The Effects of Brexit on UK Recruitment and Higher Education Sectors

1.1 Background of the Study

On June 23rd, 2016, the United Kingdom (UK) conducted a national referendum in which about 72% of the electorate participated. The primary goal of the referendum was to let the electorate decide the fate of the United Kingdom leaving of remaining in the Eurozone economic block, The European Union (EU). The June referendum, termed as the Brexit (Bouoiyour and Selmi, 2016, p. 2), was the first one in the United Kingdom to achieve the highest voter turnout of 72% since 1992, which was considered to indicate the significance of the issue at hand. On that day, the British electorate voted with a 52% approval to withdraw their country\u2019s membership of the European Union (Shetty, 2017, p. 11). The result of the Brexit referendum shocked the world especially the financial markets. The sterling pound immediately significantly depreciated and there were high volatility and uncertainty in the financial markets across the world.

Even though it is now official that the United Kingdom is exiting the Eurozone, the Brexit vote has placed the country in the throes of conflicts and uncertainties (Shetty, 2017, p. 10). Many have considered the likely effects of the Brexit on various sectors of the UK\u2019s economy and as the bilateral relations with the rest of European countries. The Brexit has drawn several research interests from different quotas, as many people are interested in understanding what will be its future short term as well as long-term effects. Despite this, there is still no definitive picture of what might occur in the future (Marginson, 2017, p. 8).

Brexit might affect many economic sectors including the recruitment. However, an insightful research into what is likely to happen to the UK\u2019s recruitment industry has not been investigated empirically since the Brexit vote. In the recruitment sector, serious questions have emerged against the backdrop of the Brexit especially concerning the UK employees and their right to work in other European countries. Similar, concerns are emerging concerning the right of non-UK employees to work in the United Kingdom (Marginson, 2017, p. 9). Other concerns include how the employee mobility policies across Eurozone will be adaptable and changed after the Brexit. Many non-UK employees livelihood depends on the jobs in the United Kingdom. The same situation occurs to many UK employees working in other European countries.

1.2 Statement of the Problem

Many businesses in the United Kingdom rely on the specialised workers or expatriates from other European countries. The June 23rd Brexit has put the status of such workers into questions and many businesses are worried about their ability to recruit the non-UK expatriates once the exit is completed. The future and ability to continue working in the United Kingdom are shrouded in uncertainty given that the legislatures are still negotiating an exit plan. Whether the exit package would allow non-UK expatriate to continue working in the country is not easy to tell. The situation is causing further uncertainty in the recruitment industry. Questions are raised as to whether the UK recruitment industry will continue attracting top quality talents across the Eurozone (Marginson, 2017, p. 9; Fryer, 2017).

As part of the trade bloc, the European Union allowed free movement of employees between all member states. In essence, employees were allowed to work in any country as long as they are members of the European Union. The UK recruitment industry greatly benefitted from the free movement of employees by attracting top-notch talents from other European countries. Whether the exit plan will allow the UK to continue enjoying the free movement of employees within the Eurozone is still unclear (Lima, 2017, p. 1). Notably, the country is still negotiating an exit deal that would enable it to continue. The UK recruitment industry will be curtailed if the free movement of employees is limited.

Many European companies are unsure whether to continue investing the United Kingdom even if the Brexit leads to the removal of free movement of labour. A decision to exit investing in the United Kingdom, either by independent or legal requirement, will certainly affect the job market and the recruitment industry. With such grievous problems at hand, there is dire need to understand properly how the Brexit is likely to affect the UK recruitment industry. With such proper understanding, the industry can effectively plan.

1.3 Main Research Objectives

The primary goal of the current research study is to inquire how the Brexit affected the recruitment industry in the United Kingdom. The study aims at providing information about the UK recruitment industry and the likely future outcome following the decision by a majority of the British electorate to vote yes on Brexit referendum. The information will play a crucial role in drawing up a plan to save the industry.

1.3.1 Specific research objectives

a) To identify the long-term negative effects of Brexit on the UK recruitment industry.

b) To identify the long-term positive effects of Brexit on the UK recruitment industry.

c) To determine how Brexit is likely to affect the UK high education institutions.

d) To identify how the UK private sector and the government can turn Brexit into opportunities for the benefit of the recruitment industry.

1.4 Research Questions

a) What are the long-term negative effects of Brexit on the UK recruitment industry?

b) What are the long-term positive effects of Brexit on the UK recruitment industry?

c) How will Brexit affect the UK high education institutions in the long term?

d) How can the UK private sector and the government turn Brexit into opportunities for the benefit of the recruitment industry?

1.5 Assumptions of the Study

Since the quantitative study was based on the use of primary data, a number of assumptions were made concerning data collection, analysis and the methodology of choice. First, the researcher assumed that all the participants who participated in the interview and who responded to the questionnaire were candid and gave genuine and honest answers. If some participants were not honest and genuine, the result of result of the study cannot be generalised and be a true reflection of the actual situation in the UK recruitment industry.

The second assumption relates to the sampling criteria. It was assumed that the sampling criterion was appropriate and that it provided a sample that is an accurate representation of the entire recruitment industry in the United Kingdom. Another assumption is that the sampling criterion produced respondents who had experienced the phenomenon under the study.

The researcher also assumed that the researcher participants had a sincere interest in participating in the study and that none had ulterior motives that could affect the outcome of the investigation. The respondents were assumed to be guided by ethical considerations and not influenced by other external factors while giving their views and opinions.

1.6 Organisation of the study

In summary, the study of the impact of Brexit on the recruitment industry in the United Kingdom was organised into five main chapters. The first chapter introduces readers to the research background and problems. The chapter further highlights the specific objective of the undertaking as well as the scope, significance and assumptions, and limitations. However, chapter two delves into the literature review that was conducted in the fields of Brexit and recruitment industry. The available pieces of literature were reviewed to identify the existing theories, models, and concepts that can be used to study the effect of Brexit on recruitment industry. The third chapter, which is the methodology, introduces the readers to the tools and techniques that were used to study the research phenomenon; it included aspects such as sampling, data gathering, and analysis among others. The findings are presented in the next chapter. Lastly, the researcher presented the general conclusion and recommendation of the study in the last chapter.

References and appendices such as questionnaires, authorisation letters, and interview scripts were presented in the last section of the paper.

1.7 Chapter summary

A comprehensive introduction to the research study has been given in the chapter above. The chapter provided a clear description of the research by providing the background study, the research problem, objectives, questions, scope, limitations, as well as the need to conduct the study. The background information clearly indicated that Brexit affected many industries in the United Kingdom amongst them the recruitment sector. In addition, it has shown that uncertainty in the recruitment industry is increasing given that the government is still negotiating for a softer Brexit deal. With the introduction, the focus is now on chapter two where a literature is presented.

Chapter 2: Secondary Research

2.1 Introduction

The current chapter investigates various past pieces of literature on Brexit and recruitment industry in the United Kingdom with the primary goal of summarising the empirical findings as well as identifying the existing gaps. In addition, the chapter also identified some important and relevant theories that could be used to study the effect of Brexit on the recruitment industry. The empirical findings were also investigated to identify what other researchers have done in the research phenomenon and related topics. The literature was accessed from various sources such as books, journals, peer-reviewed articles, and periodicals among others.

2.2 Free Movement of Capital and Labour

The European Union opened the gates for free-movement of labour and capital, which greatly benefited the UK recruitment industry. Thompson and Harari (2013, p. 3) explained that free movement of labour and goods allowed the production capacity in the United Kingdom to increase significantly. Free movement of people also resulted in increased talents in the United Kingdom, which helped boost the performance of the recruitment industry. It allows the investment and labour to flow freely in and out of the United Kingdom. According to Thompson and Harari (2013, p. 5), the free movement of labour and capital helped improve the economic welfare in the United Kingdom.

Migrant labour is an important component of the UK recruitment industry. According to Grant et al. (2016, p. 24), a third of dairy workers in the United Kingdom are migrants from other countries. In 2015, the British Immigration Minister stated that the country is heavily relies on foreign employees (Grant et al., 2016, p. 24). Majority of the migrant workers employed in the British farm industry come from EU member states. Depending on the exit agreement, Brexit might place a limit on the availability of such essential migrant workers to the UK recruitment industry. It might limit the use of labour from the European Union and other countries. Once the withdrawal has been concluded, the UK policy for migrant workers might be restrictive especially to the EU members states (Portes, 2013, n.d.).

As explained by Thompson and Harari (2013, p. 16), the EU citizen is not required to have a visa to enter or work in a member state. Further, no limit is placed on the duration of their stay and work in the EU member states (Sparrow, 2017, n.d.). In essence, the process enabled the United Kingdom to enjoy free movement of labour and capital within the EU member states. The EU workers, thus, became very crucial to the UK recruitment industry because of access to different and quality talents across the Eurozone. In total, about 1.5 million non-UK workers were employed in the United Kingdom before Brexit; they contributed to more 5% of the total employment in the country. The chart below provides an overview of the employment status of UK population by country of origin and age for the year 2011

Figure 2‑1: Employment status in the United Kingdom

Source: ONS Labour Market Statistics

A research by MacDonald (2017, p. 17) revealed that the UK creative industries are critically dependent on labour from the European Union and other countries. Therefore, any form of migration control would drastically affect the industry and the entire UK GDP. He noted that the industry accounts for 5.2% of the UK’s economy. Many UK citizens are employed in the creative industry, which might be greatly affected by the Brexit due to migration issues. According to MacDonald (2017, p. 17), in 2014, the industry created about 1.8 million jobs, which might be lost after the Brexit.

As explained by Boffey (2017, n.d.), the staffing crisis in the United Kingdom worsened as record numbers of EU nurses quitted their National Health Service (NHS) positions following the outcome of the Brexit referendum vote. NHS is the leading employer of nurses and other medical staffs and professionals in the entire United Kingdom. By 18th March 2017, the number of registered EU nurses working in the United Kingdom had dropped by about 92% (Boffey, 2017, n.d.). The failure by Prime Minister Theresa May to guarantee EU workers job security in the United Kingdom caused the majority of EU nurses to leave. By the time of Brexit, the NHS employed about 57,000 EU nationals, out of which 10,000 were doctors while 20,000 were nurses.

As explained by Shetty (2017, p. 14), about 50% of multinational firms operating in the Eurozone have their headquarters in the United Kingdom where they contributed greatly to the country’s employment opportunities. He further added that Brexit has caused greater potential for upheaval especially to the multinational firm’s operation in the United Kingdom. For instance, Brexit might lead to the reintroduction of withholding taxes when dividends are repatriated out through the multinational firms in the United Kingdom. Wright et al. (2017, p. 2) showed that Brexit has negatively affected the private equity of most firms in the United Kingdom. The private equity fell sharply during 2016 following the referendum outcomes.

Uncertainty around the free movement of employees after complete exit from the European Union will continue to greatly affect the UK recruitment industry in the short term since many UK candidates are not sure about their rights outsight their country (Hubble, 2016, p. 5). Furthermore, the European candidates are not sure about their employment rights outside the European Union. In the United Kingdom, many sectors will be affected by the inability of the recruitment industry to attract top talents across the Eurozone. For instance, many sectors in the UK such as hospitality, education, healthcare, as well as construction and manufacturing highly depend on workers from the European Union (Hubble, 2016, p. 5).

2.3 UK’s Higher Education Sector

As explained by MacDonald (2017, p. 21), higher education is considered to be the most successful story of the United Kingdom. The country is recognised for its excellent and internationally competitive higher education institutions such as universities and colleges. Further, the sector greatly contributes to the United Kingdom’s GDP. The UK universities contribute to about 2.8% of the country’s total GDP and generate about £73 billion annual output.

A report by MacDonald (2017, p. 21) further indicated that the UK universities generate more than 750,000 jobs annually and earn about £11 billion in annual exports. The UK higher education sector makes a major contribution to the society and recruitment industry through teaching, research as well as other related activities.

The Brexit might significantly affect the UK higher education sector. As explained by MacDonald (2017, p. 21), the major concerns of the sector as regards the Brexit include (1) increased barriers to recruitment of talents from EU, (2) reduction in student and staff mobility, (3) loss of EU research funding, (4) difficult collaborations on research, (5) increased barriers to recruitment of European students, (6), reduced outward mobility opportunities, and lastly (7) loss of regional and global attractiveness. Essentially, the Brexit may make the UK universities to lose the EU funding and research programs thus become less competitive. Furthermore, they will lose the quality EU research.

MacDonald (2017, p. 28) identified research as an important contributor to the UK higher education, thus, any potential impact of Brexit needs to be given thorough considerations. The scientific research institutions in the United Kingdom are ranked second best in the world given the quality of work they produce. Notably, they draw most of their funding from the European Union. MacDonald (2017, p. 21) further noted that the UK research institutions produce about 15.9% of the total research articles most cited in the world. The United Kingdom spends less than 1.7% of its GDP on Research and Development (R&D); the rest of the funding comes from the EU research programs and other collaborations.

The freedom of movement within the EU member states played an important role in enhancing R&D in the United Kingdom, a situation that might change due to Brexit (MacDonald, 2017, p. 21). The rate of research collaboration between the UK and the EU increased at a faster rate within the last four years before Brexit due to the free movement of students, researchers, and staffs in the region. The UK higher education sector was able to attract best international talents within the EU to help advance its science base and research programs. By the time of Brexit, the UK universities had about 16% and 12% of their scientific academic staffs coming from the EU and non-EU countries respectively (MacDonald, 2017, p. 21).

As explained by Ellison (2016, p. 14), Brexit triggered increased uncertainty about the future of research in the United Kingdom. The implication of the referendum outcome is that the United Kingdom will fall out of the regulatory system set out by the European Union for clinical trials. As a result, only a few patients in the United Kingdom will be able to access latest research and clinical innovations. According to Ellison (2016, p. 14), “The long-term implications will very much depend on which new relationship the UK will have with the EU in the future.”

Because of the unambiguously positive relationship between the UK and the EU, the consequences of the Brexit will certainly destabilise the higher education sectors. The government of Theresa May has presented an exit bill that seeks a significant reduction in the level of migration within the United Kingdom. The bill has created uncertainties about the future of thousands of EU citizens currently studying and working in the UK universities. By the time of the Brexit referendum, there were about 125,000 EU students and 43,000 EU staffs in the UK universities. No decision has been concerning the EU university staffs retaining their residence rights in the United Kingdom (Hooley, 2016, p. 4).

2.4 Brexit and Uncertainty

Notably, changes that shall happen due to Brexit may have either positive or negative impact on to the UK recruitment industry and the economy at large. As explained by Hooley (2016, p. 4), Brexit is likely to have an enormous impact on the UK’s recruitment industry. It is now one and a half years after the Brexit but still many companies in the United Kingdom are uncertain about how the decision to leave the European Union is likely to affect their day-to-day operations in the long term (Fryer, 2017, n.d.). The Prime Minister, Theresa May, signed Article 50 recently but still there is a grey cloud on the nature of the exit; still, legislatures are negotiating for a softer exit.

Jackson (2017, p. 19), Cumming and Zahra (2016, p. 688), and Wilson (2017, p. 543) among other researchers found out that the problem of Brexit is uncertainty that it has caused in the political, economic, as well as financial markets. A research study by Jackson (2017, p. 19) revealed that both empirical and theoretical findings of the economic available literature point to a heightened link between uncertainty and low economic activities. He identified a number of fixed costs that are involved in such situations, for instance, the cost of hiring new staffs as well as building new factories and new investments. Such costs cannot be recovered whenever there is a decision to reverse the investment (Jackson, 2017, p. 19).

Further, Jackson (2017, p. 19) explained that uncertainty makes businesses to pare down their economic plans. The incidence may greatly affect the recruitment industry since no new businesses are opening up to create the much-needed employment opportunities. The situation may lead to fear of unemployment as well as lower-income especially to those already employed. The Brexit sparked a rise in political uncertainty in the United Kingdom. The Prime Minister immediately stepped after the referendum and a new one has to be elected. The new Prime Minister, Theresa May, also did not take in office before dissolving the parliament. Jackson (2017, p. 19) added that events are increasing the level of uncertainty about UK’s trade policy and fiscal policy.

The literature accessed indicates that uncertainty can be measured through four main approaches namely (1) systematic stress composite index, (2) political uncertainty index, (3) financial market uncertainty, and lastly (4) macro conditional variance. Different events have affected uncertainty in the Eurozone over the past years. For example, the 9/11 bombing of world trade centre, the gulf war II, northern rock, Greece crisis, sovereign debt crisis, Greek referendum, and most recently the Brexit. The chart below provides a measure of how these events affected the euro-area uncertainty since 2000.

Figure 2‑2: Measures of euro-area uncertainty

Source: ECB (for SSCI) and Jackson (2017, p. 19)

2.5 Other important findings from the literature

A number of empirical studies have been undertaken since the June 23rd, 2016 referendum vote that approved the Brexit. In an empirical study by Cumming and Zahra (2016, p. 690), they argued that the position of UK in the EU is not clear since the outcome of the national referendum. They further explained that the Brexit would lead to different consequences to the United Kingdom and the European Union. They argued that the process would lead to the significant negative outcome to the UK’s real GDP. However, the outcome might be modestly negative and possibly negligible to the rest of the EU member states (Cumming and Zahra, 2016, p. 692).

Wilson (2017, p. 545) also conducted an empirical study on the same subject. Given the result of his study, he stated that Brexit would considerably affect the United Kingdom because of its aspects of engagement in European external affairs as well as global development cooperation. In particular, he cited short-term problems relating to the looming budget shortfalls, existing legal obligations, as well as the country’s ability to secure business continuity in the Eurozone (Wilson, 2017, p. 546). He also included the long-term EU development policy realignment as another factor that might affect the UK. In overall, he argued that the UK has the obvious disadvantage of the Brexit outcome.

Some researchers have argued that the UK Gross Domestic Product (GDP) would not significantly grow as compared to when the country stayed in the European Union. Staying outside the European Union would significantly affect the long-term economic growth. The economic uncertainty certainly will have a domino effect on businesses and the employment sector thereby significantly affecting the recruitment industry. Furthermore, the value of the sterling pound has significantly dropped following the Brexit vote. As a result, the imports are now costing more but the export bringing less in the country, thus, affecting the financial position of many companies (Hanwell, 2017, n.d.). The new circumstance is forcing the recruitment businesses to cut their costs significantly by dropping many applicants.

However, a news article by CNBC News claimed that the number of EU nationals working in the United Kingdom has significantly increased despite the fears of the post-Brexit exodus (Gilchrist, 2017, n.d.). Jeffrey (2017, n.d.) also made the same claims. In the article, they estimated that, according to the statistics provided by the Office for National Statistics (ONS), about 2.37 million EU national were employed in the country between April and June 2017. Notably, they cited the increased to have been caused particularly by the rise of Romanian and Bulgarian workers during that period.

2.6 A new UK-EU relationship

Grant et al. (2016, p. 5), identified five broad range of scenarios for the possible new UK-EU relationship of the withdrawal has been concluded. They further asserted that each of the five possible scenarios has a different impact on various sectors in the UK economy such as agriculture and recruitment among others (p. 50). According to their findings, the first scenario would be for the UK to remain in the customs union after withdrawing from the EU. Grant et al. (2016, p. 5), argued that remaining in the customs union would enable goods from the Eurozone, including the United Kingdom, to move freely. However, the arrangement is similar to EU membership and might be strongly opposed during the negotiation.

 The second scenario is to let the United Kingdom re-join the European Free Trade Area (EFTA), which would subsequently allow it to remain as part of the European Economic Area (EEA). However, the option would require the United Kingdom to make some domestic policy changes such as accepting the EU regulations and allowing them.