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Tuesday, January 21, 2020

‘Low-skill immigrants, whom everyone hates, don’t depress wages’: Abhijit Banerjee

"There are lots of instances where large numbers of low-skill people suddenly showed up in some labour market and then what we can do is look at what happens to the wages of local low-skill people, people who used to be there before them," says Abhijit Banerjee

By: Express News Service | Mumbai | Published: January 14, 2020 5:00:16 am
Express Adda, Abhijit Banerjee, Esther Duflo, Nobel laureate Abhijit Banerjee, Nobel laureate Esther Duflo, Abhijit Banerjee Express Adda, Esther Duflo Express Adda, India news, Indian Express Nobel laureates and authors of Good Economics for Hard Times Abhijit Banerjee and Esther Duflo with Anant Goenka, Executive Director, The Indian Express Group, and Seema Chishti, Deputy Editor, The Indian Express, at the Express Adda in Mumbai

At the Express Adda in Mumbai last week, Nobel laureates Abhijit Banerjee and Esther Duflo spoke about consumption spending coming down in India, why cutting corporate tax won’t save the economy and how the JNU violence is a real worry for the future sense of politics

On income inequality and tackling poverty

Esther Duflo: The issue has probably been there from the beginning and it will probably be with us forever.

The fact that we keep talking about this issue shouldn’t mask the fact that there has actually been tons of progress, but there could be a ton more progress and as long as there could be a ton more progress then the work is cut out for us.

Abhijit Banerjee: I think it has become more of an issue today than it was 30-40 years ago and I think it’s a consequence of partly the ability of some individuals who happened to hit the right product for the right moment to have enormous scale.

On what India has done right to alleviate poverty

Duflo: Over the last two decades, the number of people who live in poverty in India has plummeted, so that’s a big success and there has been an improvement in all sorts of dimensions of the quality of life of the poor. The nutrition standards that were not improving for a very long time, despite improvement in income, finally were starting, until quite recently, to get better. The recent data is a bit worrisome. Pretty much every single child goes to school for some number of years. There has been decline in child and maternal mortality even in the poorest places in the country. But it’s a frustratingly long process.

On discussing issues like poverty in the Nineties

Banerjee: In the Nineties, it was very hard to get people to think beyond macro. They sort of said once we get the interest rates right, we are done. It was a bit frustrating. It was more benign neglect than any hostility. It was interesting to see how that eventually has now pervaded all branches of economics.

On what got the world talking about inequality

Duflo: I think one is the explosion of inequality… they could eventually realise that something was happening. Even in a country like the US, where there is a strong belief in the American dream, people are still underestimating the amount at which inequality has increased but also social mobility has decreased. Take a child whose parents are in the bottom quartile of the distribution of income, what are the chances that the child will reach the top quartile?

On how low-skill immigrants don’t depress wages

Banerjee: There are lots of instances where large numbers of low-skill people suddenly showed up in some labour market and then what we can do is look at what happens to the wages of local low-skill people, people who used to be there before them. And the overwhelming evidence is that wages of low-skill people don’t go down when other low-skill people show up. And yet, most of the world doesn’t believe that… When new workers show up, the demand curve also shifts because the workers don’t live on air. They also buy things and that creates demand and they are also often entrepreneurial and they create jobs. It’s a triumph of bad economics that no one wants to believe that large number of low-skill immigrants are not depressing wages. Interestingly, high-skilled immigrants, who are welcome in most countries, do depress wages. Low-skill immigrants, the people whom everyone hates, are the people who don’t do anything particularly damaging. In fact, they seem to add to the GDP. That this concept (that low-skill immigrants depress wages) is so appealing is the failure of our profession.

Express Adda, Abhijit Banerjee, Esther Duflo, Nobel laureate Abhijit Banerjee, Nobel laureate Esther Duflo, Abhijit Banerjee Express Adda, Esther Duflo Express Adda, India news, Indian Express George Varghese, Chief Executive Officer, The Indian Express Group, presents Abhijit Banerjee and Esther Duflo a portrait of them done by Suvajit Dey, Illustrator, The Indian Express.

On immigration in India

Banerjee: To be honest, if I go by the evidence from other places, there is no evidence that low skill migration from, for example, Bangladesh, depresses wages. There are important caveats there. One of them is that if you are from an extremely land scarce economy, if you think of parts of Assam, it may well be that large amounts of immigration has negative effects. It’s important that we recognise there is no evidence that overall low-skill immigration is bad for the economy. Low- skill immigrants tend to take up jobs that nobody else wants in those economies, and therefore create more opportunities for everybody else.

On why good politics need not always be very popular

Banerjee: I certainly don’t want to say that people are irrational but I do think that one of the things that is critical is that the level of trust of experts and of the elites in general is at a historical low in India as well. The number of rants I read against me, the rants are partly about how as a member of a foreign elite I am entirely out of touch with reality.

On polarisation and fitting facts to suit ideology

Duflo: In the UK, on topics such as Brexit, economists are screaming themselves hoarse but nobody is listening and that is really unfortunate because we don’t have the answer to everything but we know a few things looking at data. Why are economists shy and not speaking in public? I think it’s because we don’t have enough confidence in the ability of people to listen to us and to listen to the full argument. And there is a tendency that if we say something a little bit complicated that takes more than two sentences to explain, one is going to be confused and I think that is totally untrue.

On the one thing the Finance Minister shouldn’t do

Banerjee: The one thing I would’ve told her not to do was to cut corporate taxes. I don’t think that’s what’s going to save the Indian economy right now. I think the corporate sector is sitting on a bunch of cash and not using it for a very good reason, that there is no demand in the economy and you don’t use your money when there is no demand in the economy. So I think the critical problem in the economy is demand. And you definitely want to simulate demand and I’d say right now forget about the budget deficits and the deficit target. We should even forget about inflation targeting. Let the economy rip a bit. I think we are really, extremely close to the point where we could be tipping into a major recession. So I do think that we want to be open-handed right now and I don’t think it’s that hard for the government to be open-handed. We’re still a pretty closed economy.

Express Adda, Abhijit Banerjee, Esther Duflo, Nobel laureate Abhijit Banerjee, Nobel laureate Esther Duflo, Abhijit Banerjee Express Adda, Esther Duflo Express Adda, India news, Indian Express The audience at Express Adda

On why consumption spending is coming down

Banerjee: The real estate sector played an incredibly important role in connecting rural India with urban India. I think one clear marker of what has happened in India is that real estate has slowed and when real estate slows, those jobs go away. These young men who were working in real estate from all over India are now going back and sitting in their village and wondering when this will revive. The average consumption spending for the first time in known history, recent history, has gone down.

On the attack on students in JNU and its implications

Banerjee: To reminisce a bit, I went to Tihar jail in 1983 because JNU was seen as being too uppity by Mrs (Indira) Gandhi. So this is a long tradition of JNU being the enemy. Actually Nirmala Sitharaman said it, what is remarkable about JNU is that it was a safe place for dissent. It’s extremely vibrant but vibrant with a lot of diversity. JNU is always characterised as being, you know, a sort of a leftist hangout. But in fact Nirmala Sitharaman was there, (S) Jaishankar was there, more or less my contemporaries, both of them; and Sitaram Yechury was there and Prakash Karat was there. There was really a wide range of views and we got along. Coming from middle-class Bengal, I really didn’t know RSS in any form and in JNU you meet them. What is really valuable in an institution like JNU is the sense that you can be both — somebody who has very strong views and somebody who can deal with it intellectually and deal with it without becoming violent. I think the recourse to violence is therefore extremely frightening for the future sense of politics because I think it does create this worry that the youth of today will see that their way to resolve conflict is by beating other people up.

On PM Modi’s economics

Banerjee: I think Modi, clearly in terms of his economics right now, seems to be about left of centre. He seems to be very much a welfarist. So just on economic ideology, maybe, slightly to my right but not very far. I would say I’m surprised by how much of a welfarist the government has been, starting with a lot of pro-business rhetoric, but I think in the end his emotional heart has been in things like Swach Bharat and Ayushman Bharat and a bunch of transfer schemes.

Question and answers:

Vikram Mehta
Executive Chairman, Brookings India

Is there a way by which one could study the economic consequences of religion and perhaps design a model to make it an economically productive activity?

Duflo: Our colleague Dean Karlan did a study where they randomised if there was a religious component to it or not. Unfortunately, I don’t know the result of the study. Where we can link this to something which is more pertinent to today’s world is how people become more inclusive or divisive. Economists tend to think that all people come with their set of beliefs and preferences, and as economists we shouldn’t really be in the business of trying to understand that, we should take that as given, and try to understand what implications it has. In fact, people are not defined by a set of strict preferences and what people want to believe about others and themselves is the product of the environment around them — the virtual social networks and the movements of fads and fashions. We should get to know, and there are already many studies trying to do that, how do different social environments encourage divisiveness vs inclusiveness. We have students who did a project in Uttar Pradesh about relationships between castes.

Express Adda, Abhijit Banerjee, Esther Duflo, Nobel laureate Abhijit Banerjee, Nobel laureate Esther Duflo, Abhijit Banerjee Express Adda, Esther Duflo Express Adda, India news, Indian Express Jasneet Bachal, Chief Marketing Officer, Yes Bank, and (right) Anita Pai, Chief Operating Officer, Yes Bank

Parvez Damania
Founder, Damania Airways

Do you think the present political situation in the country and the government policies could affect foreign investment into the country?

Banerjee: I talked to a bunch of people in the business community and some of them said that the government has done a lot to make it easier for foreign investment to come in, and others say actually nothing much has changed, so I can’t judge.

Anita Pai
Chief Operating Officer, Yes Bank

One of the conversations in India is about reaching a five trillion dollar economy size, so what are your thoughts about moving to this milestone by being a bit more inclusive?

BANERJEE: We should be less obsessed with growth as the one mark of success. This five trillion size can’t define our success in terms of growth. Growth is not automatically welfare, and a lot of countries have confused the two. As a result, they have generated huge increases in inequality without much increase in welfare, with the US being perhaps the most dramatic case. I think this is related to a sense of general failure that we are no richer than our fathers. This has caused death from despair, they are dying from predictable causes — opioid, alcohol and suicide. The idea that US has grown so well, therefore how could they be depressed, makes no sense. They are depressed because the nature of the success has been tailored in a particular way. So I do think that it is important to not think of growth as being a single point objective.

Radhika Rajan
Executive Vice President, DSP Investments

Many think that economists don’t have skin in the game. So how do you suggest a perception be created where economists are seen as having skin in the game, and are therefore listened to more carefully?

Banerjee: At some level, we do have skin in the game. I think those of us who have too much skin in the game, academics like us, we’re are the exception, in the sense that we stick our necks out on various things, while most economics avoid it. When we give talks, we list some of the things we got wrong in our first book that came out in 2011. My sense is that we are too unwilling to admit that we get wrong, and therefore we don’t actually say much. In some ways, we have too much skin in the game, and we wear our reputation and we really care about it, so one way to avoid it is by being silent.

Mehul Zatakia
Wealth Manager, Sykes and Ray Equities (I) Ltd

In China, when the population was brought down, we found that GDP actually accelerated. There is a feeling that there are too many people in India at present, so would such a population policy help?

Duflo: First of all, growth is slowing in China now, in part because of the impact that there are not many people around to produce the growth anymore. Another reason why growth is slowing in China is because it is the mechanical effect of the dependency ratio — the number of older people to younger people is becoming more adverse. So the idea that engineering infertility is a way of engineering growth comes at a minimum. The second thing is that India has undergone tremendous amount of fertility transition as it is, and not as a result of trying to make it happen. It is not under Mrs (Indira) Gandhi that it really happened. It has happened subsequently. In states like Tamil Nadu and Kerala, you are experiencing a huge decline in population because of which they are starting to experience first world problems associated with low fertility. It is very important for people to have the ability and capacity to make fertility choices.

Sushil Jivrajka
Chairman, Artheon Group

There is reverse migration due to welfare schemes like MGNREGA and improvement in infrastructure and communication facilities in villages. Many SME sector companies are facing shortage of migrant labour from Bihar and UP.

Duflo: There is something about the low level of migration in India, as the low level of migration in the US or in Indonesia or anywhere else, which is very striking. Many people are not willing to move from their villages, even for much higher wages, as long as they can survive where they are. There is a study done in Bangladesh, looking at the Monga season, where people are literally starving, and even then many of them do not move and find jobs. This reflects the huge uncertainty that is there in going away. So we can think about it in terms of policies, not only that help the villages, but also policies that make these moves easier. There are many cities where there are potentially a lot of jobs but there is no place for people to even live. One way in which you help people adjusting to these shocks is by easing the transitions and helping people, which comes by giving them training, facilitating the infrastructure, so on and so forth.

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