UK Post Brexit Can Fix Labor Market, Attract More Foreign Investors

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UK post Brexit can fix Labor Market, Attract more Foreign Investors: Financial Theorist Pete Kyle

SMITH BRAIN TRUST — June 24, 2016 — Even though financial markets have “kind of shuttered from Britain voting to exit the European Union, it’s not clear a huge amount of economic dislocation will result,” says finance professor Albert “Pete” Kyle at the University of Maryland’s Robert H. Smith School of Business.

“A weaker pound and weaker euro would make exports more competitive and make housing in the UK cheaper, and that would attract – not deter – foreign investors,” he says. “And the lower interest rates we’ve been having, with bond prices rising, will tend to stimulate growth.”

Brexit – No Punishment from EU

Given the political environment on the continent, it’s unlikely the EU will move to punish the UK, Kyle says. “It would make the EU look like a prison – with Germany Chancellor Angela Merkel the guard and barbed wire surrounding the remaining countries.”

“This image if seared in European minds could accelerate pro-exit movements in other EU countries,” he adds. “The EU should feel compelled to pursue a strategy of accommodation — through such areas as labor movement, passport controls and visas.”

Labor Market Opportunity

While the EU would be wise to pursue a strategy of accommodation – and depending on its negotiations with the UK, “Britain eventually could make it harder for people entering the UK to get work permits,” Kyle says. To best capitalize in this area, “the UK should accommodate work permits for people coming in to the country to work in heavier-taxed, high-end jobs, while restricting the number of work permits for low-wage jobs.” This, he says, is “because there are plenty of depressed parts of the UK where there’s slack in the labor market – so there’s a need to create a mechanism to get people (already there) to fill existing openings.”

The source for this piece, University of Maryland finance professor Albert “Pete” Kyle, is known for creating the “Kyle Model,” which provides a foundation for the modern theory of market microstructure.

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