Kristina Sargent is an Assistant Professor of Economics at Middlebury College. Her research is focused on macroeconomic modeling, usually in search & matching and international migration. Her current work focuses on the relationships between migration and labor markets, women's labor force participation, the gig economy, and the impacts of trade and automation on labor markets.
Episode Description
With Brexit and the United Kingdom’s severing of many formal connections to the European Union have come economic shocks. Trade between the two has become more complicated. Travel has become more difficult. The labor market could also take a beating because of Brexit and that’s the focus of this episode of Stats and Stories with guest Kristina Sargent.
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Rosemary Pennington
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With Brexit and the United Kingdom, severing of many formal connections to the European Union have come economic shocks, trade between the two has become more complicated. Travel has become more difficult. The labor market could also take a beating because of Brexit. And that's the focus of this episode of Stats and Stories, where we explore the statistics behind the stories and the stories behind the statistics. I'm Rosemary Pennington. Stats and Stories is a production of Miami University's Department of Statistics and media journalism and film, as well as the American Statistical Association. Joining me is regular panelist John Bailer, emeritus professor of statistics at Miami University. Our guest today is Kristina Sargent. Sargent is an assistant professor of economics at Middlebury College. Her research is focused on macro economic modeling, usually in search and matching and international migration. She's currently thinking about the relationships between migration and labor markets, women's labor force participation, the gig economy and the impacts of trade and automation on labor markets. Sargent is the author of an article and economic modeling on the labor market impacts of Brexit. Kristina, thank you so much for joining us today.
Kristina Sargent
Thanks so much for having me. It's great to be here.
Rosemary Pennington
What got you interested in the impacts of Brexit on the labor market?
Kristina Sargent
So I get asked this question a lot. And there's sort of the deep rooted answer. And then the shallow answer, which is that I've been interested in the European Union, generally, since I was in undergrad college. And I took a class about the institutions of the European Union and how the different government entities at the supranational and national level worked. And so this is something I have spent a lot of time thinking about, generally. But then more immediately in the lead up to Brexit. I mean, basically, since David Cameron announced that he would hold to his campaign promise and hold a referendum, it became this big question of, you know, what would actually happen to the UK and the EU as a result of this. And it became very clear that we needed a structure to kind of organize the different arguments in different thoughts. And with my previous work that I've done about just migration in the EU, in general, this was a very clear extension of thinking I've been doing about that.
John Bailer
So, you know, I think of Brexit as this incredible, natural experiment, you know, that all of a sudden, there was this relationship that was disrupted. And you know, that there were a lot of things that preceded it, a lot of promises about what might happen, a lot of predictions about what might happen. And then there's this short term, what's being observed to happen. And then there's this projection of what you think might happen in the future. So it seems that you know, in some of your work, you're kind of laying a foundation to talk about ultimately the future of what could happen, given this type of this perturbation to a system. So could you just give us a little bit of a recap about what was anticipated as possibly occurring? You know, as a reason for this, and then what's been observed kind of short term? And then well, then maybe that's enough for us then to start with following up?
Kristina Sargent
Yeah, so you're right, that most of my work is thinking about this long run impact. And part of that is because the short run is really complicated, right? You have perturbations, just from votes and regular events happening in the world, you have the COVID pandemic, you have financial crises. And so if you're trying to think about the short run effects, there's so many competing variables and driving what actually moves people's decisions. And so, I mean, I guess it's a little bit of a cop out for me to say, Okay, let's ignore those short run things and think about what these long run implications might look like. After all the short run messiness subsides. And so what would happen in the lead up to the election or the referendum, as you had the different sides of the Brexit campaign and the remainers, making different arguments about how this might affect the UK specifically. The EU was fairly unified and said, you know, we don't want you to leave. But if that's your decision like that, It's your decision. And so the disagreement mostly happened within domestic British politics. And remainers, really, I think, you know, in retrospect made a soft case, where this basically said, you know, things aren't so bad the way it is in the EU, without doing a good job of selling all the benefits that they had, in fact, reach from the membership. And then you have the Pro Brexit campaign led by you, Kip and Nigel Farage, where they're, you know, making arguments that the UK is sending 1000s and 1000s of pounds to Brussels to the central organization, every year that we could, you know, instead spend on the NHS and improving our own infrastructure. And that just wasn't true. I mean, they were spending a lot into the budget, but it was nowhere near the order of the Brexit campaign.
Rosemary Pennington
So what is at stake when it comes to labor? So because a lot of the coverage post has been trade, like there's discussions around the difficulties in Northern Ireland, particularly, even John Oliver did a segment about that on Last Week Tonight. But I feel like I've seen less discussion about the issue around Labor and migration. Can you talk about why those two things are wrapped up in this conversation, and kind of how Brexit has impacted that?
Kristina Sargent
Yeah, so one of the most kind of key pillars of EU policy is these four freedoms. And one of those freedoms is the freedom of movement of labor. And so as a member of the European labor market, citizens of say, France, or Germany or Italy, can move to any other EU countries for work at any particular moment, without having to do any extra paperwork. Right. So effectively, it's very much like you and I move into a different state within the United States, you know, you have to update your tax records. But that's about it. And that's what the EU system internally looks like. But now, when you have the UK as what they call a third country, so a non EU country, now we have these applications, you have to have financial support, saying you can support yourself for X amount of time, you have to reapply for these permissions. And you are an international migrant. And so there are far more barriers for labor migration specifically, which is what I look at, then there used to be now there, of course, tourist visas and things like that, and that's still going to apply. But that's not what my primary focus has been my expertise.
John Bailer
So when you think about a labor market, you know, help us think through some of the features or characteristics that when you're starting to describe what happens to it, what are the things that you're going to look at?
Kristina Sargent
Right? So the things that I thought were really important to understand better, was the way that job finding and separation rates look. And so rosemary, you mentioned, I focus on search and matching models. And so this is really about the way that workers and firms meet in a labor market, and then how they separate relationships. And so we think about this happening in a frictional way where workers are applying for a certain amount of jobs. Some of those jobs are good matches, some of them aren't. And those features that characterize how easy those matches occur, we can think about those as being national level characteristics, domestic, very small focus, and then there's an international component. So that's where the visa frictions are going to come in, and impact the costs that workers face when they choose to move or not. And so that's really where Brexit is going to hit in the labor market, if you're making those markets more friction than they used to be. And if you think about that, from the perspective of an individual, these application fees are on the order of, you know, somewhere from either 100 pounds per year to 500 pounds per year, which doesn't feel big, but that also comes with a lot of paperwork, right? And so those are the explicit costs that workers are facing now that they did not before.
Rosemary Pennington
And this goes both ways, though, because if UK and EU citizens want to work in the EU, it's also like this. It's not just the labor moving into the UK, it's people from the UK who want to work in the European Union who are also facing these new roadblocks.
Kristina Sargent
Right, exactly. Yeah. So it is reciprocal, but not symmetric. So both the EU and the UK now have these barriers that didn't exist before, but the EU countries can choose how much to charge for the visas. And so those vary by country. The EU doesn't have any standard seen for this but yeah, it happens in both directions now. And if you looked when the actual Brexit agreement came into force. There were 1000s and 1000s of EU citizens in the UK and UK citizens in the EU, who suddenly faced a very different environment than they had before.
John Bailer
You know, part of what you're doing, it seems that in order to project into the future, you have some representation, you have a model, and some, you know, so these models will capture some of the things that you've described, like job finding rates, or, or the separation rates or what other key dimensions that might be part of this, this model that you're then projecting forward? I mean, you know, ultimately, I guess the proof will be when you look 10 years from now, maybe there's kind of this, this implicit validation that maybe the model projections can be considered. But one thing I was thinking about when you have these, I assume that when you build these kinds of models, we all recognize they're a representation, they're not truth, but they're a representation of a system that we believe captures key elements, you know, of a system. So you have these models about how rates, job finding, and separation rates play out, but I started thinking a little bit about kind of differences that, you know, what are sort of smoothed over in that, because, you know, it seems like a job finding rate for someone that's in a certain discipline, you know, like, say, data science, versus someone who is in, you know, a different discipline, you pick your favorite, so there's going to be different demands, and also, there's probably a little bit difference in terms of separation and job finding. That's a function of other features like, well, age of the worker, you know, so you have to make some, believe it or not, there is a question embedded somewhere in here. I mean, Rosemary's praying that there's a question here. So I guess what I'm asking you is, when you think about formulating a model like this, what are some of the considerations that you have to say, Well, I have to just make some, some general assumptions about how this is going to play out. And I view those as kind of necessary, but it's, you know, kind of all modeling is gonna have some limitations. So can you just just reflect a little bit on this incredibly rambling question? And go wherever you want? Is it a free will kind of thing?
Kristina Sargent
No, absolutely. I'm, I'm nodding along with you this whole time, because this is something I think about a lot all the time, in my own research, as well as when I teach, right i If I have to teach about monetary policy and the models that the central bank uses to set interest rates, these are all questions of what assumptions are you making? And how accurate or reflective of reality no, then? And the way I think about this a lot is, okay, what is the key thing that I'm trying to understand? Very specifically, right? And so for the case of Brexit, it's how do these changes in costs to migration impact the unemployment rates and wages of workers both in the UK and in the EU? And in particular, how are these effects different between migrant workers and native workers? So that's the thing that I really want to see in detail. And then everything else we want to make as simple as possible. And so that's where you take these big national level aggregates. And you say, Yes, you know, a data scientist is going to have a different job funding rate than, say, you know, a hairstylist, and there's going to face different barriers with licensing and accreditation, and all kinds of differences. However, a lot of these things are not as different at individual levels as you might think they would be. And so actually does a lot of work about this at different skill levels, in terms of labor markets. And it turns out if what you care about is the aggregate sort of national level of unemployment, for example, you don't need to know those super minute differences between the different people. And in fact, sometimes the data can mislead you, in terms of its detail. It causes you to assign causal relationships that are actually just coincidences in the way that people make decisions.
Rosemary Pennington
You're listening to Stats and Stories, and today we're talking about the economics of Brexit with Kristina Sargent. And Kristina, what brought you to our attention was this paper you produced for economic modeling, where you did sort of do some work trying to figure out like, what is the future of the labor market? Post Brexit? So could you talk a little bit? You sort of setup kind of what you guys were looking at? I think in this model, what did you find and sort of what are the expectations based on what you found in this modeling?
Kristina Sargent
Yes. So the short version is that Brexit is not going to be good for workers. In the UK or the EU going to be worse for workers in the UK than it is for the EU. And there are differences across different groups of people. So for example, people who never migrate, see a lot smaller change to their expected wage profile. But they are impacted in terms of their unemployment rates, because of the differences in the number of workers that they're in the labor market with.
John Bailer
Yeah, I thought that was interesting, as part of the analysis that you were doing that you were talking about various classes of workers, you know, I thought that was kind of the idea of worker character, the categorizations that you had ranging from, you know, this crossing of UK and EU versus stayers remaining migrant, returning migrant new by migrants. It seemed like it was a really important part of the nuance of this story, to identify kind of who's being affected and how, and so it sounds like what you know, the story is, is generally bad. From basically, on your predictions that there's down, it's just worse, it's bad for all but worse for some.
Kristina Sargent
Exactly, yeah. And I think the reason that those different categories of workers are important is because when you're thinking about the way that costs affect decisions, how long you move away from somewhere, and how many times you move, should affect your welfare, because the costs change. And so it was important to me to be able to keep track of the differences of those different groups of people and be able to say, okay, yeah, these people that don't migrate, they shouldn't see a big effect because of the cost changes, because they're not facing the costs directly, right. They're facing them only indirectly, because of other people's decisions. And then the other part of it, right, some of it is a bit mechanical, like you say, right, if you increase costs, you make it harder to migrate, things are going to be worse, because you're having to pay for something you didn't have to pay for, but I think one of the interesting things and the reason why it's important to model this in a long run census, because some of the impacts are not so obvious. And it's that trade off between thinking about the value of a move and a job, and the probability that you actually get that job. And so those things are balancing out because of the decisions not only of yourself, but also all of the other workers in the system that you're looking at.
John Bailer
So I'm curious if what's been the most surprising result is that there's something that you really didn't anticipate? I mean, you've studied a variety of different things. You've studied the labor market, you studied wage dispersion, long run employment means, you've had a number of kinds of related interrelated projects on this. Was there, was there something that was like, wow, I didn't expect that, that came out of this?
Kristina Sargent
Yeah, I think, in a lot of ways I run these models for various different versions of the world with different potential outcomes. And I think the biggest effect I see is how different the impacts are on workers in either country. And so you could imagine the levels would be different, right? Between say, it was an easy kind of comparison. It's like Luxembourg, right. And the UK, those are pretty different countries, they have big financial markets, but in other ways, they're very different. But actually, the degree of the changes in the impacts each of those places feels is bigger than I expected it to be. And who gets more helped or hurt, right? So oftentimes, you have more protective social welfare systems that actually make unemployment less painful for a worker in different places. And so they're sort of less harmed by these big fluctuations, whereas places that have fewer Supports for Workers end up having very erratic paths over time.
Rosemary Pennington
What story do you think journalists are missing when it comes to the economics of Brexit?
Kristina Sargent
I think it's very easy to lose sight of the fact that the nuances of who's affected and how are not easy to capture in a headline. And so, you brought up those different categories of workers and the difference between a new migrant versus a returning migrant versus a staying migrant, that is already too long for a headline. And so we get this distilled into native workers and migrants, and this us and them sort of trade off but actually, it's not an us and them it's a who's moving and who's not. And that's those of those groups.
Rosemary Pennington
As I was reading this, I lived in London, the fall of 2001 in a boarding house in like Finsbury Park and several of my house mates, some of them were from other parts of the EU and several of them were Brits and they would move across pretty regularly to go do jobs, they did construction over like in France and other places. And that was just sort of normal for them. And it was like, you know, where's Frank at? Oh, yeah, Frank's gone for the next couple of days, because he's working on some project, you know, in Normandy or something. And just like the reality of that lived experience feels like, it's going to be very much disrupted by Brexit. And I wonder, were there conversations leading up to the vote that talked about how this was going to disrupt the lives of people who are moving across these borders?
Kristina Sargent
I'm so glad you brought that up. Because there actually is a huge amount of what we would call circular migration is sort of seasonal or temporary back and forth. And I think there's a bit of a misunderstanding that there's this easy conception that there's a lot more migration within the United States than there is in the European Union. And as it turns out, that was true in the 80s. Right before you had open borders in the EU. But today, that's far less true than it used to be. And there are these enormous numbers, right, people just go for a few months or something. Now, a lot of those workers will be deterred by those music costs. And so people that would have had jobs before, are no longer going to find them, because they're not even going to look. And I think that change in behavior is going to be something that governments really need to think about when making policies like this. And this really wasn't talked about, right. The campaign I mentioned before, they did say okay, yeah, we're not going to have these other European migrants coming and competing for jobs. There's this really sort of common trope of a Polish plumber coming in. There are, you know, a fair number of Polish workers in the UK, but they're not the largest European migrant group, by any means. And so he's like, Oh, yes, we won't have this competition for plumbing jobs from the polls anymore. But also, they were filling jobs that weren't being filled. That's why they were moving. And now if the changes in costs deter that from happening, and what we're actually seeing already in the short run, is there a lot of open positions for workers of all skill levels, right, and all education levels, that would have easily been filled by European workers that are no longer happening. And I had some pushback from one of the referees on that paper saying, well, that's happening all over the world because of COVID. Right now. And so I actually have a figure in the appendix showing that, yes, there are these big vacancy increases, because of COVID, in 2020, happening all over the world. But you actually see this change, specifically happening in the UK in 2021, when the Brexit agreement actually comes into force. And so this is actually a second negative migration shock that the UK economy is facing, whereas all of the rest of the countries face the COVID shock.
John Bailer
I'm so glad you mentioned that, because I was immediately thinking, I wonder what the status is of labor shortages? I mean, certainly, you know, it's like you can drive down the street, it seems anywhere in the US right now and see positions available kind of postings that are out. But I was interested to hear that you're saying that, yeah, that COVID impact was witnessed worldwide. But you're saying there was a recovery for most, but that the UK persisted. And so you're saying that part of that is attributing it to kind of this Brexit change?
Kristina Sargent
Yeah, so it's not even just persistence. So I think I showed the UK and the US a European aggregate, maybe Germany and Australia, they all face the same, you know, surge and vacancies, decline and labor market participation, that looks very similar. Following that initial COVID shock, you have a beginning of a recovery everywhere, except for the UK. And then you have a second spike actually, in the UK in open vacancies, because of this change. That happens with the beginning of residential enforcement. I think that the other thing is, you know, the Brexit vote happened in 2006. But then it takes several years for negotiations for what the agreements are actually going to look like. And it doesn't actually take force until 2021. And so you mentioned the natural experiment. We have a perfect line there. 2021. And so then when you see those maps of the labor force participation and the vacancy rates, everybody else is sort of in the same trend line, and the UK has their own new spike then when those agreements come in, and so it's a lot of complicated things in the short run.
John Bailer
So I'm curious, have you seen coverage of this in the UK press or have you seen kind of follow up of some of your work about it seems like this would be of some really great interest to, you know, in a broader sense to this community?
Kristina Sargent
Yeah, I think as you lead in the beginning, it's not all that surprising. Limiting migration is going to hurt some people. And so I think that it's not particularly surprising, that this is what I'm finding. But I do think that one of the problems here is that the UK in addition to facing a COVID pandemic has also had some pretty dramatic domestic politics, right with Boris Johnson and several scandals, followed by Liz trusses, extremely short tenure. And this kind of big picture. The Brexit story is almost done in the domestic UK press, because they have these short run kind of really big immediate things in mind. And I think we're only Now getting back to something that feels a bit more stable. You know, Rishi Sunak, when he was announcing the new agreement on the Northern Irish border, was talking about how great this agreement was for everybody and how no one else in the world has the benefits that the people of Ireland have. And a lot of us that study this are sitting there saying everyone in the EU has these benefits. And you actually had them in the UK, too, until you decided to leave. So, but I think it's not an immediate thing right now. Right? I think people are really focused on inflation, and the cost of heating because of Putin's invasion of Ukraine. And I think it's kind of lost in front of mind.
Rosemary Pennington
Well, that's all the time we have for this episode of Stats and Stories. Kristina, thank you so much for joining us today. Stats and Stories is a partnership between Miami University’s Departments of Statistics, and Media, Journalism and Film, and the American Statistical Association. You can follow us on Twitter, Apple podcasts, or other places you can find podcasts. If you’d like to share your thoughts on the program send your email to statsandstories@miamioh.edu or check us out at statsandstories.net, and be sure to listen for future editions of Stats and Stories, where we discuss the statistics behind the stories and the stories behind the statistics.