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Three million jobs would not be lost if Britain left the EU

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It is regularly claimed that three to four million jobs are either ‘at risk’ or ‘associated with Britain’s membership of the EU’. This is calculated by the number of jobs linked to exports from the UK to customers and businesses in other EU countries. It is then assumed that, if the UK left the EU, these jobs would be lost.

Background

The three to four million jobs figure originates from a report produced by South Bank University. Published in 2000, the report estimated that 3.45 million jobs were linked with UK exports to the rest of the EU. Approximately 2.5 million were employed directly in industries that export to the EU. The other 900,000 were created indirectly, via the increased demand for products created by exporters’ profits and their workers’ wages.

In the same year, the National Institute of Economic and Social Research (NIESR) conducted a similar report using similar methods. They found that 3.2 million UK jobs were associated with exports of goods and services to other EU countries. The report warned that ‘there is no a priori reason to suppose that many of these [jobs], if any, would be lost permanently if Britain were to leave the EU.’

A 2014 study by the Centre for Economics and Business Research estimated that 4.2 million jobs were supported by exports from UK firms to the EU. Approximately 3.1 million were employed directly in industries that export to the EU. The other 1.1 million were created indirectly by the spending it generated. It is these reports, amongst others, which has led to the claim that three to four million jobs are at risk if Britain leaves the EU.

Why the claim is incorrect

The claim is incorrect because it assumes or implies that all exports to the EU would cease if the UK was to leave. Although we do not know what will be negotiated if Britain left, the reports do not offer any evidence that Brexit would negatively alter the trading relationship between the UK and EU. Trade may carry on as normal, which does not seem improbable if we consider how much the EU depends on trade with the UK.

Using the logic of the three million jobs argument, there are over five million jobs in the EU that are linked to trade with Britain. In 2013 France exported €1.3bn worth of wine to the UK and Germany exported €16bn worth of cars. British car imports are linked to one million German jobs, whilst British fruit imports are linked to 421,000 Spanish jobs. Access to our market is just as important to the EU than our access to theirs, if not more. It does not make economic sense for the leaders of EU countries to sabotage their own industries out of Brexit spite. If the UK and EU managed to negotiate a free trade agreement, then many of the jobs linked to EU exports should be left intact.

The worst case scenario is that the UK and EU fail to negotiate a free trade deal. Both parties would be bound by the World Trade Organization’s (WTO) most favoured nation tariffs. This would prevent the EU placing punitive tariffs on UK exports after Brexit. Instead, the UK would be subject to the same tariffs the EU charges other non-member states. Due to a world-wide trend in tariff reduction, the average EU most favoured nation tariff on manufactured goods has fallen from 8% in the early 1990s to 4% in 2014. Taking into account the UK’s specific mix of goods and services that it sells to the EU, Capital Economics showed that the UK’s average effective tariff would be 4.4%. At these low tariff levels, it is unlikely British exports would suffer so much that significant numbers of workers lost their jobs.

According to the 2014 report by Business for Britain, the extra costs of these tariffs would be less than the savings the UK would make on its contributions to the EU. Business for Britain suggests the government could compensate the losers from Brexit, at least for the short term. In the long term the economy would reallocate resources from industries that are made less competitive by Brexit to those that become more competitive. Again, there is no reason to think that three to four million jobs are dependent on EU membership.

The reports may be correct at showing how many British jobs are linked to British exports to the EU. However there is no evidence that suggests all these jobs would be lost if Britain left the EU. It could only theoretically happen if all trade ceased between the EU and UK. However the WTO rules prevent this from happening.

  • Christian Stensrud