Last Thursday’s Brexit vote left the UK, and the world, stunned.
The referendum gave a large part of the population, who are disenchanted with the EU, an opportunity to express their frustrations. And a tool to change the country they are living in.
One of the most important issues the Brexit vote has shown is how divided UK society is on the EU experiment. And that divide extends between generations and regions.
The younger generations — who supported staying — have never lived in a UK that was not part of the EU. Being part of the EU has meant growing up with freedom to travel, study and work anywhere. And now they face the possibility of restrictions on that front.
Yet older generations have identified freedom of movement with losing control of their borders. And they have seen immigration as a threat to their identity and culture.
But the biggest divide showed on the regional inequality. Looking at the voting map, there is a clear divide between north and south.
London — the richest part of the country — and Scotland both wanted to remain. While areas with high immigration and a large working class voted to leave.
The rejection of the EU has been brewing for quite some time in working classes. They have been living with low wages and low living standards for a while.
And they have blamed immigration — and the EU — for it.
One of the reasons for the discontent has been low wages. For unskilled workers, these have only been increasing at a rate of 2% a year for the last seven years.
You see, the UK’s wages are puzzling economists. Unemployment is at record lows — 5.1%. Yet salaries are not increasing.
So if almost everyone that needs a job has one, why aren’t wages going up? It should be hard for companies to find good workers. And companies should be feeling pressure to offer better salaries.
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United Kingdom Wages Under Pressure
There may be a few reasons for this.
First, the consumer price index is keeping wages low.
Second, there are a larger portion of part time workers unable to find full time work. And as part time and low paid workers are willing to do extra hours, there is no shortage of labour.
Third, there is a constant influx of workers from the EU coming into the UK for work. In 2015, this number reached record highs.
Another reason for the regional divide is that, while employment on higher-skilled occupations has been increasing, employment for lower skilled occupations has been decreasing.
And foreign nationals moving to the UK, except during 2008 and 2012, have taken a higher portion of lower skilled jobs than higher skilled.
Another matter that has increased the regional divide has been the shortage of housing. Construction has been lagging against demand in the UK. And as housing prices pushed up, they moved out of reach of people with lower income.
And there is also the issue of funding. Regional areas have seen a decrease in funding since 2010 on public services, such as the National Health Service.
So while the UK has opened borders and allowed higher immigration, it has not increased resources available for lower skilled workers in regional areas.
And even though immigrants are working, paying taxes and contributing to the overall economy, many British people see them as competition for their jobs and resources.
So they have blamed immigration, instead of questioning the government’s public policy.
Couple that with the mismanagement of the refugee crisis, and it is not surprising that lower skilled workers are disenchanted with the EU.
The dream of a united EU may have been good for higher skilled labourers, but it has alienated low skilled workers.
Last week’s vote has exposed a split society — an affluent London against an impoverished regional Britain.
So the question is, how do you bring a divided society together after the Brexit vote?
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PS: Selva recently joined the Port Phillip Publishing team as our macroeconomic analyst. She works closely with The Daily Reckoning editor Vern Gowdie on his advisory service, The Gowdie Letter.