Archive for the ‘#LSEThinks’ Category

Can a general election be a way out of the Brexit conundrum?  

The mess that UK politics is in cannot be overstated, nor the harm that this is doing to many of its citizens and the economy. Can a general election be a way out of the Brexit conundrum?  It could lead to a change of government and at least would almost certainly mean a new prime minister. In this blog, John Ryan (LSE) explains what might happen, and says that an extension of Article 50 would be necessary to hold a general election. 

In the discussion of how to break the Brexit impasse, the idea of holding a snap general election is suggested by some. This could lead to a change of government and at least would almost certainly mean a new prime minister. Although general election campaigns are inevitably far more wide-ranging than referendums, making them ill-suited to resolving individual policy questions, the fact that it would lead to a decisive change in political leadership could make it an appealing option, particularly for those opposed to No Deal or another referendum.

Any campaign would inevitably be dominated by Brexit, but it is hard to see either of the main parties producing a coherent manifesto on the Brexit question. The Conservative campaign, if led by Theresa May, might well consist of her already rejected deal. The Labour one would very likely maintain the dogged assertions made by Jeremy Corbyn: that Labour would somehow extract from negotiations the benefits of being in the Single Market without the constraints.

The result might indeed be another hung parliament and no end to the Westminster stalemate. Even a government elected with an apparent majority could still struggle to find a majority in Parliament for its version of Brexit.

How could a general election come about? The first option is that a two-thirds majority of the Commons (not just those that show up to vote), or 464 MPs, would need to vote for an election. The second option is that a simple majority (50% +1, so a minimum of 326) of MPs must pass a specifically worded no-confidence motion in the government. This would then be followed by a two-week period when an alternative government could be formed. If such a government could not be formed, there would be a general election thereafter. A final (probably impracticable) option would be to overturn the Fixed Term Parliaments Act itself. This is something that the Conservative manifesto of 2017 pledged to do and would involve the government winning a vote in Parliament.

Holding a general election would take approximately six weeks. The  Electoral  Registration and  Administration Act  2013  requires  25 working days for an election campaign. This is likely to mean that a general election would have to be forced before mid-February to take place at some point before the end of the Article 50 period.

In practice, an extension of Article 50 would be necessary to hold a general election. Although a general election could be called and held relatively quickly, in all likelihood we would end up with a new prime minister who would almost certainly want to renegotiate at least some aspects of the Brexit deal. Theresa May has made a commitment not to lead the Conservatives into the scheduled 2022 general election, but in practice, this probably also applies to any earlier election.

A few weeks ago there were rumours that Tory polling has concluded a snap general election would put Jeremy Corbyn in Downing Street. Senior Conservative officials have privately warned Theresa May that she could face disaster if she calls a new nationwide poll to try to unblock her irresolvable Brexit deal proposal. Confidential party projections put Jeremy Corbyn in No.10, at the helm of a rainbow coalition government including the SNP and the Lib Dems. The internal report says the Tories are completely unprepared for an election, with databases out of date and the grassroots badly demoralized.

A more recent YouGov poll for The Times suggested, however, that Theresa May could win a working majority if a general election was held today. According to YouGov, which had correctly predicted a hung parliament in 2017, Conservatives would gain 4 seats to take 321 seats, while the Labour party would fall to 250 seats, down 12 from 2017. The Liberal Democrats and the Scottish National Party would both gain 4 seats each. These polls are snapshots and as we saw in the last General Election campaign significant leads can be overhauled.

Labour’s chances of forcing a general election to renegotiate Brexit are now slim according to John McDonnell who indicated that Labour is considering a compromise Brexit deal with the government — or a second referendum. Keir Starmer has poured cold water on pushing for a general election was no longer a “credible option.” Starmer’s intervention sparked a sharp response from Jeremy Corbyn’s office, which insisted an early election remained the party’s “preferred option.”

It is difficult to predict what Theresa May would put in her 2019 election manifesto as the Tories’ official position on Brexit and in fact it is similarly difficult to predict Jeremy Corbyn’s official position. The mess that UK politics is in can’t be overstated, and the harm that this is doing to many of its citizens and the economy. With the possibility of leaving with no deal, UK and foreign firms are having to make decisions to move jobs abroad to avoid the impact of that outcome. That, in turn, reduces the living standards of everyone in the UK. Rather than trying to convince them to stay, the government is actually urging firms and citizens to plan for No Deal.

Prime Ministers Theresa May is lacking authority and credibility, unable to listen or lead. Indeed, having led the first government to be found in contempt of parliament, May now finds herself in contempt of the people: is her intransigence paralysing the country, the economy, the political system the country and its economy perhaps for years to come. Now the endgame threatens the preservation not simply of the British government, but of modern Britain. The Brexit process revealed the weakness of Westminster’s insular politics. The UK Parliament is seemingly incapable of running a modern economy and society. Westminster’s politics are becoming more not less dysfunctional.  Whether a general election could provide a way out of this mess, hangs in the balance.

This article gives the views of the author, and not the position of LSE Brexit, nor of the London School of Economics. Image © Copyright ceridwen and licensed for reuse under this Creative Commons Licence.

Professor John Ryan is a Visiting Fellow at LSE IDEAS. He was a fellow at the St Edmund’s College, University of Cambridge and the German Institute for International and Security Affairs, Berlin, Germany. John is working as a senior partner in consultancy as a Brexit adviser for EU, Gulf and Asian clients.

Voting with their money: Brexit and outward investment by UK firms

Are firms moving investment abroad because of Brexit? Holger Breinlich, Elsa Leromain, Dennis Novy and Thomas Sampson (LSE) use a ‘doppelganger method’ to estimate how foreign direct investment would have evolved without the vote for Brexit. They find a 12% increase in the number of new investments made by UK firms in EU countries, and an 11% fall in new investments made by EU firms in the UK. Moreover, there is no sign of a ‘Global Britain’ effect that would have seen UK firms investing elsewhere in the world.

The UK’s vote to leave the EU has generated fears that UK firms are moving investment abroad because of Brexit. For example, media reports have documented that both large UK companies such as Barclays, HSBC and EasyJet, and smaller companies such as Crust & Crumb, a Northern Irish pizza maker, have invested in the EU27 in response to Brexit.

Has the threat of reduced access to the EU market after Brexit pushed British firms into setting up shop in the remaining EU member states, rather than serving those markets from the UK?

In new research (Breinlich et al. 2019), we study whether the anecdotal evidence is representative of a wider pattern. We measure new FDI activity through a count of announced greenfield and M&A (mergers and acquisitions) transactions. Greenfield activity refers to investments that create new establishments or production facilities from scratch, for example setting up a new factory. M&A transactions refer to the acquisition of existing facilities. Our analysis focuses on the period from 2010 to 2018, during which we observe around 100,000 transactions in total.

The doppelganger method

We employ the ‘doppelganger method’ to analyse the impact of the Brexit vote. This is a way to estimate how UK FDI to the EU27 would have evolved after the June 2016 referendum if the UK had not voted for Brexit.

We construct a doppelganger for UK FDI as a weighted average of FDI transactions between other developed countries, with FDI into the EU27 from Switzerland and the United States receiving the biggest weights. If the referendum outcome had no discernible impact on UK FDI, then the doppelganger and the actual series should be similar not only before, but also after the referendum.

The referendum increased foreign investment from the UK to the EU27

Figure 1 shows our results. The number of FDI transactions from the UK into the EU27 goes up substantially after 2016 Q2 compared to the synthetic doppelganger, which remains at 2014 and 2015 levels.

Figure 1: UK-EU27 FDI counts (actual vs. doppelganger). Figure 1 plots the actual count of FDI transactions from the UK to the EU27 (solid line) and the corresponding doppelganger series (dashed line). Source: fDi Markets, Zephyr and authors’ calculations.

In terms of the cumulative difference, we find that 181 greenfield and M&A transactions from the UK into the EU27 had taken place by 2018 Q3 that would not have occurred in the absence of Brexit. This represents a 12% increase in new FDI projects by UK firms in the EU27.

In further analysis we find that the increase in outward FDI from the UK to the EU27 is entirely driven by the services sector. This result is consistent with the view that the UK government has prioritised the interests of manufacturing over services in the Brexit negotiations by focusing on reducing customs frictions, while ruling out membership of the EU’s single market.

In terms of value, we estimate that these additional FDI outflows from the UK to the EU27 are worth approximately £8.3 billion in total by 2018 Q3. Moreover, the persistence of the gap in Figure 1 shows that the referendum effect has not yet died away, meaning the increase in outward FDI due to Brexit is likely to grow further as more data becomes available.

As a note of caution, we stress that the FDI outflow can only be interpreted as ‘lost investment’ for the UK under the assumption that the investment transactions would have taken place in the UK, instead of the EU27, were it not for the leave vote. It could also be that the referendum outcome simply triggered additional investment by UK firms in the EU27. We therefore regard £8.3 billion as an upper bound on lost investment.

No ‘Global Britain’ effect

Is the increase in FDI from the UK specific to the EU27 as a destination, or do we observe similar changes in UK investment flows to other countries? To evaluate this possibility, we construct a doppelganger for UK investment into non-EU OECD countries.

In contrast to the EU27 as a destination, we do not observe an increase in UK investment activity into these non-EU OECD countries. That is, UK investment in advanced economies outside the EU27 has not experienced a post-referendum surge. In other words, we find no sign of a ‘Global Britain’ effect.

Finally, we show that increased outward investment in the EU27 has been accompanied by lower investment coming into the UK from the EU27. We estimate that the referendum reduced the number of new EU27 investments in the UK by 11%, amounting to £3.5 billion of lost investment.

Conclusion

We show that the Brexit vote has led to a 12% increase in the number of new investments made by UK firms in EU27 countries. We find no such increase in UK investment in countries outside of the EU.

Although it is not possible to be certain about the reasons behind firms’ investment decisions, our results are consistent with the idea that UK firms are offshoring production to the EU27 because they expect Brexit to increase barriers to trade and migration, making the UK a less attractive place to do business. In the event of a no-deal Brexit, more firms are likely to activate contingency plans for moving production abroad, accelerating the outflow of investment from the UK.

This post represents the views of the authors and not those of the Brexit blog, nor the LSE. The full report is available here.

Holger Breinlich is a Research Associate in the Trade Group of the Centre for Economic Performance, LSE. He is also a professor at the University of Surrey and a Research Fellow at the Centre for Economic Policy Research.

Elsa Leromain is a research officer in trade at the Centre for Economic Performance, LSE.

Dennis Novy is an associate in trade at the Centre for Economic Performance, LSE and an Associate Professor of Economics at the University of Warwick.

Thomas Sampson is an Associate Professor of Economics at the LSE and a CEP Trade Research Programme Associate.

How the LSE Research Festival helped inspire LSE Library’s Brexit exhibition

anishkaDaniel Payne, the curator at LSE Library, recently curated a free public exhibition, “What Does Brexit Mean To You?” with help from one of the participants of the LSE Festival Research Competition 2018, Anirbaan Banerjee. Anishka Gheewala Lohiya (LSE) asked Daniel how this connection came about.

 

1. Can you tell me a little bit about how you became interested in Brexit?

At the Library we put on an exhibition each term to showcase some of our fantastic archive collections. After spending many hours shuffling around in the basement I knew we had lots of great stuff related to the history of the UK joining and (leaving?) the European Union, so I thought it would be great to have an exhibition on that, particularly given how contemporary a topic it was.

what does brexit mean to you

Replies to the question ‘What does Brexit mean to you?’ Photo: LSE

2. Why did you get involved with the LSE Festival Research Competition?

I think exhibitions should involve many people and many voices, and I also like to involve other areas of the School when putting them together, to make sure it supports the diverse research and teaching going on at LSE. When I heard about the Research Competition from Staff News, I went along to have a look at the various submissions. I saw Anirbaan’s submission related to Brexit, The Immigrant Who Voted to Close the Borders: the “Inner Outside” Position of Eurosceptic South Asians in Brexit Britain, so I got in touch with him to see if he would be interested in putting together a section of the exhibition.

3. How did the idea of the Brexit exhibition come about?

The Library has a long tradition of collecting archives relating to Britain and Europe, and we do many things with these collections to support research and teaching. For example, we digitised campaigning leaflets from the 1975 and 2016 referendums on UK membership of the Common Market / EU and made this available online. We plan our exhibition schedule about three years in advance, and we always knew we wanted to do one at some point using these great collections – it was just a question of being able to predict when to do it without the political situation changing too much!

4. In what way did the Research Competition inspire the exhibition?

After meeting with Anirbaan, we went through some of the Library archives. Anirbaan selected material and wrote a piece for it which formed a significant section of the exhibition called “The Past Lives of Brexit”, using material from the archives of the Federal Trust. It was great to have the contribution of a student. Usually our exhibitions are all written by one person (a curator in the Library). Particular with a topic such as Brexit, I think it’s really important to get many different voices involved in the interpretation of the archives.

5. It was (and still is) such a current topic, so how was the exhibition received by the public?

It went down very well. In the exhibition we had a large poster where we invited visitors to respond to “What does Brexit mean to you in three words?” which had something like 800 responses, and in total we received about 10,500 visitors. I think it was a very engaging theme where visitors found a space to explore issues to do with Brexit amongst the backdrop of our archives. We ran a public events programme alongside it, including may speakers covering topics such as LGBT+ rights and Brexit, and race and the referendum. We also chaired a roundtable discussion where we invited members of the public to get together and discuss Brexit.

It’s time for the LSE Festival research competition exhibition and you are all invited!

The LSE Festival Research Competition is a chance to spread the word about your research project in a creative way to new audiences, and potentially win £250. The LSE Festival 2019 theme is ‘New World (Dis)Orders’. How did we get here? What are the challenges? And, importantly, how can we tackle them? The Festival hosts an exhibition of research on these themes by LSE students and staff.

The exhibition will take place at the LSE Festival 25 February – 2 March, where we will take over the ground floor of the New Academic Building to showcase the shortlisted entries.

Join us for our Meet the Research evening reception on Tuesday 26 February from 6-7:30pm and prizegiving on Thursday 28 February from 6:30-7pm with a wine reception from 7pm onwards to see who’s won. Bring your friends and family for an evening of research, music, drinks and the friendly spirit of competition!

This post represents the views of the author and not those of the Brexit blog, nor the LSE.

Anishka Gheewala Lohiya is a research student at the Department of Anthropology, LSE, specialising in the anthropology of religion, India, Hinduism and prayer.

Long read: Brexit uncertainty must not prevent strategic planning and longer-term economic re-orientation

Brexit is not a simple story of disruption. Policy-makers in the throes of Brexit should not forget another driver of structural economic transformation: the so-called ‘Fourth Industrial Revolution’. Analysing the two drivers of labour market disruption together demonstrates the unique challenge of reconciling future planning with handling immediate shocks. Current uncertainties must not prevent strategic scenario planning and longer-term economic re-orientation, write Christopher Pissarides, Anna Thomas (IFOW), and Josh De Lyon (LSE).

The UK economy is experiencing two major forces of disruption. The first, Brexit, will involve a sharp change in the structure of economic activity. Membership of the European Union has shaped the British model of capitalism and the structure, and operation, of core industrial sectors. Factors listed in the World Bank ‘Ease of Business’ index, including those that influence trade across borders, are a stark reminder that the UK’s high current rating is linked to near-frictionless trade and investment flows with the European Union. Whichever form Brexit takes, this is set to change.

The impact of technological disruption, the second great force behind change in the British economy, is less immediate but nevertheless drives a different sort of structural transformation. In the longer run, technological innovation ought to be our main driver of growth. The positive and negative effects of technological disruption are not, however, evenly distributed across sectors and regions. Evidence of this unequal distribution can be seen in the recent experiences of communities formerly dependent on traditional manufacturing, who have suffered the impacts of deindustrialisation since the 1980’s. Research suggests that voting and turnout patterns in the Brexit referendum may well have been linked to this: the relationship between our two forces runs deep.

This article discusses how differentials are likely to be exacerbated by the onset of Brexit. As the ‘double disruption’ works together, the challenges will be deeper than those faced by other European countries that have only technological disruption to deal with. Further, they will be experienced at an individual, community and national level, inviting a period of policy activism by Government targeted at our most vulnerable regions. This will need to address the dampening of technological progress, as well as the growth of in-work poverty, and will demand critical shock management combined with a range of longer-term policies aimed not only at generating good local jobs in new and growing sectors, but also at supporting worker transition.

Brexit

It is now common knowledge that a No Deal Brexit is likely to cause living standards to fall sharply, with a probable reduction in UK income per capita by around 8%. The economic effect of other forms of Brexit are less certain, but the Government’s analysis predicts that GDP would be 1.6% lower if the UK remains in the Single Market compared with 7.7% lower in the WTO scenario over a 15-year period. This will impact individuals mostly through lower wages but is likely to affect other aspects of ‘good work’ too. These are identified in the Institute for the Future of Work’s Charter for Good Work and include: access to work, terms and conditions of employment, conditions of work, work quality, and choice.

The short-term adjustment process will be profoundly disruptive, especially in the case of a No Deal Brexit. Transitions tend to involve job change or displacement across sectors and regions as resources are reallocated and the economy adjusts to its new structure. Inevitably, this has implications for the skills that employers demand, as well as productivity and salaries. It is concerning that wages and job-related education and training have already been cut in sectors most likely to be exposed by Brexit and therefore are most in need of these policies [Centre for Economic Performance, research not yet published]. Other Brexit-related trends already biting include a rise in prices due to devaluation of the pound, which has caused real wages to shrink; and businesses cutting back on EU exports due to increased uncertainty.

The UK labour market will be affected in two main ways. First, downward pressure on labour demand is anticipated due to rising trade barriers and a fall in the inflow of foreign investment. Evidence to date suggests this will hit some industries dramatically: manufacturing, retail and transport stand out. These adverse effects will be most severe in the event of a No Deal Brexit. The consequences of other scenarios are less clear but foreign investment and trade flows will almost certainly decrease in the immediate aftermath.

Second, British migration policy is set for an overhaul. The Government has proposed a “skills-based immigration system” based on an independent report by the Migration Advisory Committee. The thrust of the proposal is to encourage high skill workers to immigrate to the UK and restrict immigration of low skill workers. An example can be seen in the new ‘tech talent’ visa scheme. In theory, this approach could put upward pressure on the wages of resident lower income workers. However, as we explore below, potential benefits are likely to be offset by a significant overall contraction.

Technology

Meanwhile, technological innovation continues to affect the UK economy at an increasing pace as costs diminish and rapid adoption continues. This should be good: technological progress increases aggregate productivity and is the main driver of long-term economic growth, as our Industrial Strategy recognises. Under appropriate conditions, technological innovation ought to translate into higher pay, increased average living standards and a reduction in poverty. But change and gains from technological progress are not spread evenly, meaning that technological disruption has important implications for both regional and wage inequality: technology grows the economic pie but alters the way in which the pie is cut. Managing a smooth transition for displaced workers, re-distributing resources into growing, more productive industries and redistributing new wealth and benefits are key. Focus on building a sustainable future of good work across the UK is central the success of these objectives.

The economic outcomes of workers displaced by technology are a good indicator of current trends and trajectories. Workers in shrinking occupations tend to experience a significant hit to their earnings relative to comparators in constant or growing occupations. The need for investment in human capital to facilitate training, reskilling and other support so that displaced workers can adapt to new lines of work is already increasingly pronounced. If and when Brexit kicks in, this need will become acute.

Brexit and technology

The exact manifestation of these shocks, and their interaction, is impossible to predict. We can, however, identify and map the UK sectors and regions already which are fielding the adverse effects of technological disruption, and are set to be hardest bit by Brexit (and therefore most likely to suffer the ‘double disruption’ we have identified). Brexit and technology, acting together, will increase the speed and process of disruption to the UK labour market. Divisions will be exacerbated, whilst the positives of technological change will be muted in the immediate aftermath. Growing in-work poverty experienced in front-line sectors is set to increase further. Those feeling the pain most sharply may be further exposed by employment law provisions that may not survive Brexit: protection for collective redundancy, working time, and agency work.

Restriction on immigration may well cause a tighter labour market, increasing the cost of labour and encouraging the adoption of technology. Bank of England intelligence has already observed that tight labour markets have encouraged the adoption of new technologies in some sectors, even though the UK has lagged behind its neighbours over the last decade. Were this increase in adoption a stand-alone trend, it would be very welcome.

Falling inward investment linked to Brexit will, however, dampen this positive emerging trend. The resultant economic contraction is likely to result in a fall in labour demand. This will stretch the labour market, making it less tight, exerting downward pressure on wages, and reducing incentives to adopt new production technologies. Inward transfer of technology may also fall because technology is known to move with firms. Increasing trade barriers and the greater administrative cost of trade may erode profitability and reduce the potential market size for British businesses. The absence of trade agreements is likely to add barriers to the exchange ideas, information and to conducting internationally collaborative work beneficial to technological innovation on a global playing field. Together, this will the hamper adoption and innovation use of technology, and the UK’s ability to respond to disruption with agility will be impaired. The UK’s ranking on the new ‘Global Labour Resilience Index’ (Whiteshield Partners in collaboration with the Institute for the Future of Work, Oxford, HSBC and ManPower Group) will fall.

In short, recent progress the UK has made with regard to technological innovation, and leadership in AI-related technologies in particular, is likely to reverse.

The two major outcomes of this reversal are very significant for the future of work in the UK, and the national economy after Brexit: firstly, technological growth will be muted, and secondly, existing regional inequalities will worsen.

Sectoral analysis

We have analysed the ‘double disruption’ in 3 major UK sectors and identified regional spread.

Manufacturing

Traditional manufacturing employment has been declining for nearly four decades, with  many struggling regions never recovering. Technology has repeatedly altered the way in which production has taken place, and facilitated the fragmentation of the production process, so that labour-intensive tasks can be moved off-shore. Although the quality of remaining jobs may have improved with the reduction of more routine tasks, it is no coincidence that many Leave-voters reside in the areas most affected by deindustrialisation.

The story of British manufacturing does not end there though. The manufacturing industry is heavily dependent on international supply chains across the globe, especially for the production of more complex goods. If tariffs are introduced for border-crossing then the cost of importing and exporting final and intermediate goods will increase. In the short run, this will mean higher costs to firms, and reduced foreign demand for exports, both of which will put more jobs at risk. In the medium and longer term, there are abundant signs that manufacturing firms may decide to locate production plants outside the UK to reduce the frictional costs of trading. For example, Nissan has just chosen Japan as its location to build the next X-trail car and Airbus (which employs 14,000 people in the UK) has threatened that it could leave the UK in the case of No Deal, and a recent survey suggested that nearly a third of businesses are considering moving operations overseas due to Brexit. Pay and quality of work in remaining jobs will be at risk, likely leading to a higher level of in-work poverty. More research is needed on in-work poverty trends by sector, but pay and work quality are known to be key indicators.

The map below shows the proportion of employment in manufacturing and motor trades for each Parliamentary Constituency. Regions with high dependence on manufacturing employment are particularly exposed to the changes described above. Some constituencies in the North East, Midlands and Wales have over 30% of their employment in manufacturing.

Manufacturing and motor trades employment in 2017 by Parliamentary Constituency[1]

 

[1] The map plots employment in the manufacturing and motor trades industries as a share of total employment in the Constituency in 2017, using data from the ONS Business Register and Employment Survey (BRES).

Manufacturing and motor trades employment in 2017: Top 10 Constituencies

Transport

The transport sector operates hand-in-hand with manufacturing: a decline in the manufacturing sector caused by technological disruption will also put pressure on the transport sector. A particular threat facing workers in the industry is driverless vehicles. In spite of significant developments in trialling autonomous vehicles, the timing of this shift and the proliferation of the technology remains unclear. Employment in the sector has settled over the last decade.

This is likely to change. Transport is particularly susceptible to Brexit where, for example, just two extra minutes spent on each vehicle at the border could triple queues on the M20 and see nearly 5 hours of delays in Kent at peak times. This may result in a vicious circle, impacting on manufacturing costs which translate back to the transport sector. The double disruption will bite vulnerable transport workers twice over. We note that a high proportion of transport workers, logistics and couriers are precarious workers outside the basic floor of protection for employees. At the time of writing, the future of the additional protection afforded by some EU-based rights, including the Temporary Agency Work, Working Time Regulations and the Information and Consultation of Employees Regulations, is unclear. Early scoping suggests these protections are of particular relevance to this sector.

For more than half of Constituencies, transport and storage comprises less than than 5% of total employment. But many constituencies rely heavily on the sector, with as much as 31% of employment deriving from jobs in transport.

Transport and storage employment in 2017 by Parliamentary Constituency[2]

[2] The map plots employment in the transport and storage industry as a share of total employment in the Constituency in 2017, using data from the ONS Business Register and Employment Survey (BRES).

Transport and storage employment in 2017: Top 10 Constituencies

Retail

The retail sector has already undergone a series of major shifts as the way people purchase good changes from in-store to on-line. This has caused a move away from high-street jobs towards lower-quality warehousing and delivery jobs. On top of this, the sector is dependent on consumer spending which will reduce as real wages fall. Added trade costs could also push up prices which may filter through to the retail sector. The textiles, clothing and footwear industry will be among the hardest hit of UK industries, with Brexit likely to reduce the gross added value by up to 7%. Trust for London analysis notes that in-work poverty in retail appears to be growing.

Wholesale and retail employment is above 10% for most areas of the UK. It is crucial to the UK economy, with the retail sector alone worth £92.8 billion in 2017. Yet some areas are still significantly more exposed than others, as shown in the map.

Wholesale and retail employment in 2017 by Parliamentary Constituency[3]

[3] The map plots employment in the wholesale and retail industries as a share of total employment in the Constituency in 2017, using data from the ONS Business Register and Employment Survey (BRES).

Wholesale and retail employment in 2017: Top 10 Constituencies

Conclusion

By looking at the effects of two major structural changes in the round we are able to identify two major challenges. First, that immediate downward pressure on wages caused by Brexit against the background of technological disruption will impact industries and regions extremely unevenly. In particular, there is likely to be a reduction in employment and an increase in in-work poverty in key sectors such as transport and retail. Low-skill workers in these sectors across the country are most exposed, facing a ‘double disadvantage.’

Second, Brexit is highly likely to dampen the adoption of technology and technological progress, at least in the short term. This will interfere with the progress of a main pillar of Industrial Strategy. At the same time, the UK’s resilience and ability to respond with agility to technological disruption will be reduced, benefiting our competitors. In both instances, the impact of No Deal Brexit will be more pronounced.

In these demanding circumstances, how can policy makers cope with immediate demands from the double disruption, whilst re-orientating the economy to address the underlying flaws that are the backdrop to the Brexit vote? We think that only bold and targeted policy-making will work. The need to create good new jobs and to facilitate the transition of workers must drive long-term planning. But the immediate area for attention should be critical social, economic and educational support for, and investment in, our most vulnerable communities and countering in-work poverty. This is not a tactical matter. These areas should be prioritised and integrated as we reposition good work to be at the centre of a ‘moral’ British economy.

The Good Work Plan is a good start and an excellent pointer. But to plan for a future of good work, we will need to extend our remit to all those things we discuss in this paper on top of emergency measures: training, reskilling, new job creation across the regions, immigration and trade by sector incentivising private investment, increasing public investment and opening access to finance. We will also need to discuss the infrastructure needed to achieve sustainable good work in our post-Brexit world, including how we pay for and administrate these measures. We anticipate that increased Government investment (including widespread use of beefed-up transformation funds across all vulnerable regions and piloting new types of incentivised private-public partnerships aimed at re-skilling workers) will feature heavily.

A comprehensive, forward-looking vision and strategy aimed at future good work is a prerequisite to addressing the twin challenges of double disruption. Whatever the outcome of Brexit, the best way to start this process is to draw from Germany’s Work 4.0 framework, and initiate a White Paper on the Future of Work.

This post gives the views of its author, not the position of LSE Breixt or the London School of Economics. It is an extended version of the article that appeared on LSE Business ReviewFor the full report and sectoral analysis please visit www.ifow.org and read here.

Christopher Pissarides is the Regius Professor of Economics at LSE, a professor of European studies at the University of Cyprus, chairman of the Council of National Economy of the Republic of Cyprus and the Helmut & Anna Pao Sohmen Professor-at-Large of the Hong Kong University of Science and Technology. 

Anna Thomas is founding director of the Institute for the Future of Work (@_futureofwork). 

Josh De Lyon is a Research Fellow at the IFOW and a PhD student in economics at Oxford University. He is also a research assistant in trade at LSE. He tweets @joshdelyon.

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