If you hate sweatshops, you should love immigration

Last week I argued that sweatshops are good for workers in poor countries. They usually pay more than the alternatives their workers have near them, they seem to reduce child marriage and pregnancy rates for girls who live near them, and when you actually ask workers in poor countries, they tell you that sweatshops are the best options going. But that isn’t sufficient, because compared to even very bad jobs in Western countries, sweatshop jobs are still exhausting, poorly paid, and dangerous. Garment workers in England are typically paid far, far more than garment workers doing almost the same job in Bangladesh.

Branko Milanovic argues that location is the main determinant of income, not class – you’re better off being near the bottom in a rich country than being near the top in a poor country:

All people born in rich countries thus receive a location premium or a location rent; all those born in poor countries get a location penalty. [In a world of low international migration] most of one’s lifetime income will be determined at birth. [Chart above from here.]

Why might this be? Different skill levels are certainly a part of the difference, but a worker who moves from Bangladesh to England can still expect to significantly increase their earning power. There is a network effect whereby working with people with better skills boosts your own productivity. Christian Benteke is likely to score more goals at Liverpool than he did at the lower-quality Aston Villa, and Uber drivers in New York City make more than Uber drivers in Mexico City.

Capital differences are crucial, of course. Infrastructure and factory equipment are usually better in richer countries. And one big reason for this is institutional quality – the risks of capital investment are much lower in the developed world.

Things like the rule of law and decent, stable governance make it easier to invest with confidence, and seem to be some of the hardest things for poor countries to develop themselves. The cost of running a factory is lower in places where you know that factory won’t be seized by the state. I am not quite convinced that institutions are the most important driver of economic growth but they clearly matter a lot to maintaining a decent level of development.

All of which strikes me as a good reason to try to allow would-be sweatshop workers in the developing world to come to the richer world to work. Letting them work here effectively allows us to stretch our institutions over them, boosting their incomes productivity and incomes.

Given political constraints, this might be best done in the form of a new ‘guest worker’ visa that allows firms to bring people guaranteed a job from poor countries to the UK to work. The firm could be required to post a bond equal to the cost of that immigrant returning home, so nobody is stuck here against their will, and so that we don’t have to worry about immigrants sponging off the state (not that that happens much anyway).

If we targeted this guest worker scheme at people from the poorest countries in the world, we would be able to reduce poverty dramatically. We might see the emergence of industry built specifically for those low-paid workers, who nonetheless would be earning far in excess of what they would earn at home. There is evidence from New Zealand’s guest worker programme that this has large positive effects in the long-run for migrants’ families as well:

We find that the RSE has indeed had largely positive development impacts. It has increased income and consumption of households, allowed households to purchase more durable goods, increased subjective standard of living, and had additional benefits at the community level. It also increased child schooling in Tonga. This should rank it among the most effective development policies evaluated to date

The Gulf States’ guest worker policies, on the other hand, are ugly and brutal in many ways, but people still keep coming because their alternatives are worse. Sweatshops are ugly and brutal in many ways, but people want to work there because their alternatives are worse. How good it would be if for once we could give poor people a better alternative – just by letting them come here to work.