Business

How to Fix Guest-Worker Programs

Close up of a USA visa stamp. (Getty Images)
There’s a straightforward way to improve the policies we use to engage foreign talent.

The COVID-19 pandemic has renewed concerns about the fairness of America’s immigration system. Some of the industries hit hardest by the virus put immigrants at elevated risk of infection and, as was tragically the case for five workers at a meatpacking plant in Colorado, death. Guest workers also have limited mobility, a concern illustrated by the case of Dr. Ram Alur, a foreign physician working on an H-1B visa in southern Illinois. Because Alur’s visa ties him to a particular employer, he and other doctors on H-1B visas were unable to join the fight against coronavirus in New York despite their public-spirited desire to do so. The roughly 20 million Americans currently unemployed may also worry that further admittance of foreign workers during the economic recession will make it even more difficult for them to find work in a historically weak labor market.

Thus far, the White House response has involved the suspension of entry for select migrants. Whether one agrees with this action or not, it is a temporary measure for an issue that is — like immigrant working conditions and guest-worker mobility — a perennial concern. Addressing these issues permanently will require a longer-term fix. One option Congress should consider is auctioning guest-worker visas, a fairer and more efficient approach that could appeal to immigration admissionists and restrictionists alike.

On April 22, President Trump signed an executive order suspending the issuance of green cards to immigrants abroad for 60 days unless they were seeking entry to perform an essential job in the health-care sector. The order was intended to “protect already disadvantaged and unemployed Americans from the threat of competition for scarce jobs from new lawful permanent residents” amid the COVID-19 pandemic.

Two weeks later, citing similar concerns about competition from foreign workers, Senators Tom Cotton, Ted Cruz, Charles Grassley, and Josh Hawley sent a letter to the president asking him to extend the suspension to guest-worker visas for nonagricultural seasonal workers and specialty occupation workers. In an interview on Saturday, the president stated his intention to announce new restrictions on such work visas this week.

The inclination to suspend work visas during a recession stems from long-standing concerns — on the right as well as the left — that firms make use of guest worker visas to hire less-expensive foreign labor rather than paying prevailing local wages. Because guest workers are tied solely to the employer that sponsors their visa and are unable to seek work elsewhere, many worry that they are particularly vulnerable to substandard working conditions, low pay, and even wage theft.

On top of these concerns about fairness, the way that the government allocates guest-worker visas is remarkably inefficient. For example, the number of H-1B visas for specialty occupation workers is capped by Congress (the current cap is 65,000 with another 20,000 visas available for foreign workers who have earned a U.S. master’s degree or higher). Though applying for an H-1B visa is not free, the costs are low enough that the number of employer applications regularly exceed the cap by a wide margin. To reconcile the difference, the government holds a lottery in which visas go to the luckiest firms rather than those who can put them to their highest-valued uses.

There is a better way. The government should scrap the lottery in favor of an auction system, in which employers can bid on a capped number of guest-worker visas. In a 2018 article for the Journal of Legal Studies, Professors Alessandra Casella and Adam Cox offered a proposal for how such an auction system might work.

The Casella–Cox framework involves two phases. In the pre-contract phase, temporary work visas are auctioned to employers. In the post-contract phase — once an employment contract is signed — a winning employer retains the right to employ the foreign worker, but the worker also has the right to leave that job if another U.S. employer is willing to purchase her pro-rated visa.

Consider how the Casella–Cox framework would apply to the H-1B visa for specialty occupations. The capped number of visas would be auctioned off to employers, ensuring that that the visas go to those willing to pay the most to enlist skilled foreign labor, rather than those lucky enough to win the lottery. Whereas the lottery system currently generates a windfall subsidy for winning employers (the difference between what they would have been willing to pay to hire a skilled foreign worker and what they actually pay in the form of wages and application fees), an auction system ensures that foreign workers are hired by the firms that value them most, with the winning bids accruing to the government as revenue.

With employers bidding competitively for H-1B visas, the option of entering the lottery in pursuit of inexpensive foreign labor would be foreclosed. Employers would have an incentive to look harder for skilled native workers at prevailing wages if they knew they would face stiff competition from other firms in the market for H-1B visas. Only employers who truly need foreign talent to fill essential gaps in personnel would be likely to bid high enough to win.

An employer with a winning bid for an H-1B visa could hold it (the clock on the visa wouldn’t start until the employer signs a contract with a foreign worker), exercise it by hiring a foreign worker, or sell it to another firm. This flexibility allows firms to better time the hiring of foreign workers with the most favorable market conditions. For example, an employer that obtains a visa just before an unanticipated economic downturn needn’t immediately hire a foreign worker. With more native workers available, the employer could hold off on using the visa until the labor market recovered and skilled roles became more difficult to fill.

A key innovation of the Casella–Cox proposal — one that ensures fairer outcomes for foreign workers — is the post-contract splitting of visa rights between employer and worker. Should an employer with an H-1B decide to hire a foreign worker, that worker would then have the right to work for any other employer that will hire him. No longer tied exclusively to one firm, foreign workers on H-1B visas would be free to pursue higher wages or better working conditions at different firms.

Should another firm hire the worker, it would be required to reimburse the former employer for the price of the visa, pro-rated for the amount of time left on it. This freedom of movement would make it more difficult for employers to underpay foreign guest workers and therefore less likely to undercut the earnings of native workers. Mobility for workers on H-1B visas would also allow for a “thicker” market for skilled labor — the idea that when there are more potentially optimal matches between workers and firms, overall economic productivity improves.

As the U.S. considers the path to recovery, Congress should pilot the Casella–Cox approach with H-1B visas, extending it to other guest-worker programs if it proves successful. Because high-skill immigration will be particularly important to the future of the American economy, it is critical that we prioritize improving the policies we use to engage foreign talent. Introducing an auction and competitive secondary markets to the visa process would mitigate concerns that guest-worker programs undercut the jobs and earnings of natives. Giving foreign workers greater freedom of movement once they are here will protect them from exploitation and boost the productivity of the American labor market.

Brandon Fuller is the vice president for research and publications at the Manhattan Institute.

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