Monday, December 1, 2014

The case for immigration, and social protections

Noah Smith makes the case for liberalized immigration which is as simple as anything I've read on the issue,
Tech companies want cheap labor. Tech workers -- or prospective tech workers -- want expensive labor. So they fight over whether to let in more skilled immigrants. Letting in more skilled immigrants will expand the industry (and the overall economy) a bit faster, but more of the revenue will flow to the owners and top-level managers of the companies. Letting in fewer immigrants will slow growth a bit for the industry and the economy, but will give a bigger piece of the pie to native-born skilled workers.  
Ignored in this argument are the rest of the people in the economy, the grocery clerks, cab drivers and landscapers who don’t have tech skills... The skilled immigrants will shop at the grocery stores, take cab rides and get their lawns landscaped, thus putting money into the pockets of the low-skilled American workers. 
Meanwhile, some native-born tech workers will be put out of a job, but since the number of jobs in the world isn’t fixed, they will find new jobs at new companies -- possibly for a bit less money than they earned before, but they will be OK. And with the creation of those new companies, the economy will grow... Some Americans might lose out, but more will gain, and the people who gain will be working-class laborers, not highly trained engineer types.
I agree with him completely. But the argument is incomplete without invoking the second welfare theorem and compensating the losers, atleast those badly affected, with lump-sum redistributions. In other words, liberalization of immigration rules (and similarly of trade itself) has to be complemented with social protections that cushion those worst affected and most vulnerable against the adverse consequences of the liberalization policy.

It is for this reason that the next round of reforms in India, essential for moving up a sustainable high growth trajectory, and invariably involving further liberalization of trade, has to be preceded by steps that lead to the creation of a basic social safety net that at the least cushions those worst affected by the reforms.  

1 comment:

Pratik Datta said...

To create a social safety net, the State must have enough information about when a future creative destruction will lead to job loss; how much jobs will be lost, in which sector, how to compensate the losers, to what extent etc. Is it really feasible? Instead, shouldn't the State just focus on two things: (1) that there are enough educational institutions offering useful mid-career courses which help imparting new job skills to a highly educated person; (2) that banks are in a position to give out study loans (may be targeted to workers at a particular sector) at a low rate of interest. These two should be able to cushion the job loss in the sector, keeping in view that the people who are losing their jobs are already highly educated and can pick up other remunerative skills.