By Michael Hall, June 2008
Skills shortages have been an ongoing concern in the engineering and manufacturing sector for a number of years. Employers have reported difficulties in finding appropriate workers at all levels, from the shop floor to the design room. Economic migration is one solution that has been explored.
Since the accession to the European Union of a group of former communist bloc nations in 2004, a significant number of foreign nationals have taken advantage of the UK government’s immigration policy and registered to work in the UK. Popular perceptions are of the Polish immigrant occupying a low-skilled, low-paid (by British standards) service or manufacturing process role; of foreign immigrants filling the jobs that British nationals will not accept.
But how does this view compare with the reality for manufacturers in the region? With the gradual strengthening of the accession state economies - and the associated opportunities - tempting some immigrants to return home, what might the economic impact be?
Immigration from the 2004 EU accession states (the “A8”) has proven to be a source of skilled employees for a number of businesses. The vast majority of these are Polish. Between May 2004, when the government’s Worker Registration Scheme for A8 immigrants was established, and December 2007, over 750,000 A8 nationals were approved to work in the UK. Of these, two thirds were from Poland1.
However, there are indications that the rate of immigration from A8 states may be slowing. The numbers of A8 nationals joining the Worker Registration Scheme (WRS) in 2007 was 214,510 – almost nine per cent lower than in 2006.
Considering overall applications to the WRS within the regions, a number of trends appear to be emerging. The numbers citing their employers’ locations as being in London has declined steadily since 2004, when just over 25,000 applied. The combined total for 2007 was 20,850. Numbers applying to work in the South East have generally fluctuated between 11,000 and 14,000 per year.
The wider impact on manufacturing may be more difficult to anticipate. Figures from the UK Border Agency show that, since July 2004, 27 per cent of A8 immigrants have taken process operative roles - the most common occupational class – followed by warehouse operatives (8 per cent) and packers (6 per cent).
Direct employment in manufacturing businesses accounts for only 7 per cent of A8 registered workers since 2004. The majority (up to 39 per cent) have been employed by employment agencies, and may consequently fill a variety of roles within the economy – including production roles.
Due to the numbers of immigrants that are likely providing contract labour via agencies, the biggest impact of a decline in A8 immigration may be felt amongst those businesses and business activities that traditionally rely on agency workers. Research by the TUC2 found that, in 2006, some 45,000 agency workers were working in the manufacturing sector. Agency workers were found to be most likely to carry out administrative and secretarial (27 per cent) or elementary (23 per cent) occupations across the economy, although the total number of agency workers in the labour force was small (1.1 per cent of all workers). Research by EEF South suggests that manufacturers are using temp-to-perm appointments in an effort to alleviate long-standing recruitment difficulties. EEF also notes that the use of agency workers by manufacturers can be important in responding to fluctuations in demand.
There are signs that UK manufacturers may not be able to rely on migrant workers as a long-term source of skills. The developing nature of manufacturing overseas, through an increased focus on innovation and quality, could - as in the UK - change the pressures on skills supply by shifting the focus to higher level skills. Opportunities for skilled people in their home markets may increase as a result - China, for example, is forecast to require an extra seventy thousand skilled business leaders by 2017.
Skills shortages are already being reported in developing markets. Research by Grant Thornton3 has revealed that half of businesses in Russia and China regard skills shortages as a current business constraint. The availability of skilled workers is also the second biggest concern for Polish employers, a situation that could impact on UK employers in the medium term.
Furthermore, growth in manufacturing output in developing economies will most likely increase demand for skilled people in these markets. This may consequently create improved job and reward prospects and thus limit the attractiveness of moving abroad.
Would-be economic migrants themselves may also have a significant say in labour market dynamics. UK Border Agency statistics reveal that, for the calendar year 2007, 59 per cent of WRS applicants intended to stay less than three months, with only 12 per cent intending to stay for a year or more. However, migrants’ circumstances are prone to change after arrival, which would impact on long-term intentions. Whether migrants view working in the UK as a long-term prospect or a short-term measure remains to be seen.
The overall impact on manufacturing businesses in the South East may also be difficult to judge. Since the WRS was established, fewer A8 immigrants have applied to work in the South East than in any other region of England. Indeed, more have made their initial applications in Scotland than in the South East.
Reasons for this could include the relatively high cost of living and a relative lack of low-skilled jobs compared to other regions. Issues such as English language skills may play a part in the types of role that immigrants are willing and able to accept. There have also been suggestions that A8 immigrants have been accepting work at a lower skill level than their qualifications and abilities would normally make them eligible for, simply to gain access to the UK labour market.
The South East is currently the largest region for manufacturing by employment and home to a significant number of high technology, advanced engineering businesses. Given that A8 immigrants are taking up lower-skilled jobs in greater numbers than higher-skilled roles, the overall impact of immigration on the economic performance of the South East’s manufacturers may not be as significant as in other regions. More detailed investigations will be required in order to establish the true extent of A8 immigration in the region’s manufacturing sector.
However, research by EEF South suggests that up to 60 per cent of manufacturers across southern England have, at one time or another, recruited staff from the new EU accession states. If this trend continues, and A8 immigration continues to fall, this could present issues for the South East’s manufacturers.
Manufacturers in the region have frequently highlighted the economic impact that skills shortages can have. Access to people with the right skills at the right time is crucial in order to foster innovation, raise productivity and maintain long-term competitiveness.
However, reliance on immigration is not a long-term solution. Research by EEF South4 has revealed that employers recognise the potential value of apprenticeship schemes, and the efforts that further education institutions are making to improve workforce skills.
Yet, at the same time, recruitment difficulties continue and associated costs increase. Overcoming these issues in a sustainable fashion will clearly require a more long-term approach than economic migration.
Michael Hall is Senior Information and Research Officer at EEF South.
1 UK Border Agency (2008). Accession Monitoring Report May 2004 - December 2007.
2 TUC (2007). Agency Workers: Counting the Cost of Flexibility.
3 Grant Thornton (2008). International Business Report 2007.
4 EEF South (2008). Meeting the Challenges.