Jobs, unskilled labour and perverse incentives for technological innovation

By Romesh   Day 3 of ERF’s 25th annual conference began with a plenary discussion of job-creating growth in the emerging global economy. Keynote speaker Lant Pritchett of the Blavatnik School of Government at the University of Oxford began by noting the key challenge for developing countries, including the MENA region, over the next 20 to 30 years: to find productive employment for their ‘youth bulge’ – labour that is very low skilled by global standards – and to generate at least some exports (depending on a country’s natural endowments).     He then described the ‘place premium’: the huge gaps in the price of unskilled labour between the United States and developing countries because of barriers to movement across international borders. His research with Michael Clemens and Claudio Montenegro finds that border-based barriers to low-skilled labour mobility into OECD countries drive price distortions that are two orders of magnitude bigger than tariffs on goods in any sector – as much as 1,000% higher wages for low-skilled US workers compared with tariffs that rarely add more than 10% to import prices.   This evidence of what Pritchett describes as the biggest policy-based price distortions in history are consistent with the high US spending on border law enforcement, with the great willingness of would-be immigrants to evade restrictions in order to get into the United States, and with the strong expressed desire of many people in developing countries to move abroad.   He then turned to the perverse incentives for innovation created by distortions that make unskilled labour both expensive and unavailable. What they are doing is creating a world in which the scarcest resources – highly skilled entrepreneurs, innovators and engineers – are being deployed to economise on one of the most abundant resources – low-skilled labour.   This technological innovation – think, for example, of the richest people on the planet seeking to destroy millions of jobs by developing self-driving cars – almost certainly ‘blows back’ into the developing world. One example is machine-based check-ins at airports in India, a country in which there are large numbers of people who would be willing to do that job but who have been replaced by technology.   The example of air travel led to Pritchett’s third focus: the incentives for firms to push demand for labour out of traditional ‘jobs’. Rather than having travel agents book flights and airport staff arrange check-in, consumers are involved in a process of co- production. What the internet has enabled in that and many other interactions is akin to what previous technological innovations, such as dishwashers and lawnmowers, did in transferring possible jobs for others into ‘home production’. A related phenomenon is restructuring employment contracts to avoid ‘jobs’, which is what happens with Uber and Airbnb.   Pritchett concluded that rich countries are making life harder for developing countries such as those in the MENA region by developing technologies that destroy demand for low-skilled labour. Lower barriers to global migration are a potential solution, but it may be necessary to follow the example of the Gulf countries of breaking the link between opportunities for migrants to find employment and to obtain citizenship.   The Economic Research Forum’s 25th Annual Conference is held in Kuwait City, on 10-12 March, 2019, under the theme of Knowledge, Research Networks, and Development Policy. . Visit the conference website to find out more about the event and access papers, videos and blogs.
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