So Migration has no impact on wages...

This may have been one of the most shocking podcasts I have listened to, here's why.

---

Firstly, have a listen... 👂

---

Nobel prize-winning economist Esther Duflo's podcast with Krishnan might have been the most eye opening pieces I have listened to so far. It gives quite a shocking understanding of how economics plays out in the real world "scenario" if you like and how theory suggestions can be almost completely wrong when put to the test.

As one of my initial discovered economists and my first listened economic podcast, I believe this has given me a great understanding of how to approach economics, its use in solving our problems and its sometimes worrying application in our politics.

Firstly, there is a mention about pragmatism when approaching policy to solve problems. The work of Esther Duflo alongside her partner and team have had a huge impact on the direction of policy locally, domestically and internationally on how to solve problems such as poverty. Social evils such as poverty unfortunately still exist across the world from countries with opulence to developing and emerging nations like Bangladesh, the "New Asian Tiger". However, many hold the view that the existence of poverty is through a lack of funding and money for the poor. Whilst, this is a part of the jigsaw there's many other pieces that need finding to understand the fuller image of poverty and how to go about removing the existence of poverty. Esther, early on in the podcast, mentions the need for a pragmatic approach and not an ideological dogmatic approach to policy making. Essentially there is no "one size fits all" rather policies need to be tailored for each country. It is nothing more than ignorant to suggest one country in poverty should simply "copy and paste" what a developed economy like Switzerland did. Countries develop when they find out the right combination of polices that works for them and by large these effective policies are best obtained through using massive randomised experiments and natural experiments to "evaluate" what works and what doesn't work in that country. Therefore, being fixated on a set of policies from the mindset of a universal manual book just isn't going to work, instead we need to pragmatists who understand that ideas don't always play out the way we envisage them to.

This idea of politicians being committed to ideologically driven polices has close links to the political narrative we are fed today.

Through Esther and her colleagues' massive randomised economic experiments from India to Morocco the team (among others) have discovered phenomenons that go against what the traditional theory states. A clear example mentioned was the theoretical position that migration into the UK threatens the low-skilled jobs of the British workers and pushes down low-skilled labour wages. In theory we are taught this is indeed the case and we are also taught this in our politics as seen noticeably in the EU referendum campaign, "Vote Leave", in which major fear of mass migration was driven as the single most decisive factor on the "Brexit" outcome. Not trade, rather it was a mostly a reactionary outcome for a fear of uncontrolled migration into the UK. Nonetheless, when investigated using data and observing changes in data following migration, the impact of low-skilled migration on low-skilled wages is Zero! Initially this is very shocking but come to think of it as Esther says the reason is clear; migration of new low-skilled workers entering the UK increase aggregate consumption and inject money into the UK circular flow, in turn stimulating new job creation via investment. Thus, more jobs are made from which the increase in supply of labour is met with an increase in demand for labour creating a new equilibrium.

A referenced investigation into this phenomenon was seen by David Card who investigated impact of the the Mariel Boatlift 1980 (which saw an influx of 125,000 Cuban migrants into Miami) on wages. His findings as quoted per his report below shows how migration is anything but a threat rather it is something that should be we don't fear. His work outlined the following:

" The Marie1 immigrants increased the Miami labor force by 7%, and the percentage increase in labor supply to less-skilled occupations and industries was even greater because most of the immigrants were relatively unskilled. Nevertheless, the Marie1 influx appears to have had virtually no effect on the wages or unemployment rates of less-skilled workers, even among Cubans who had immigrated earlier. The author suggests that the ability of Miami's labor market to rapidly absorb the Marie1 immigrants was largely owing to its adjustment to other large waves of immigrants in the two decades before the Marie1 Boatlift."

Thus, the culmination of numerous reports conclude that the thing arguably most feared in society is a merely a political narrative used to manipulate the fear of voters to win elections. For me this is an eye opening finding that suprinsingly hasn't been spoken out much in our politics. Politics should be a place where politicians platform an attempt to solve issues using policy ideas that are suitable not purely suitable ideologically. Especially with the innocence of voters, politicians seem to capitalise on this to earn their way into power and impose policies that have only ideological reason behind it. We shouldn't allow political narratives add to the dirtiness of our politics.

This has made me question whether or not many political events that have caused so much economic shock such as Brexit would have happened in the first place. The impact of such damning and dangerous political narratives have put our politics in a worrying place. We have already seen the impact ideological twisting on economic data can have on the political events and if this continues we jeopardise long term potential. Who knows what the real impact of Brexit is really going to mean for the UK?

Finally, another "natural experiments" was seen in Switzerland as they gradually changed the taxation system over 2 years. This means for periods of time labour was untaxed and yet this didn't show any changes in the hours labour worked. Thus, showing that labour sometimes can't be incentivised to work more from tax cuts nor can is there a risk of destroying incentives from increasing tax a bit more. This again has many relevance to our political stage, more recent in the 2019 General Election where the common opposition parties response to proposed increases in tax for the wealthy from the Labour Party was the idea that this would scare off the engines of our economy. This was again another political narrative made to abuse the vulnerability of the electorate.

In summary, this podcast has exposed many false political narratives the migration impact being a major driving one. It's clear of the potential harm ideologically driven polices can have to welfare , and has made me feel an urge to get these factual and economically positive findings out there to the public. From "natural experiments" as seen in the Mariel Boatlift to randomised tests, Esther has raised a very viable point. Politicians need to listen to neutral economists who seek to find what is the best way forward through utilising a combination of empirical data and listening to others and from this politicians should decide on what policies to endorse. It builds a strong case for the existence of neutral credible economists in our politics and the need for pragmatic approach to political thinking based on what works for that economy. basing policies on what works is far better than basing it on ideology. There are no such guarantee that a policy is universal rather they ought to be tried at a local level and then to the national level. If they work there, then trying it out elsewhere is a next progressive step.

Adam Ouarda

7 July 2020