Brexit's Potential Impact on UK's Labour Market, Trade, and Minimum Wage

This Economics Assignment discusses the potential impact of Brexit on the UK's labour market, trade, and minimum wage. It covers the effects of Brexit on immigration, trade, and minimum wage in the UK.

Running head: ECONOMICS ASSIGNMENT
Economics assignment
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Table of Contents
Introduction................................................................................................................................2
The potential impact of Brexit on migration and UK’s labour market......................................2
The potential impact of Brexit on trade and UK’s goods market..............................................5
UK’s unemployment and minimum wage.................................................................................7
Conclusion..................................................................................................................................9
Reference list............................................................................................................................11

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Introduction
One of the main problem which the economy of the United Kingdom faces at the
present time is the weak economic growth where the output is much below the trend rate of
growth. The economy of the United Kingdom is highly developed in nature and is also
market oriented. It is also one of the fifth largest economy in the world which is usually
measured by the gross domestic product. In the year 1990, the economy of Britain fell in to
the global recession. Although United Kingdom can be stated as one of the strongest
economies in terms of inflation, interest rates and unemployment. The productivity of the
United Kingdom went down to 20 per cent below the pre financial crisis trend. Britain have
also known to be less productive in nature than the other developed economies including the
United States and France (Lavery, Quaglia and Dannreuther 2018). It have been said that the
growth of data and the artificial intelligence will be acting as a challenge for the economy.
The Brexit took place in June 23, 2016, where the United Kingdom voted to leave the
European Union. Brexit is used for the term of “British Exit” from the European Union. One
of the biggest disadvantage of Brexit is that, it had slowed the economic growth of the United
Kingdom. It had slowed down the economic growth to 1.3 percent in the year 2018. The
British pound also went down to 14 percent lower than before the referendum which will rise
the price of imports. Therefore, Brexit have been disastrous for the city.
The potential impact of Brexit on migration and UK’s labour market
In terms of the labour market, immigration is referred to the inflow of the workers
which is distributed across the education and the level of experience. In the last two decades,
UK have experienced a steady flow of migrants in the economy. The immigration had a huge
impact on the population, wages, tax revenue and productivity of the United Kingdom. Post
Brexit the growth of population have decreased (Winkel and Derks 2016). The growth of

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population have slowed down to the lowest rate which fell down to 12 percent after the
referendum. The latest migration figures of the United States have shown a dip in net
migration.
The impacts of immigration in the economy of the United Kingdom:
Rise in the labour force: There is a presence of difference in hard Brexit and soft
Brexit. Hard Brexit refers taking the United Kingdom completely out of the European Union
which comprises of customs union and the single market. In case of soft Brexit, the United
Kingdom will remain closely aligned with the European Union. The UK in this case have
gained a special access to the single market. The soft Brexit usually aims to minimise the
impact on business and trade by staying in the customs union. The hard Brexit can result to
more economic damage to both the United Kingdom and the European Union. Economists
have found out that immigrants usually pay more taxes than they take as benefits (Dhingra,
Machin and Overman 2017). There is also a positive impact on the dependency ration of the
population. With an ageing population, there will be increase in the dependency ratio. The
rise in immigration also help in reducing the dependency ratio. The citizens of the European
Union affected the labour market of the United Kingdom in various ways through the free
movement of labour along with the contribution of immigration to the gross domestic
product.

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Figure 1 Immigration and emigration of UK
With reduced immigration, there may be greater automation in various sectors
including low tech manufacturing. After Brexit, the slow rate of immigration from the
European Union will hurt the labour market. The job market of the UK have felt the negative
impact of Brexit. The reason behind this is that there will be shortages of migrant labour from
the European Union in case of nursing, cleaning, accountancy and IT sectors along with the
weakening pound. Most of the company’s worry that the new migration rules would affect
the economy and will make it much harder for the employers to get skilled labour required,
damaging both the country and the public services (Lavery, Quaglia and Dannreuther 2018).
There will be labour shortages in some sectors which includes food manufacturing and
domestic personnel. The public sectors will be most exposed in terms of skill shortages which

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will lead to rise in prices and wages in those sectors. The labour market gaps which took
place as a result of cuts in EU immigration cannot be filled by high supply of UK born
workers as they cannot be the perfect substitutes of the immigrants. The postings of the jobs
as the percentage of the whole economy also decreased in the year 2016 after the referendum.
The single market of the European Union is built upon four key events which comprises of
free trade in goods, mobility of labour, free movement of capital and free trade in services.
The workers who are UK born and the new immigrants are imperfect substitutes since they
tend to work in various jobs and perform different tasks. The immigrants usually have culture
specific skills which acts as a comparative advantage where the foreign born works are over
represented.
The potential impact of Brexit on trade and UK’s goods market
Countries usually trade with each other, when they do not have the resources or the
capacity to satisfy their own needs and wants. By exploiting their own natural resources, the
countries can produce surplus and also can trade those for the resources they need. Goods
maybe imported from abroad due to various reasons like it might be of better quality or
cheaper in nature (Alfano, Dustmann and Frattini 2016). There is a presence of various
reason why countries trade with one another. Trade among nations is usually a sign of good
intent and for maintain non hostile diplomatic relations. Generally countries trade with each
other in order to purchase goods and services which would not have available with them
either due to insufficient resources or due to underdeveloped technology. Therefore with the
help of trade the countries will be able to obtain any goods and services that would not have
been available within the borders either for insufficient resources or due to underdeveloped
technology.
The trade deficit of the United Kingdom have widened a bit to 3.30 million in the
month of October 2018. The Brexit have also affected the trade between UK and EU. The

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pound sterling have known to be depreciated against the euro since 2016 which have also
reduced the purchasing power in the United Kingdom. The exchange rate have also stabilised
in the ear of 2018 reducing the boost of the UK exports by easing the strain on the EU
exporters. The impact of the EU-UK trade depends on the relationship between the United
Kingdom and the Europe after Brexit. Brexit is also known to affect the trade based fiscal
regulation of the region. The economic aftermath of Brexit was known to be worse (Portes
and Forte 2017). The share prices of the largest British banks fell by average 21% after the
election. One of the main reasons of the Brexit is that Europe have been stagnant for the past
decade causing the workers to migrate to United Kingdom for the work by displacing the
cheap British labour. After the end of the world war II there had been a fast growth of the
global output. Most of the researchers believed that Brexit have hurt the British trade.
According to the research it have been found out that for every one percent of the reduction
in the UK exports to the EU, there had been a loss of 0.5% loss in the British gross domestic
product. The trade activity and the economic stagnation would also cost the United Kingdom
around 70 billion euro. The agricultural industry of the United Kingdom is known to be
affected most by Brexit since, the largest portion of the EU budget had been dedicated to
subsidize the farmers. The farmers will therefore lose subsidies from the EU.
After Brexit, the United Kingdom will be bound by the rules of the World Trade
Organization where it will be prevented from offering any kind of prohibited subsidies which
will be linked to the export performance. The tariffs will be having moth positive and
negative effects on the consumers as well as on the producers. Tariffs increases the cost of
the imports leading to the higher prices for the consumers and also result to a decline in the
consumer surplus. The consumers of the United Kingdom have lost out from the EU wide
tariffs on the agricultural products (Hunt and Wheeler 2017). Most of the agricultural
products turned out to be expensive as a result of high tariffs placed in order to protect the

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European farmers. The domestic producers usually benefits from the tariff. The result behind
this is that the domestic production is more competitive in nature when compared to the
imports. Since tariff is a kind of tax, the government will be experiencing an increase in the
revenue when the imports will be entering in the domestic markets. Tariff is known as the
simplest form of tax which will add to the cost of the imported goods which are usually
levied to protect the infant industries. The benefits of tariff although seemed to be uneven in
nature where the government enjoys high revenue.
UK’s unemployment and minimum wage
The national minimum wage (NMW) refers to the minimum wage per hour for a worker
of the United Kingdom. The NMW is known to be £7.83 in United Kingdom for the working
population whose age is above 25 and for the employees who are under 20 years old the
minimum wage is £4.20 in the year 2018. The minimum wage is termed as the lowest
remuneration which the employers should legally pay their workers. In other terms it can be
stated as the price floor below which the workers should not sell their labour. According to
the research it have been found out that an increase in the minimum wage will lead to rise in
unemployment and therefore also hurts the low wage workers. Therefore it can be said that
the rise in national minimum wage will lead to more job cuts (Blackaby 2018). The aim of
the minimum wage is to remove the problem of the poverty pay which results when the
earnings of the employees do not match the living wage and also fail to push people out of
poverty. When the national minimum wage is much higher than the market clearing wage in
case of any job, there will be contraction in demand and the supply will be expanding. There
are many advantages and disadvantages of the national minimum wage. The advantages
includes:
 Equal distribution of income between the high paid and the low paid individuals.
 Poverty will get reduced since the low paid will be securing more income.

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 Less exploitation of workers in the labour market.
Figure 2National minimum wage
However, there is also presence of disadvantages in the economy which consists of:
 Rise in unemployment due to contraction of demand.
 Higher minimum wage will also be causing inflation
 The competitiveness of the UK goods abroad will be suffering when compared with
the low wage countries.
 Inward investment will be decreasing as the foreign investors will be avoiding the
high wage economies.
 The labour market will also turn out to be inflexible in nature.
Higher minimum wages therefore can lead to fewer job opportunities. Although increase
in the national minimum wage always does not result in job cuts. Minimum wages therefore
does not always necessarily cost jobs. The minimum wage of UK have increased to 75%
which have not affected the jobs. The National Minimum Wage is usually set by the
government of the United Kingdom. The National Living Wage is a kind of obligatory
minimum wage which are payable to the workers in the United Kingdom who are aged 25

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and over (Alfano, Dustmann and Frattini 2016). The national living wage is known to be
£7.83 per hour for the people whose age is above 25 and £4.20 for under workers under 18.
The national wage law is known to be higher than the national minimum wage. The living
wage is usually based on the amount an individual needs to earn in order to cover the basic
costs of the living. The national living wage of the United Kingdom is usually promoted by
the Living Wage Foundation. It is also known as an informal benchmark which is not a
legally enforceable minimum level of pay like in case of the national minimum wage. The
government of the United Kingdom should be paying the living wage
Conclusion
The “British Exit”, Brexit, which is referred to the withdrawal of the United
Kingdom from the European Union have affected the economy of UK in various ways. There
had even devaluation of the pound sterling with the rise in the price of the imported goods
including food, oil and manufacturers leading to inflation. The inflation will also lead to fall
in real wage. After the Brexit took place, there have been decline in the capital flows as the
economy of the United Kingdom seemed to be one of the most risky places for investing and
saving. There had been a large current account deficit in UK which will impose pressure on
sterling. However, UK have also achieved few benefits from Brexit like the devaluation of
the pound will be boosting the competitiveness in case of manufacturing exporters.
Devaluatio0n will also help in reducing the deficit of the long term current account. The
productivity of the United Kingdom have fallen behind the trend rate of growth. Since the
year 2016, the growth of the positive real wage have changed to negative real wage growth.
With the financial crisis, UK have experienced a rise in debt of the public sector over 80% of
gross domestic product. The government budget will be affected by Brexit since there will be
presence of lower economic growth and decline in the rate of net migration which will reduce
the tax revenues. Although the devaluation in the pound can boost the economy since exports

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will become cheaper. Therefore, in order to conclude it can be said that the Brexit had both
positive and negative impacts on the economy of the United Kingdom. It can be projected
that the growth of the economy of the United Kingdom will be remaining modest in the
coming years. The economy of the UK will not be in a strong position after the exit of
Britain.

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Reference list
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Brexit.
Blackaby, D., 2018. The UK Economy and Brexit. In Emerging Markets from a
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Cumming, D.J. and Zahra, S.A., 2016. International business and entrepreneurship
implications of Brexit. British Journal of Management, 27(4), pp.687-692.
Dhingra, S., Machin, S. and Overman, H., 2017. Local economic effects of Brexit. National
Institute Economic Review, 242(1), pp.R24-R36.
Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. The impact of Brexit on
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Brexit for UK trade and living standards.
Fahy, N. and Hervey, T., 2017. WHAT DOES BREXIT MEAN FOR HEALTH IN THE
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Fahy, N., Hervey, T., Greer, S., Jarman, H., Stuckler, D., Galsworthy, M. and McKee, M.,
2017. How will Brexit affect health and health services in the UK? Evaluating three possible
scenarios. The Lancet, 390(10107), pp.2110-2118.
Hunt, A. and Wheeler, B., 2017. Brexit: All you need to know about the UK leaving the EU.
BBC News, 25.
Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The economic consequences
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Koch, T., 2016. Before a Potential Brexit: European Immigration to the United Kingdom, its
Relative Benefits and Politico-Economic Implications (Doctoral dissertation, PhD Thesis,
Johannes Gutenberg University Mainz).
Lavery, S., Quaglia, L. and Dannreuther, C., 2018. The Political Economy of Brexit and the
Future of British Capitalism First Symposium. New Political Economy, pp.1-6.
Portes, J. and Forte, G., 2017. The economic impact of Brexit-induced reductions in
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Sampson, T., 2017. Brexit: the economics of international disintegration. Journal of
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Vasilopoulou, S., 2016. UK Euroscepticism and the Brexit referendum. The Political
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Winkel, G. and Derks, J., 2016. The nature of Brexit. How the UK exiting the European
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and Economics, 70(C), pp.124-127.

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