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The United Kingdom’s Loss Is Europe’s Gain

Summary:
One year after Brexit was approved by British voters, the United Kingdom is no longer as attractive to European nationals for work and living as it was in prior years. The May 2017 figures published by the Office for National Statistics show that compared to 2015, there is a 36 percent increase in the number of EU citizens leaving the United Kingdom to return home permanently (to 117,000) and a 14 percent decrease in first-time EU entrants to the UK job market (to 247,000). This negative trend is particularly pronounced for Central Europeans, who have stopped relocating to the United Kingdom. The United Kingdom's loss is Europe's gain: Students and workers look for opportunities at home or in other European economies. This trend increases the long-term growth prospects for Europe, at the

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One year after Brexit was approved by British voters, the United Kingdom is no longer as attractive to European nationals for work and living as it was in prior years. The May 2017 figures published by the Office for National Statistics show that compared to 2015, there is a 36 percent increase in the number of EU citizens leaving the United Kingdom to return home permanently (to 117,000) and a 14 percent decrease in first-time EU entrants to the UK job market (to 247,000). This negative trend is particularly pronounced for Central Europeans, who have stopped relocating to the United Kingdom. The United Kingdom's loss is Europe's gain: Students and workers look for opportunities at home or in other European economies. This trend increases the long-term growth prospects for Europe, at the detriment of the United Kingdom.

That the shift in EU citizens' attitudes towards the United Kingdom is primarily the result of the Brexit referendum is clear from the fact that other economic indicators have been benign. The British economy finished 2016 with economic growth of 1.8 percent of GDP, higher than any other G-7 country. However, the British currency lost nearly 15 percent of its value relative to the euro after Brexit, reducing the expected wages for EU citizens contemplating a move from their home country. The second reason is increased hostility towards Central European workers.

The UK's loss is Europe's gain: Students and workers look for opportunities at home or in other European economies, increasing long-term growth prospects for Europe, at the detriment of the UK.

Brexit has particularly affected the flow of Polish citizens, who for more than a decade accounted for the largest net migration. This is no longer the case, as Romania has overtaken Poland as the main source of net migration. Overall migration from Central Europe is at a standstill: Only 5,000 more people from the eight Central European countries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia) have relocated to the United Kingdom than left for another EU country, the lowest net inflow since these countries joined the European Union in 2004. This is a tenth of the net inflow in 2015, and 1 percent of the net inflow a decade earlier.

The only Europeans still attracted to the United Kingdom are from the latest EU entrants: Bulgaria and Romania. Net migration from Bulgaria and Romania continues to be positive in 2016 (54,000 people) but smaller than in 2015. A quarter million Bulgarians and Romanians legally registered for work in the United Kingdom between March 2016 and March 2017. On this score, Romania leads all countries, while Bulgaria is fifth behind Poland, Italy, and Spain. With Romania's economy gathering speed and outperforming all other European economies in 2016, the flow of Romanian workers to the United Kingdom is dwindling as well. These workers, too, may prefer to explore opportunities at home.

The falling attractiveness of the United Kingdom for European citizens, particularly from Central Europe, may at first glance be interpreted as a success of the Tory government. After all, this is what Brexit was mostly about: keeping jobs for British nationals. A more-than-cursory look at the UK employment statistics shows reasons for worry. The construction, retail, hospitality, catering, home care, and agricultural sectors critically depend on Central and East European workers. They will be hard to replace with domestic workers, who find such jobs unsatisfactory and frequently reject them out of a sense of entitlement. Less known, Central Europeans also account for a nonnegligible share of employment in some professional services such as health care (7 percent), information technology (5 percent), and accounting and auditing (3 percent).  

Returning EU workers are a boon for their home economies. They have acquired language and professional skills in the United Kingdom, and have learned better business practices. The new skills can be put to use to assist their economies in converging with Western Europe.

Perhaps most importantly, returning workers have grown accustomed to a system without significant corruption and neglect of the rule of law. Their support for such a governance system at home is the most important asset they bring when returning from the United Kingdom.

Simeon Djankov
Simeon Djankov, nonresident senior fellow at the Peterson Institute for International Economics, was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. In this capacity, he represented his country at the Ecofin meetings of finance ministers in Brussels. Prior to his cabinet appointment, Djankov was chief economist of the finance and private sector vice presidency of the World Bank.

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