Anybody expecting the Brexit impasse to harm the UK’s labour market has so far been proved wrong. Employment is at its highest ever level, the number of job vacancies has hit a new record and the unemployment rate for women has dropped below 4% for the first time. Growth slowed in the final quarter of 2018 but the dole queues shortened. Crisis, what crisis?
One possibility is that because the latest jobs and wages data from the Office for National Statistics only covers the period to December, it might not capture more recent surveys suggesting that firms have become warier about hiring since the turn of the year.
Even so, the ONS assessment was unambiguous: the labour market remains robust after a 440,000 increase in employment in the past year. The strong demand for labour is being reflected in a number of ways: by wages growing faster than prices, by the 57,000 fall in the number of people on zero-hour contracts and by the fact that most of the jobs created were full time.
Britain continues to be a jobs magnet. The number of workers from the EU – and eastern Europe in particular – has fallen, but the drop has been more than compensated for by an increase in migrant labour from the rest of the world, primarily Asia and the Americas.
Employment is a lagging indicator. It tells us how the economy was faring in the past but is not always the best guide to what is going to happen in the future. And, clearly, if the UK were to leave the EU at the end of March without a deal there would be a period when the labour market would weaken. The duration of that period would depend on the extent of the disruption and the strength of the policy response from the Bank of England and the Treasury.
In the event of a deal, employment growth can be expected to continue, albeit at a diminished rate. That’s because firms can respond to increased demand in two ways: they can buy new kit or they can hire new workers.
Over the past year, there has been a marked reluctance to invest because companies are not sure what the outcome of Brexit will be and new machines are expensive. Workers, by contrast, are cheaper and easier to dispose of when a firm encounters problems.
But an EU-UK deal would change that calculation. Companies would start to give the go-ahead to investment plans that have been on hold for the past year and would have less need to hire extra workers. The labour market will remain tight in those circumstances, but it might not get very much tighter.