The politics of subnational nativism is back in the Indian economic landscape. In March 2021, the Haryana government passed the ‘Haryana State Employment of Local Candidates Bill, 2020’ which reserves 75% of private-sector jobs that pay under Rs 50,000 a month for the people of the state.
Similarly, the DMK party in Tamil Nadu has promised in their election manifesto to enact a law to reserve 75% of the industrial jobs in the state.
The other states which had also promised reservation of private jobs for locals include Maharashtra (up to 80%), Andhra Pradesh (75%), Karnataka (75%) and Madhya Pradesh (70%).
Most often these are used merely as political rhetoric and lack constitutional validity and enforceability. However, in the wake of such policy proposals, it is pertinent to examine the logic which has led to the rise of such anti-migrant policies.
The theoretical argument used in support of anti-migration policies is based on the law of demand and supply taught in any introductory course of Economics. When migrants come to a state, it results in a shift of the labour supply curve and, ceteris paribus leads to a reduction in wages for that economy.
Put simply, the migrants benefit, while the natives end up with a bad bargain. In the real world, this translates to reduced employment of the native population that has a higher reservation wage.
However, one gross fallacy inherent in the application of this argument in policymaking is the assumption of ceteris paribus — i.e. other things remains constant – which is hardly the case in reality.
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Migration has always been a contentious topic in politics. Although the effects of migration are difficult to isolate, a number of studies have been able to provide valuable insights that fuel arguments on both sides of the debate. However, on balance, a large part of the literature has revealed that empirically, the negative effects of migration are not significant in the long run for the host destination.
Anti-migration proponents fail to take into consideration the positive effects of migration which tend to offset the negatives. If we extend the simple supply-side argument mentioned earlier to incorporate the demand-side effects, it is easy for us to visualise how the inflow of migrants increases the demand for goods and services in the host destination, consequently increasing employment opportunities and demand for labour, leaving wages unaffected.
Studies have shown how migration caused by artificial factors – for example, when 125,000 Cuban migrants crossed over to Miami in 1980 – did not lower the wages of the natives in both the short and long run. This was despite the labour force in Miami increasing by 7%. Interestingly, a study on the influx of European immigrants into the United States during 1910-1930 found that the inflow of migrants allowed natives to move up the hierarchy and take up managerial positions while the more menial outlets were filled in by the newcomers.
Migrant workers walk towards a bus station along a highway with their families as they return to their villages, during a 21-day nationwide lockdown to limit the spreading of coronavirus disease (COVID-19), in Ghaziabad, on the outskirts of New Delhi, March 29, 2020. Photo: Reuters/Adnan Abidi
Proposing laws that put emphasis on the immediate outcomes have the added advantage of triggering biases that favour short term gains. Abandoning a myopic view in favour of examining some of the long-term effects an anti-migration policy can have on the economy of the host destination, one can argue that such a policy can end up restricting growth and employment. Labour or factor mobility within an economy is instrumental in addressing the basic problem of efficient allocation of resources. The mobility of labour within an economy can determine how it adopts new technology and develops comparative advantages.
It is well known that in recent times, India has taken measures to attract foreign investment. The PLI schemes and “Make in India” initiative are designed to help the country become the global manufacturing hub, against the backdrop of the rising cost of production in China. On the contrary, if labour mobility is restricted within the country, businesses might not be able to employ the skills required to produce efficiently. In the process, India can lose its position as a viable manufacturing alternative against other Asian counterparts like Vietnam, Thailand, Philippines, Malaysia and Bangladesh.
Extending the logic further, if we take a hypothetical example of two states, Karnataka and Maharashtra, both imposing restrictions on occupational migration, we can argue that such policies between states can prove to be counterproductive to the growth of human capital as well. Bengaluru is the Silicon Valley of India and the fourth largest technology cluster in the world. On the other hand, Mumbai is known to be the finance capital of India.
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Under such circumstances, individuals from Karnataka who are skilled in finance and willing to work for some of the finance corporations may find it difficult to acquire employment in Mumbai, and someone from Maharashtra who wishes to end up in desi Silicon Valley will undergo a similar fate. If all states decide to play the anti-migration game, the outcome is going to be detrimental for the economy.
On a similar note, the prospects of employability in a city are a key factor that attracts bright students in pursuit of higher education into institutions which in turn play a crucial role in research and innovation. Research and innovation, on the other hand, have significant spill-over effects towards garnishing the entrepreneurial spirit of a region, which drives growth in the creation of new employment opportunities.
Laws proposed on the basis of half-baked arguments are merely tools of politics of appeasement intended to invoke a placebo for the locals, overshadowing the root causes that plague the economy. It is high time that policymakers go beyond political rhetoric and base their decisions on empirical evidence and sound theoretical logic. We need to deviate from ideas that encourage building artificial barriers for the people within the country, adding to the hurdles that the already crippled economy has to overcome in the midst of a pandemic which is still at large.
Madhurjya Deka is a recent postgraduate in Applied Economics from the Centre for Development Studies (JNU), Thiruvananthapuram and currently working as a research analyst in a think tank.
Puberoon Sarmah is a post-graduate in the discipline of economics from the University of Hyderabad and has worked as a research analyst. His interests lie in the field of technology, esports, football, cryptocurrencies et cetera.