Brexit will hit lower paid workers the most, report finds

Brexit will hit unskilled workers on lower wages harder than skilled workers on higher wages, an economic report for the Government has found.

The study on the economic impact of Brexit, carried out by economic consultants Copenhagen Economics, was released by the Government on Tuesday.

On wages, the report finds that in the worst case scenario – where the UK crashes out of the EU without a deal and trade arrangements are made under World Trade Organisation rules – real wages will be 8.7 per cent lower for unskilled workers than they would be if Brexit did not happen. The effect for high-skilled workers would be 6.5 per cent, the report says.

In the event of a softer Brexit, where the UK stays in the European Economic Area (similar to Norway), wages for high skilled workers would be 2.6 per cent lower, and 3.5 per cent lower for low skilled workers than they others would have been, the report finds.

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Policy

However, the report stresses than some of these effects could be mitigated by Government policy. The report also urges the Government to seek to influence the trade negotiations.

“The best possible trade negotiation outcome for Ireland would be an agreement that has an acceptable balance of rights and obligations for all parties and with the following main elements: no tariffs; large quotas for agricultural products; low border costs; landbridge transit; low regulatory divergence; and low barriers for service trade.

The report says that the Irish economy will continue to grow after Brexit, but will do so more slowly than would have otherwise been the case.

In the worst case scenario where WTO trade rules apply after Brexit, the report says that economic growth out to 2030 could average 1.7 per cent, compared to 2.2 per cent if there was no Brexit.

This adds up to a potential loss of 7 per cent of GDP – about €18 billion in cash terms – by 2030.

In the short term, a so-called soft Brexit, involving a transition period after the UK leaves the EU, would knock just 0.5 per cent off GDP by 2020. However, in a hard Brexit scenario the loss would be a much more significant 2.1 per cent.

The report says new barriers to trade after Brexit will hit employment and incomes and that Irish consumers will also face higher prices in a range of areas from pharmaceuticals to food.

Most of the economic impact will focus on a number of key sectors, notably food and agriculture where, in the hard Brexit scenario, output could be one fifth lower by 2030 than would be the case without Brexit.

Jobs

Even in a more benign scenario, where the UK remains in the European Economic Area, food output could be hit by 10 per cent, the report warns, though closer alignment of rules and regulations between the EU and UK after Brexit could limit the damage.

The electrical machinery sector could see an output drop of 8-10 per cent by 2030, and while the pharma sector would see a drop of just 1 per cent, its size compared to the overall economy means this would still be significant.

The report warns that jobs in rural Ireland will be particularly exposed, as this is where the agri-food sector and its spin-off benefits are concentrated.

The main impact in the food sector will be on processed foods, beef, sheep and other cattle meat and dairy products.

The output of processed foods is expected to be 10-21 per cent lower by 2030 due to Brexit, with a proportionate drop in employment.

This sector will suffer heavily if, after Brexit, rules diverge in areas such as goods safety, labelling and food inspection requirements. Tariffs on sales to the UK markets and customs delays would also lead to new costs.

The beef sector is predicted to face a similar drop of 11-23 per cent. It could lose 50 per cent or more of its exports to the UK, the report warns, while diary sales – particularly of cheese – would also be hit hard.

The report also warns of a hit to exports in the electrical machinery sector and disruption in sectors such as aviation and wholesale/retail.