The Real effects of Brexit on labor demand: Evidence from firm-level data

Using the distance to the Irish border of UK firms that have not changed their location since the 2016 Referendum to isolate the effects of Brexit at the firm level, we find that Brexit implementation in 2020 caused exposed firms to cut their workforce by up to 15.7% on average relative to non-exposed firms. These exposed firms are also more likely to have lower growth expectations and more likely to increase their research and development (R&D) expenditure. In addition, having ex-ante trade exposure, either with or outside the EU, can help alleviate such negative effects of Brexit. Such results highlight the role of trade exposure and the expectation channel, and support the hypothesis that firms prioritize innovations in response to Brexit.