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Can Danny Alexander's claim "3m jobs are at stake if we leave EU" be taken seriously?

6 min read

12 March 2015

Numerous politicians continue to warn the UK that 3m jobs are linked to our EU membership. should be publicly challenged over misuse of this assertion. A new report from the Institute of Economic Affairs, however, suggested that the claim should be publicly challenged.

In June 2014, chief secretary to the Treasury Danny Alexander said: “The Treasury estimate that 3.3m jobs in the UK may be related to exports to other EU countries. This figure is based on the assumption that the share of UK employment associated with UK exports to the EU is equal to the share of output that is exported to the EU, making allowance for the composition of the UK economy. It is not an estimate of the impact of the EU membership on employment.”

But Ryan Bourne, author of the EU Job Myths report, calls for a rational debate, acknowledging how the structure of the UK labour market is fluctuating constantly. Prior to the financial crisis, the UK saw on average 4m jobs created and 3.7m jobs lost every year.

Leaving the EU would see a multitude of new policy decisions which would affect trade flows and the composition of the workforce, from trade arrangements through to the regulatory policies adopted. 

“Whatever the policy climate, it can be said with certainty that 3-4m jobs are not at risk if the UK leaves the EU,” the report suggested. “There may well be net job creation or a range of other possible outcomes which should be debated reasonably.”

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Bourne suggested that there are five reasons why 3m jobs are not dependent on our membership of the EU:

1. Import substitution

The 3-4m number is calculated as the number of jobs linked to exports from the UK to customers and businesses in other EU countries. 

“Even in a hypothetical world where trade completely broke down between the UK and EU, there would still not be the loss of this many jobs, as ‘import substitution’ would partially offset the fall in exports and trade would develop with other parts of the world,” he said.

2. Trade is more important than political union

The worst case scenario would be a failure to negotiate a free trade deal in the result of Brexit. If this were the case, both parties would be bound by the World Trade Organisation’s “most favoured nation” tariffs paid by other developed countries, which “would prevent the imposition of punitive tariffs by the EU following the UK’s exit”.  Bourne explained that “job losses would not be significant.”

3. The UK labour market is incredibly dynamic

IPrior to the financial crisis, the UK saw on average 4m jobs created and 3.7m jobs lost each year. 

“The annual creation and destruction of jobs is almost exactly the same scale as the estimated 3-4m jobs that are associated with exports to the EU.”

4. A move away from a customs union could boost free trade

The UK’s trade patterns shifted significantly after joining the EU, focusing on intra-EU trade at the expense of the rest of the world. While not facing tariff barriers within the EU, the UK currently faces high external tariffs on importing goods from many other countries. 

“In the event of a Brexit, Britain would be likely to divert more trade outside the EU,” the report suggested. “The overall economic impact would thus depend on what new trade relationships could be negotiated.”

5. A changing policy framework

Ultimately, whether EU membership is a net positive or negative for jobs and prosperity in the UK depends on “what policies the UK pursues outside of the EU in relation to employment regulation, welfare and tax, the way the UK decides to use its saved contribution to the EU budget, and the extent of new trade deals adopted with third parties”. 

The report went on to say that “for a healthy labour market, liberal economic policies in each of these areas should be pursued”.

Bourne said: “3-4 jobs are not at risk in the event of a Brexit. It’s high time that politicians and commentators stopped scaremongering, and recognised that jobs are associated with trade and not the membership of a political union. The UK enjoys a dynamic labour market, and a range of outcomes would be possible as it adapts to new policies outside of the EU. The public deserve a rational and informed debate.”

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