How the EU affects the UK economy's prospects for long term growth.

In an economy, there are four factors of production : Land, Labour, Capital, and Enterprise/Entrepreneurship . Joining the European Union allows greater connectivity between the UK and the other member nations, meaning that the UK benefits from more free trade and freer movement of goods, services, and people.

These reduced trade restrictions will affect the four factors of production.  The UK’s membership of the EU means people are more able both to immigrate to the UK and emigrate to other EU countries. The UK has several advantages over many other countries in the European Union which make it favourable for immigration, namely free health care and an expansive benefits system. As such, the UK joining the EU will result in a greater net immigration to the UK, due to the increased ease of immigration and the greater incentives to immigrate to Britain in comparison to other EU countries. This will result in a greater amount of people in the UK and hence more labour. This increased competition for jobs will result in a labour supply/demand disequilibrium, resulting in low prices and hence higher demand for labour, increasing the inelasticity of the Aggregate Supply (AS) curve and increasing the output of the UK.

This increased quantity and decreased cost of labour will have knock-on effects on Entrepreneurship. Entrepreneurs combine the other three factors of production- Land, Labour, and Capital. A decreased cost and increased quantity of labour means that entrepreneurs can utilise more efficient workers for lower prices due to the increased competition from the aforementioned labour Supply/Demand disequilibrium. This increased efficiency means that entrepreneurs can create products and services cheaply and hence can make more potential profits, increasing the incentive for entrepreneurship, which should in turn mean that there are more entrepreneurs and new businesses, again an increase in a factor of production available to UK AS caused by the UK entering the EU.

An increase in Entrepreneurship of course means more businesses, which need more capital to expand their Production Possibility Frontier (PPF). As such, demand for Capital will increase,  and supply of Capital should hence increase to meet this greater demand. Companies supplying this capital will of course also benefit from the increased quantity and cost efficiency of labour gained from the UK’s entry to the European Union and hence should have enough Factors of Production for supply to meet the increased demand. Therefore, the UK joining the European Union should again increase UK aggregate supply due to an increase in Capital, one of the four Factors of Production.

The final factor of production, Land, will not be affected greatly by the UK entering the EU, as a country’s natural resources will remain the same unless depleted, e.g oil being used up. However, land can be used more efficiently by the usage of more efficient machinery which can be imported into the UK more easily due to the reduced trade restrictions, and hence land, as a factor of production, may be increased slightly.

To conclude, the UK joining the EU will mean that the UK can exchange greater amounts of labour and goods with other EU member states, leading to a greater amount of Aggregate Supply owing to the increase in each of the four factors of production : Land, Labour, Capital, and Entrepreneurs. This increase is caused by the greater quantity of labour, which in turn reduces labour prices, increasing incentive for entrepreneurs and increases demand for capital. The reductions in trade restrictions also mean that improved technology can be imported to the UK with more ease, hence meaning that land can be used more efficiently and hence all factors of production are raised following the UKs merger with the EU, as is overall Aggregate Supply.