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Tribalism - The secondary impact of US job losses

The US economy lost 701K jobs in March this year, with 6.6million people filing for unemployment insurance. The 6.6million figure towers at 10x of the previous high sending shock signals across the world. But what does the spiking unemployment number in the largest economy in the world mean for us?


In today's post, we look at how the stress in the economy combined with the upcoming election could lead to a rise in tribalism, understand the implication of the recent petition of "US Tech workers" means for Indian IT, and the negative impact of this increased tribalism on both India as well as the United States.


The deadly combination of a weak economy and an election


Donald Trump, the US president, who was a favourite by a margin, and who had built his campaign around the strength in the economy now faces a unique challenge. He is less than 6 months from a national election, and the economy has taken a tremendous hit. Bailouts have been made to both corporates and individuals, but there is still significant pain in the industry, reflected in the people filing for unemployment, and the people being laid of by firms across the country, both of which skyrocketed in March.


As pressure from the people begins to mount who are worried for their jobs, one natural reaction is to close up in an apparent attempt to protect jobs from outsiders. This tendency towards Tribalism was highlighted by ex hedge-fund manager Chamath Palihapitiya ina tweet before all of this started.


What is the noise around "US Tech Workers" about


The organization, which is a non-profit working for te interest of tech workers in the US, is effectively lobbying for suspension of H-1 B visas. These would restrict the entry of workers from other countries, India chief among them and protect the interests of the workers in the country.


As the number of job losses in the country increase, this opinion and line of thought will get increasingly higher acceptance. India will be amongst the ones most hurt by the move given that we get ~70% of these visas reserved for knowledge professionals every year.


The impact on India and the States


While the impact on India is pretty straight forward in terms of the hit on knowledge sectors in India, especially IT, over the short to medium term, the implications for the States could be far more insidious.


The underlying assumption with the ban on knowledge workers from overseas is that the US has enough talent domestically to fill all the vacant positions and needs of firms in the States. Given the existence of the program for many years now, and the relatively low impact of the crisis on white-collar workers atleast for now, it seems that the assumption might not be true. If that were the case, the firms would either have to contend with inferior talent, reducing their competitiveness vs firms internationally or simply not hire. The former would hurt the firms and the country negatively long term, and the latter would lead to a loss of demand that the folks on the H1B visas would have generated for the US economy based on the money they made.


These subtleties may be quickly ignored in the heat of the moment however, and the current political environment indicates a greater chance that it will.


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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.

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