Contractors' Questions: Will the Swiss vote to limit migrants impact me?

Contractor’s Question: What are the potential impacts on growth and hiring from Switzerland voting in favour of quotas for EU migrants, as far as British workers seeking IT contracts in and around Berne are concerned?

Expert’s Answer: The short-term effects on growth are probably limited, but the medium- and longer-term growth potential of Switzerland could be seriously affected. In the transition period alone, as many as 80,000 fewer jobs will be created within the three-year period.

That said, precise forecasts of the consequences of this vote are difficult to make, because there is no clear precedent to build on.

What is clear, however, is that the acceptance of the initiative has increased economic uncertainty in Switzerland with immediate effect. In our view, it is almost without doubt that Swiss as well as foreign companies that are considering (additional) investments in Switzerland will tend to at least delay decisions both on investments and additional hiring.

But we regard it as quite unlikely that economic activity will decline immediately in response to this vote, given the generally strong momentum in the Swiss economy and the pick-up in activity among our main EU trading partners.

However, we believe that risks to our growth forecasts are to the downside, probably as of late 2014 and in 2015 (our current growth forecast is for 2 per cent in 2014 and 1.8 per cent in 2015). Based on the assumption of moderately lower investment spending and lower hiring, we estimate the decline in economic output over the three-year transition period before the new quota system kicks in to amount to around CHF 1.2 bn – or 0.3 percent of gross domestic product relative to our current forecasts.   

80,000 fewer jobs

Companies facing greater medium and longer-term uncertainties are likely to exercise greater restraint in hiring staff, both foreign and Swiss. The effects on the labour market will therefore be greater than on economic output itself. Employment growth could be virtually halved in the transition period alone, in our view.

We predict that as many as 80,000 fewer jobs will be created within the three-year period. The slowdown in employment growth will therefore be stronger than the slowdown in migration – we expect net immigration to fall by 50,000 people. The effect on demand for Swiss workers will thus be negative as well, in our view. 

While optimists might argue that companies will invest more than usual in automation as a result of the reduced supply of "cheap" labour, we believe that this effect will be very limited, if not absent, given high investment costs and lowered growth expectations of companies. The more likely – and much more worrying – effect will be a further increase in the trend toward the outsourcing of labour-intensive production outside Switzerland.

Beyond this, capital intensive high productivity and high value-added industries are also likely to rethink their strategies. The difficulty of finding qualified staff will be increased by the quota system and exacerbated by the preferential treatment to be given to Swiss applicants over foreigners.

The expert’s answer is based on comments from the economic research team at Credit Suisse.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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