One of the things about Brexit that has worried me right from the start is the sheer ignorance of those involved on the leave side and their self deception. Sometimes it's hard to know if the men (it's usually men isn't it?) are deliberately avoiding the facts or simply trying to engage in a gigantic bluff. If it is bluff I am not even sure who the target is. David Davis has been pumping out optimistic nonsense for well over three years (remember the economic benefits of Brexit that we would see by the end of 2018?) and has added to his canon with another article in The Telegraph HERE.
The article is titled: The risks of a no-deal Brexit are smaller than the potential gains
He argues that a no deal Brexit is nothing for us to worry about just a bit of 'economic turbulence' on our side of The Channel but very bad news indeed for the EU. Now this goes against everything that I've read and understood and even against common sense. They're seven times our size for goodness sake.
Look along the x axis and you can see it appears GBR loses only about 12,000 indirect jobs. But the only direct job losses covered by the graph are in the EU27, NOT THE UK OR ANY OTHER NON-EU COUNTRY. The report's authors don't consider ANY direct job losses at all in the UK.
Davis assumes this is the total number of jobs lost in the UK through a no deal Brexit. But it isn't.
The Halle report is about exports from the EU27 to the UK. They distinguish between the m = 27 countries which remain in the EU, the UK (country m + 1) and non-EU countries (including rest of the world).
What Davis' article is asking us to believe is that no UK company directly exports any finished goods or services or agricultural products at all to the EU.
Unfortunately for him, this time he produces what I suppose he would call affirmation of his argument in the way of a report by the 'respected German Halle Institute'. It ably demonstrates how right Oscar Wilde was when he said if you're going to produce evidence in support of a lie you might as well tell the truth in the first place.
The report is the sole basis for his entire argument which he publishes in a national newspaper BUT IT IS TOTALLY AND MASSIVELY WRONG. He has misunderstood the figures.
Davis says:
"A study last year by the respected German Halle Institute showed 12,000 jobs at risk in the UK from a 'no deal' Brexit. The equivalent figure for the EU27 is an astonishing 422,000 jobs, including 100,000 German and 50,000 French jobs.
"So we face a small risk with significant upside opportunities: Europe faces terrible risk and no upside. You can never reliably predict an idiosyncratic institution like EU Commission, but my hunch is that very soon after a no deal departure, they will be back at the negotiating table. And looking for a deal".
In a nutshell, he is saying job losses in Britain from a no deal Brexit would be 2.84% (about one thirty fifth) of the job losses in the EU, and easily replaced by what he calls the 'upside opportunities'. It would indeed be 'astonishing' - if it was true, but it isn't.
When it's possible I try to check these things and the report is certainly from a respected source and the numbers are roughly what he says but the report is from February 2019 not last year. The 21 page document is called: Potential International Employment Effects of a Hard Brexit.
When it's possible I try to check these things and the report is certainly from a respected source and the numbers are roughly what he says but the report is from February 2019 not last year. The 21 page document is called: Potential International Employment Effects of a Hard Brexit.
Halle assume a 25% drop in imports caused by tariffs and non-tariff barriers, a figure which is similar to that used by other forecasters. This is a sizeable drop.
The abstract says:
We use the World Input Output Database (WIOD) to estimate the potential employment effects of a hard Brexit in 43 countries. In line with other studies we assume that imports from the European Union (EU) to the UK will decline by 25% after a hard Brexit. The absolute effects are largest in big EU countries which have close trade relationships with the UK like Germany and France. However, there are also large countries outside the EU which are heavily affected via global value chains like China, for example. The relative effects (in percent of total employment) are largest in Malta and Ireland. UK employment will also be affected via intermediate input production. Within Germany, the motor vehicle industry and in particular the “Autostadt” Wolfsburg are most affected.
The conclusions (page 11) in section 4 of the report then says:
If final import demand from the UK declines by 25% as assumed for the short-run by Hantzsche et al. (2018) then in total about 612,000 employed persons are affected in 43 countries (without rest of the world) of which only 179,000 persons in firms within the European Union that directly export final goods to the UK. About 433,000 persons will be affected by second-round effects that hit firms delivering intermediate inputs.
So, 612,000 employees are affected in 43 countries (59,000 in China) and 433,000 indirectly in the EU and elsewhere. The report doesn't seem to show the 422,000 figure that Davis quotes but if I total up the approximate indirect job losses in non-EU countries from the graph, I can see it amounts to around 180,000 of the 433,000. This leaves 253,000 indirect jobs lost, added to the 179,000 direct job losses and we're at 432,000 total job losses in the EU alone which is near enough I think.
Look along the x axis and you can see it appears GBR loses only about 12,000 indirect jobs. But the only direct job losses covered by the graph are in the EU27, NOT THE UK OR ANY OTHER NON-EU COUNTRY. The report's authors don't consider ANY direct job losses at all in the UK.
Davis assumes this is the total number of jobs lost in the UK through a no deal Brexit. But it isn't.
The Halle report is about exports from the EU27 to the UK. They distinguish between the m = 27 countries which remain in the EU, the UK (country m + 1) and non-EU countries (including rest of the world).
At the foot of page 4:
"Note that the UK itself is also affected due to intermediate inputs exported by UK firms to non-UK firms which deliver to firms exporting from the remaining EU to the UK directly or indirectly via global value chains".
In other words the 12,000 jobs lost in the UK are only those in companies supplying intermediate inputs (i.e. parts for car engines for example) which then go to the EU27 and are then re-exported as finished goods to the UK.
So they don't include any UK direct job losses at all - only direct job losses in the EU27 and indirect job losses in the EU27 supply chains in the EU and the rest of the world (including the UK).
What Davis' article is asking us to believe is that no UK company directly exports any finished goods or services or agricultural products at all to the EU.
Germany will be impacted severely with their car industry losing 15,000 jobs (0.9% of those employed in the industry). The worst hit area is in Wolfsburg (VW headquarters) which will suffer 500 job losses out of 127,000 employed in the area. I suspect there will be similar numbers here in the UK in Sunderland and the West Midlands.
So, what should the real figure be? Let me say I am not an economist, but if I was David Davis I would have asked myself before writing an article in a national newspaper if UK job losses would indeed be less than 3% of those suffered by the EU in a no deal Brexit. Does that seem reasonable? No, of course it doesn't but the old fool doesn't even think about it. This is the self deception of Brexiteers, the filtering out of reality.
We exported £289 billion to the EU according to a parliamentary briefing (HERE) or about 83% of their exports to us (£345 billion). If I make an assumption (probably heroic but not orders of magnitude wrong) that the mix of products and industries on both sides is more or less the same and we also sourced roughly the same percentage of intermediate goods from the rest of the world, using the same Halle model and a drop of 25%, I would expect our job losses to be about 360,000. But bear in mind our productivity (unit output per unit input) is about 30% lower than the EU, so our job losses may be even higher.
Also, The Halle institute is talking about 25% as being the 'short-run' (i.e. immediate) drop in exports. Others (see paragraph 2.2 on page 3) have estimated the short-run drop at 34% and in the long term 56%. So, these numbers could be quite conservative and the real impacts much worse.
The 12,000 job losses Davis cites is a hopeless underestimate and completely wrong.
All of this puts me in mind of Lord Digby Jones who told the BBC in June 2016, just after the referendum, "There's not going to be any economic pain. If there are job losses, they will be very few".
All of this puts me in mind of Lord Digby Jones who told the BBC in June 2016, just after the referendum, "There's not going to be any economic pain. If there are job losses, they will be very few".
The knew nothing then and have learned nothing since.
And no, the EU will not be rushing back to the negotiating table after a no deal Brexit.
Note: This post has been rewritten to make the origin of the numbers clearer.
And no, the EU will not be rushing back to the negotiating table after a no deal Brexit.
Note: This post has been rewritten to make the origin of the numbers clearer.
