The H-1 B Opportunity

Each year the United States hands out a modest quantity of H-1 B visas for firms to import skilled technology workers. During the pre-crisis years, we would regularly hit the H-1 B cap very quickly and end up needing to allocate the slots via lottery. Then during the economic downturn, demand to import workers declined substantially. But now the rush is back. This week the filing process began, and the expectation is that we’ll run out within five days and be back to the lottery.

This is inefficient from the standpoint of the overall American economy, but one virtue of the system is that it allows us to quantify exactly how inefficient it is. Michael Clemens looked pre-crisis at one particular Indian firm that was involved in the IT outsourcing trade. Since visas were handed out by lottery, he’s able to match employees of the IT outsourcing firm who lost the lottery to employees of the IT outsourcing firm who won. He finds that lottery winners’ salaries increased by $55,000 to $58,000 per year. In other words, for reasons that aren’t entirely clear, skilled IT workers experience a productivity miracle when they’re allowed to come to the United States.

Allocating these scarce visas by lottery has the advantage of letting us do good experimental design. But there are much smarter ways of taking advantage of robust employer demand for these workers. We could, for example, simple charge $25,000 a pop. At that price point, the additional immigrants would gain a wage premium of only $30,000 a year or so, but they’d still be much better off than if they were stuck in India. Firms that pay the fee would presumably be better off or they wouldn’t be paying the fee. And the national government would reap a direct financial windfall that can be used to forestall, minimize, or avoid the need for cuts in allegedly unsustainable social safety net programs. Meanwhile, the average skill level of the American workforce and productivity of the government would rise, and the relative wages of hard-pressed working-class Americans would go up.

Discussion around this subject tends to get bogged down in an unhelpful discussion of whether we in some sense face an objective “shortage” of skilled tech workers. A better way of looking at it is simply that demand for H-1 B visas is extremely high, and public policy should take advantage of that fact.