As immigration declines, labour costs are set to rise. Companies could thus shut down, leave Britain or invest in more automation if they decide to stay in the UK
By John Richardson
THE BRITISH town of Slough has an unemployment rate of 1.4% compared with a nationwide average of 4.7%, with the town’s average weekly wage at £558 as against the UK average of £494. And as the BBC’s Panorama documentary programme also reports, the Berkshire town’s restaurants, shops and bars are full.
Why? Because of immigration, says the BBC. An influx of central and eastern Europeans in particular has led to an economic boom, thanks to the EU free movement of labour rules. And yet 54% of Slough residents voted for Brexit. Britain as a whole has, of course, also voted for Brexit despite many other towns and cities seeming to have benefited just as much as Slough, if not more, from immigration.
We can predict what could happen next by studying the above chart, which shows that Britain’s native-born population is ageing. The demographics-driven Economic Superycle in the West in general is over. As immigration declines because of Britain’s decision to leave the EU, labour costs may well rise, driving unemployment higher and wages lower. The reason is that companies run for profit. So, if they fail to find enough locally-born workers at the right price to run their businesses they could close down, shift their operations overseas or invest in automation if they decide to stay in the UK.
In the English midlands county of Lincolnshire, which is heavily dependent on agriculture for its economy, there are already signs that the Brexit vote is driving automation in its agricultural sector:
- Concerns over an upcoming shortage of agricultural workers has led to research into robotics at the University of Lincoln, thanks to grants from produce producers, the FT reports.
- A robot has already been created – Thorvald – that, as the FT writes “can carry trays of strawberry plants to human pickers, sparing them miles of walking through vast fields. At night, he passes over plants with ultraviolet lights to kill mildew that might otherwise spoil as much as half the crop”.
There is a long way to go as Thorvald cannot match the dexterity of human strawberry and raspberry pickers. But with the prospect of tens of thousands of low cost eastern European fruit and vegetable pickers no longer being available to the agricultural sector, the pace of innovation is sure to pick up.
The pace of innovation could also accelerate across many manufacturing and service sectors by the prospect of Britain leaving the EU single market. The single market enables the hassle-free flow of chemicals and other components of finished goods, and the finished goods themselves, backwards and forwards between the UK and mainland Europe.
Let’s think how this might effect the distribution and logistics sector. After 2019, UK trucks could once again be held up at multiple borders for hours on end by customs procedures with new tariff barriers also in place. Compensating cost savings might be made by loading the trucks with robots, rather than people, and driving the trucks with computers – i.e. autonomous driving – rather than truck drivers.
Immigration is a very sensitive issue and many of the people who voted for Brexit were expressing understandable concerns about the strain that the big influx of people into Britain has placed on public services. Brexit also wasn’t just about immigration. Large swathes of Britain have been essentially economically left behind since the 1980s. So the referendum was a protest vote against mainstream politicians that have failed to respond to the needs of these regions.
And as the chart above confirms, the big issue not addressed by mainstream UK politicians is the impact of the end of the Babyboomer demographic dividend. When you retire you buy less things, as you already have most of the things that you need and you of course are also living on a pension.
Brexit threatens to make today’s demand deficit caused by an ageing population even worse. Robots don’t eat and drink and don’t buy TVs, washing machines and I-Pads etc. Equally, robots don’t buy houses, have children and send those children to school and university, unlike immigrants.
Let’s hope that Theresa May and her team can square a very difficult circle by securing a great deal exit deal for Britain. If they do not, then the shops and restaurants in Slough, and in Lincolnshire, might soon be a lot quieter.