­ploy­ment since the early 1970s, with a 4 per cent job­less rate. Com­pa­nies such as Royal Mail and Ryanair have also warned of wage pres­sures. A Fi­nan­cial Times re­port, mean­while, found the hos­pi­tal­ity, IT, con­struc­tion, health­care and leisur­ere­lated ser­vices sec­tors were suf­fer­ing acute short­ages of skilled or un­skilled work­ers.

In some ways, ris­ing wages are wel­come, af­ter pay in­creases lagged even the in­sipid re­cov­ery of re­cent years. Real in­comes have still to re­gain their level be­fore the fi­nan­cial cri­sis of a decade ago. But the tight labour mar­ket has im­por­tant im­pli­ca­tions.

The IT, health­care and con­struc­tion sec­tors are all con­fronting a short­age of nec­es­sary skills. For hos­pi­tal­ity and in­dus­tries such as hair­dressers and beau­ti­cians, where half of staff tend to be un­der 30, the chal­lenge is dif­fer­ent. Thanks to a dip in the birth rate around the mil­len­nium, one se­nior hos­pi­tal­ity sec­tor rep­re­sen­ta­tive says the is­sue is sim­ply a “short­age of bod­ies avail­able”. The meat pro­cess­ing in­dus­try, with 60 per cent of its staff com­ing from con­ti­nen­tal Europe, has raised alarms too.

By un­leash­ing some pent-up cor­po­rate in­vest­ment, a be­nign Brexit un­der an agreed deal — though that sce­nario seems ever more in ques­tion— might in­crease UK eco­nomic out­put by 1 per cent above cur­rent fore­casts over, say, three years. But with such mea­gre growth in pro­duc­tiv­ity over the past decade, higher wages are likely to be passed on quickly to con­sumers, re­sult­ing in in­fla­tion­ary pres­sures. In­ter­est rate rises from the Bank of Eng­land would then be likely to snuff out much of this growth. A tighter jobs mar­ket makes growth even more likely to be in­fla­tion­ary.

The gov­ern­ment needs, there­fore, to strike a care­ful bal­ance be­tween the urge to staunch im­mi­gra­tion, and busi­nesses’ need for staff. Its Mi­gra­tion Ad­vi­sory Com­mit­tee rec­om­mended scrap­ping a 20,700-a-year cap on “Tier 2” visas for high-skilled work­ers, to en­sure com­pa­nies can at­tract tal­ent. But it sug­gested lim­it­ing lowskilled mi­gra­tion, ex­cept in agri­cul­ture.

The Home Of­fice, due to pub­lish an im­mi­gra­tion white pa­per in com­ing weeks, has in­di­cated it might re­ject some MAC rec­om­men­da­tions. It should con­sider sec­tor-spe­cific visa schemes al­low­ing crit­i­cal in­dus­tries such as food pro­cess­ing to bring in non-UK work­ers for a de­fined pe­riod.

Over the longer term, the an­swer must be, in part, in­vest­ment in ed­u­ca­tion and re-train­ing to match the needs of Bri­tish em­ploy­ers. Even if it can nav­i­gate its way suc­cess­fully through Brexit, how­ever, the gov­ern­ment will face a con­tin­u­ing dilemma. The 2016 vote put it un­der pres­sure to close doors to mi­grants. Yet even a mod­est Brexit div­i­dend — one that re­couped some of the growth lost since the ref­er­en­dum — could be par­tially dis­si­pated if there are not enough work­ers to de­liver it.

The UK is al­ready at its clos­est to full em­ploy­ment since the early 1970s, with a 4 per cent job­less rate. Com­pa­nies such as Royal Mail and Ryanair have also warned of wage pres­sures

In the UK the IT, health­care and con­struc­tion sec­tors are all con­fronting a short­age of nec­es­sary skills © Bloomber

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