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

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Updated: January 19, 2020 12:17:14 AM

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.

bhijit Banerjee, Esther Duflo 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.

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.

Excerpts and full video of The Adda is available on indianexpress.com

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