Overview of the UK Construction Industry and Brexit

The construction industry has an important part in the labour market of any given state. The role of the construction industry varies from one country to the other in developed countries. The obligation is on the professional services and the sale of the finished products. It is also possible that a large project and preservation sector will emerge the longer the main infrastructure has been in place, as potential clients seek to maintain and enhance their current residential or commercial places rather than building a new structure. This is a common occurrence in the current economic trends in the United Kingdom, where the price of houses is ever increasing, builders incur high costs stamp duties, legal fees, and agent fees (Sumption 2017). From this point of view, the construction industry cuts across primary, secondary, and tertiary segments of the economy. So far, the construction industry in the United Kingdom is a key contributor to the GDP of the country. According to a report given by Sarhan and Fox (2013), the construction industry in the United Kingdom contributes up to 6% of the United Kingdom’s GDP. More of such positive developments can be enhanced if the industry is improved. However, the Brexit move is likely to affect the performance of such a vital industry. Therefore, this sector will look at various literature on the UK construction industry.

Overview of the UK Construction Industry and Brexit

The construction sector in the United Kingdom economy includes the development and construction of civil engineering projects, building residential and non-residential houses and residential houses, among other specialized activities such as the electrical installation and plumbing. The sector does not comprise of activities such as architecture, or project management, which is always associated with the construction industry. In 2017, a report published by Tomlinson (2017) stated that the construction industry contributed up to £ 113 billion in the UK economy, which totals to 6% of the aggregate economic output. The sector contributed close to 2.4 million jobs, which is 7% of the total jobs in the United Kingdom. The same industry involved more than 1 million companies, meaning that 17% of companies in the United Kingdom deal with construction services.

Construction is among the most important industries, employing surrounded 2.6 million individuals with £100bn plus yearly income, which makes it a more critical industry that automotive and aerospace combined. This is among the most profitable sectors in the industries in the nation, but it arguably plays an important in retreating the decreasing levels of social movement, since the segment is among the limited industries left that still hires people with traditional skills, which can provide a stepping stone for non-graduates into managerial roles (Bresnen and Marshall 2000). For all its importance, the industry is punctured with various organisational difficulties that it fought to overcome for various years, which can widely be blamed for its failure to capitalise in training (Sweet and Smith (2017, p.7). These comprise of highly uneven construction with extended supply chains and employment philosophy, low restrictions in some portions of the industry-those of the top 25 contractors be more or less 1.2% in 2015, even so, housebuilders have an immensely more lucrative framework of commerce.

Brexit and Labour Supply

Membership in the European Union has a straight impact on the labour market of every member state because of the free motion of labour and the vital role of migration to the GDP, budget, and productivity. Brexit also has a direct impact on the effects of trade flows and foreign direct investment on the economy. Immediately after the referendum voting, most companies halted hiring new candidates, due to the fear the unknown after the Brexit. In the following weeks vacancy announcement reduced by more than 1 million. This reduction was outrightly beyond the normal fluctuations in job adverts, which averagely range between 5% to 10%. According to Mohamed, Pärn, and Edwards (2017, p. 271), the levels of commercial self-assurance has reduced to its lowest point since the peak of the financial crisis in 2009. Tomlinson (2017) conducted a study after the referendum that revealed that a negative trend in business; the worst ever experienced since 2009, especially in the service sector such as the construction industry. In the long term, the Brexit effects on jobs and wages could be determined by the deals that would be negotiated between the United Kingdom and other states on international trade and the labour movement.

The central trade concept being discussed is between free trade and the control of the free movement of labour although with some tinges. In case, where the UK intends to maintain its membership in the European Economic Area, and retain its position to the single market, then it would have no option but to accept free movement of labour to and from the European Union, as other states in the Free Trade Association (Penney, Adams, and White 2018). Only feebler trade relations, with higher transaction cost, would potentially enable the United Kingdom to maintain border controls on European Union migration in a manner on how immigrants from the non-EU immigration can be restricted. Various economists argue that there are many trade-offs involved in this decision. The EU is among the United Kingdom’s largest trading partner, and losing the EU would mean losing the Single Market which would ruin the UK economy. Filimonau and Mika (2019, p. 362) premeditated that in an optimistic scenario where the UK retains its membership in the EEA, it would experience a 1.3% reduction in the GDP per year, which would be an outcome of the effects of non-tariff trade barriers on trade flows. Although in a pessimistic situation in which the UK disjoints from the EEA and trade between the EU and the UK is managed by the World Trade Organisation rules, that higher increase in trade cost could lead to a reduce the GDP per annum by 2.6%. Additionally, it is expected that the country will experience fall in foreign direct investment, which can lead to a decline in the GDP than the increase in trade expenses (Bresnen and Marshall 2000).

Is the Economic Effects Worth it?

The immigration trends in the European Union has been the first occurrence that led to an increased labour force in the United Kingdom, especially in the enlargement of the European Union in 2004. In the last 20 years, the percentage of the working population in the EU has increased from 1.8% to 6.3% (Rostami and Thomson 2017). Averagely, most immigrants entering the European Union are more educated, averagely younger and embrace any work as compared to the UK-born labour force. For example, in 2015 the UK born population in labour force was about 72.5%, while that of EU immigrants totaled up to 81.9% (Sarhan and Fox 2013). Research on the effect of immigration in the United Kingdom has perceived no adverse effects on the aggregate wages of UK-born workers. The study revealed that there could be slightly positive effects, notwithstanding losses at the lowermost segment of the wage dispersal and the gains at the uppermost segment. Studies also revealed that EU immigrants have led to positive development in the UK financial budget. Such occurrences are not abnormal given the fact that the averagely most EU immigrants are younger and are likely to work for more hours than the UK citizens, and therefore they pay more taxes than the benefits they receive from the government. Tomlinson (2017) estimated that from 2001 to 2011 immigrants made a financial contribution of nearly £5 billion.

Simionescu, Bilan, Smrčka, and Vincúrová (2017) analysed the EU immigration trend through and in the upshot of the great recession. The researchers revealed that the rise in EU immigration happened at a time when the unemployment percentage of UK citizens was rising, and the wages paid to them was falling (these were the conclusions made during the great depression). However, the immigration rate kept on increasing even in the aftermath of the recession, while the percentage of unemployment was reducing among UK citizens was falling back to the pre-crisis rates and their wages were gradually increasing (Davies and Studnicka 2018, p.17). This means that there is no correlation between immigration and the attractiveness of the labour market among UK citizens and in the economy in general. It can be concluded that even if the average scenario is encouraging, there could be various setting in which some groups of UK citizens do indeed lose their jobs because of immigrants, especially in industries that have attracted higher numbers of immigrants who also demand for lower wages as compared to UK born workers (Simionescu, Bilan, Smrčka, and Vincúrová, 2017). However, a disaggregated analysis revealed that as much as the UK local administration had experienced higher numbers of immigrants from 2008 to 2015, they did not, however, experience any increase in unemployment among UK born labour force, or a significant fall in the wages of the same population. Even in the event that the UK born labourers have less knowledge and skills (Mohamed, Pärn, and Edwards 2017, p. 271). One group that proved to be unchanged for the arrival of new immigrants is the stock of the pre-existing immigrants. The existence of new migrants, the previously existing migrants and UK citizens in the host labour market shed more light on the fact that new immigration does not have the potential of harming the opportunities in the labour market especially for the existing migrant labour force, but as much as that of the UK-born labourers. (Sumption 2017, p.49) Besides, the UK-based labourers and new migrants are far from becoming faultless alternatives in most labour markets, even in the incident that they have comparable levels of experience and education; this is because these two clusters of labourers tend to work in different job groups and undertake different responsibilities. In some instances, immigrants could have culture-specific skills and barriers, which act as both advantages and disadvantages to their job positions (Abdul Kadir, Lee, Jaafar, Sapuan, and Ali 2005). Besides, the immigrants’ network is likely to lead them to a cluster in occupation industries where foreign-born workers are already over-represented (Davies and Studnicka 2018, p.17). These systems constrain the extent of job competition among the UK-based labourers and the immigrants but encourage competition across various cronies of immigrants. As per the arguments of Brooks, Ewuga, Scott, and Spillane,(2018) low skilled EU immigrants have a tendency of clustering in low tech manufacturing, construction, household chores, and manual work, but do not have an equal chance of landing a managerial role when compared to UK born labourers. Immigrants with managerial skill are more of occupationally polarised as compared to UK based labourers, as they have a high probability of working in unskilled roles, for which they are overqualified in terms of their education and work experience, and at the same time, they are over-represented in finance and the higher education section (Sumption 2017). If by any chance the Brexit move will introduce limitations on immigrants from the European Union, in the same way, the Visa system has done among immigrants from other parts of the world, then the effects of reduction among EU immigrants are likely to be felt among in specific sectors such as in the construction industry, where immigrants are concentrated from the bottom position up to the uppermost managerial position (Rostami and Thomson 2017). If the gaps left in the labour market by European Union immigrants were to be filled by a higher supply of UK based labourer and non- European Union migrants, then still the wages and employment rates in these industries would be majorly unchanged. However, it is clear that the UK-based workers are not a perfect substitute for the European Union immigrants.

Brexit and the construction industry

The effects of Brexit are likely to be catastrophic to the construction industry, and halt the construction of new structures and infrastructures; this is because migrant labourers have dominated the construction industry, and Brexit has the potential of halting the supply of such labour. As much as the UK administration engages in the Brexit negotiation, they ought to be aware that a sudden reduction of labourers would hugely affect the deliverability of the construction industry and thegovernmental-industrial plan, especially the national infrastructure plan- all these facets are crucial to the growth of the GDP and economic expansion. According to a study conducted by Pedrick (2016), there are already signs that construction industries have slowed down their work rate, or turned down work because they have a shortage of staffs. A sudden reduction in labour would adversely affect the industry’s capability to export, since devoid of migrant labour, the industry would not sufficiently finish the work that is worth billion in construction.

According to the United Kingdom’s national plan and strategies, the nation has significant infrastructure work that would need many labourers. Projects such as the construction of new speed rail routes, the expansion of the Heathrow airport, the development of nuclear power stations, the housing project, and the renovation of two Parliamentary houses. According to the predictions of the Construction Industry Training Board (CITB), the industry is expected to raise by 1.7% every year, between 2017 to 2022, which means that the industry would need more than 180,000 new labourers in the next five years. According to these statistics, the construction industry is expected to face a massive shortage of labourers and decline in its current workforce, which is detrimental to the industry (Tomlinson 2017). So far, the United Kingdom has not fully recovered the 270,000 construction vacancies lost during the recent economic crisis. Besides, the UK workforce population is also aging, which means that it expected that between 2010 to 2020, more than half a million of people working in the construction industry would be retired since 30% of the current workforce in the industry is over 50 years (Sumption 2017, p.51).

Additionally, Brexit could lead to the country locking out an estimated 200,000 workers who are from the European Union region, which is 9% of the total workers in the construction industry based on the fact that currently, 2-3 million individuals are employed in the construction industry. Focusing on the region the statistics are very significant, keeping in mind that migrant workers comprise 54% of construction labourers in the city of London. Even so, in other zones, EU staffs could be as low as 2% of the total personnel (Li, Akintoye, Edwards, and Hardcastle 2005, p. 562). Therefore, with a triad of the expected economic development, retirement and Brexit, the facts point to an awfully concerning skill shortage.

Brooks, Ewuga, Scott, and Spillane (2018) believed that even devoid of the Brexit move, the United Kingdom would need to recruit more than 400,000 individuals every year or one person for every 77 seconds. Mossman (2009) estimated that the training deficit at 51% if the construction industry experiences an annual growth of 35% per annum in the next ten years. Comprehensibly concerned professional organisations and agencies have also sounded the same alarm. Data collected by Holt, Olomolaiye, and Harris (1995, p. 192) discovered that the shortage of skills in the construction industry is among the factors that have impeded the growth of the industry. The UK government’s ability to deliver the promised housing units and infrastructure plans will be curtailed by a minimum of 7%, especially in London if the government cannot address the problem. In respect to this argument, Mohamed, Pärn, and Edwards (2017, p. 273) claimed that in the construction of houses only, almost five times more labourers had left the industry compared to those who entered it in 2016. If such trend continuous then by 2020 the housebuilding sections would have a shortage of 200,000 labourers, that is deprived of the effects of the Brexit.

Import of Construction Materials

As a member of the European Union, the United Kingdom enjoys free movement of people and goods; this movement does away with the needs for custom duty levies or tariffs on imports. As an industry that solemnly depends on the importation, the construction industry directly benefits from such regulations. A study conducted by Sweet and Smith (2017, p.10) stated that 65% of the total building material imported in the United Kingdom are from the European Union, the same report also stated that 63% of UK exports in the construction industry, were directed to the European Union market. The effects of exiting the European Union could potentially lead to high duties being levied on imports, among other complicated rules that would be implemented. Ultimately this can lead to restrictions, and delays in exporting and importing construction materials (Simionescu, Bilan, Smrčka, and Vincúrová 2017). Any further increase in delays could also lead to increased costs of construction in the United Kingdom (Mossman 2009). However, there are cases where the UK can leave the European Union and fail to face any adverse effects.

UK leaves the Union but remains a member of the EEA

The critical role of the EAA protocol is to protect the free movement of goods and people among the signatory states. Such policies are aimed at providing equal platforms for competition and to restrict any discriminatory laws on trade, implemented by various nations which are the 28 EU member states and the three members of the EFTA (Liechtenstein, Iceland, and Norway). The EAA protocol gives states the freedom to take part in the single market as much as some policies are not covered by the membership of the EAA only (Sumption 2017). The protocol also depends on the uniform compliance and implementation of the standard policies stipulated in the agreement. In such a set-up, the United Kingdom has an option of complying with the European Union legislation to the extent that its actions are within the boundaries of the EEA protocol and on the ground that the majority signatories of the agreement are already so bound and could condescend to the monitoring regime developed by the EAA. A particular type of consideration can never be the best option for the UK, and instead, they should consider becoming members of the agreement (Brooks, Ewuga, Scott, and Spillane, 2018). However, various issues are expected to crop up such as the extent to which the UK courts will be bound by the rulings made by the EU court, considering the commercial point, and to the extent to which the UK administration would make sure that they comply to avoid conflicts when trading with other member states in a common market.

References

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