The Institute for Fiscal Studies has today published a chapter form the IFS Green Budget that investigates the exposure of different workers to potential trade barriers between the UK and the EU. The Green Budget is funded by the Nuffield Foundation and will be published on Tuesday 16 October.
The research, written by Peter Levell and Agnes Norris Keiller, focuses on which industries, regions and types of workers would be most and least affected by increased barriers to trade with the EU under different Brexit scenarios. The researchers aim to shed light on relative impacts across different groups in the population rather than their overall scale.
To conduct the analysis, the researchers calculated measures of the impact of new barriers to trade on demand for goods and services produced in the UK, and how these are likely to affect different industries and, by extension, the workers that they employ.
- Men, in particular those with fewer formal qualifications, are more likely to be employed in the most exposed industries than women and more highly educated men. Workers in process, plant and machinery operative occupations are particularly exposed. These tend to be older men with skills specific to their occupation who, history suggests, may struggle to find equally well-paid work if their current employment were to disappear.
- The EU accounts for 44% of UK exports (equal to 13% of GDP) and more than half of UK imports (17% of GDP). Leaving the Single Market and Customs Union will increase trade barriers and make both importing and exporting more costly.
- Some industries, such as clothing and transport equipment (including car manufacturing), are likely to be especially badly affected by these changes because they sell a large fraction of their output to EU countries. The transport equipment sector will also be hard hit because it imports 25% of its inputs from the EU. The same is true for the chemicals and pharmaceuticals sector. Finance is the most exposed services industry, as it currently exports a relatively large share of its output (12%) to the EU.
- Industries such as agriculture may benefit from trade barriers (though at the expense of consumers) because consumers will substitute away from more expensive imports towards products made by UK industries. However, the industries that could benefit make up a small share of the overall economy.
- On average, exposure to new trade barriers is set to weigh somewhat more heavily on the top half of the earnings distribution. While earnings inequality may fall, it will come at the cost of making most UK workers poorer. The likely impacts on inequality between regions are both smaller and much more uncertain than the effects on earnings inequality.
- Low-educated workers are more exposed in some regional labour markets than others. While 19% of low-educated men work in industries we class as highly exposed in the UK as a whole, the fractions in Northern Ireland and the West Midlands are 25% and 24% respectively. Low-educated workers in these regions might find it particularly hard to adjust to the negative consequences of trade barriers.