Managing migration for equitable development

Labour migration is rising in India, but contrary to economic logic, inequality is still growing

It is no coincidence that in F. Scott Fitzgerald’s magnum opus on the American dream, The Great Gatsby, just about every major character is a migrant in 1920s New York—the narrator Nick Carraway is from Minnesota, his neighbour Jay Gatsby from North Dakota, Gatsby’s former girlfriend Daisy Buchanan is from Kentucky and her husband Tom from Chicago. Migration has been the cornerstone of the American way of life; people’s ability to pack up and move brought dynamism to the US economy, ensuring that the right people could be matched with the right jobs at the right price, thereby enhancing productivity and spurring economic growth.

However, this trend has been slowing for a while now. When the US Census Bureau began tracking migration in 1948, the annual mover rate was 20.2%. In 2016, it was down to an all-time low of 11.2%, according to data released last month. A Federal Reserve Board study published by Brookings Institution has similarly found that fluidity in the US labour market dropped by 10-15% since the 1980s. In short, working-age people are simply not moving like before.

There are several theories for why America is becoming a “nation of homebodies”: Nobel laureate Edmund Phelps argues that Americans are trapped in their own homes, especially after the 2008 crisis; David Schleicher at Yale Law School points to government policies which make it difficult for people to move across state lines. Others have pointed to the deteriorating quality of jobs (why move for a position that may become obsolete in a few years?) and the growing number of dual-income couples (it is harder for individuals to move if they must account for their partner’s job preferences). The bottom line is that with Americans not moving to where the better-paying jobs are, economic growth may take a hit. Already, inequality in the US is soaring and some argue it’s worse than in China.

In this context, the Indian labour market offers a fascinating study in contrast—here, labour migration is on the rise but inequality hasn’t dipped either. According to this year’s Economic Survey, Indians are increasingly on the move and in much larger numbers than previously estimated. Based on the 2011 census and railway passenger traffic, the 2017 survey employs a new methodology to find that annual interstate labour mobility averaged five-six million people between 2001 and 2011, and that the average annual flow of migrants was close to nine million, significantly higher than the 3.3 million deduced from previous census readings.

The new figures challenge conventional wisdom and lend themselves to an optimistic assessment of how integrated India’s labour and goods markets are—especially when one also factors in the survey’s high internal trade figures. Ideally, this free movement of goods and labour should have paved the way for lowering inequality within the country and bridging the gap between rich and poor states. This is what happened in China, for example, where poorer provinces have almost caught up with their richer counterparts. In India, however, the gap has grown along the north-south axis and the rural-urban divide.

An Organisation for Economic Co-operation and Development (OECD) study analysing growth, employment and inequality notes: “The benefits of growth have been concentrated in the already richer states, leaving the poorest and most populous states further behind (i.e Bihar, Madhya Pradesh, Uttar Pradesh...). In richer states, high growth rates have led to a boom in commercial and service sector activities, whereas in most of the poorest states agriculture is the main way of life... and industry is almost absent.”

The survey takes note of this problem and wonders “why greater internal integration has not led to a narrowing of income and consumption gaps across states”. It offers two possible explanations: First, “governance or institutional traps” have crippled convergence and, second, India’s reliance on “skill-intensive sectors rather than low-skilled ones” to fuel its economic growth has only accentuated pre-existing inequalities. Both lead to the dynamics of cooperative and competitive federalism, and raise the question: “Why isn’t there pressure on the less developed states to reform their governance in ways that would be competitively attractive?”

There are no easy or obvious answers but one thing is clear: While labour migration is a force of good, it has to be properly managed by the government to deliver the benefits in a just and equitable manner. In the poorer source states that see the most out-migration, it is imperative to improve education and health outcomes to deal with regional inequality. In the richer destination states, more so in urban megapolises like Delhi and Mumbai which are already bursting at the seams, the focus has to be on capacity augmentation. There is also the issue of individual migrant welfare—the government can start with making benefits and entitlements easily portable (as envisaged under Aadhaar), by ensuring a basic social security network for all migrants, and by allowing migrants easy access to affordable housing and homeownership.

These measures will also strengthen the forces of urbanization that are already under way and boost economic growth. Several studies have shown how urban economies are more productive than rural economies. Yet, in India, policymakers are still focused on reducing migration to the cities, as Pronab Sen noted in Mint earlier this month—and this is just one example of the many policy barriers to migration.

How should the government approach migration to spur economic growth?