Exercise 8.1:
What are the labor market effects of increasing the number of immigrant workers into the U.S.?

In recent years the U.S. Congress has faced increased pressure to increase its annual immigration quotas, most notably from employers in high-tech industries who argue that there is a shortage of U.S. workers with the required scientific and technical background to fill vacant positions—a situation that is likely to worsen in the years ahead. In response, Congressional legislation was introduced during 2000 that would nearly double the number of H-1B visas—to 200,000 annually—that allow highly skilled workers from foreign countries to work in the U.S. for up to six years. Critics of the proposed expansion of the H-1B program claim that U.S. high-tech businesses are not doing enough to promote the employment of U.S. minority, female, and older workers, and that expansion of the immigration program will displace U.S. workers. Whose claims are right, and what are the likely labor market effects of increasing the number of immigrant workers into the U.S.?

First, it's important to sort out the facts. While recent studies by the U.S. Labor Department indicate some instances of discrimination against women, minority, and female workers by high-tech firms, it is clear that U.S. high-tech industries currently face a shortage of qualified workers. During 2000, estimates of unfilled high-tech jobs in the U.S. ranged from 270,000 to more than 800,000, and official projections indicate that the shortage is likely to grow in the near future. According to the U.S. Bureau of Labor Statistics, the country will need nearly 1.7 million additional computer engineers, programmers, and analysts by 2008, while the number of college graduates with high-tech degrees is declining. Minority graduates with degrees in engineering, math, and computer science are on the rise, but their numbers remain too small to have much effect on the overall labor shortage in these areas. Exacerbating the shortage is the current annual limit on admitting foreign workers into the U.S., which in 2000 was set at 115,000. More than 50% of H-1B visa applications are typically turned down due to the limit, and the Immigration and Naturalization Service often exhausts its quota in the first few months of the year, leaving high-tech firms to compete amongst themselves for the available pool of qualified domestic workers.

The projected continuing shortage of high-tech workers bolsters the case for raising the immigration limits for skilled foreign workers. But what effect would the influx of 100,000 or more foreign workers have on U.S. labor markets? Limiting the inflow to highly-skilled workers, which the H1-B visas do, suggests that there would be little or no effect in the market for unskilled workers unless the foreign workers displaced U.S. workers and increased competition for jobs in the unskilled worker market. Given the nature of workers allowed to apply for H1-B visas, this is unlikely. Increasing the H1-B quota limit (or eliminating it altogether) would increase the supply of skilled workers, reducing the shortage in this market and putting downward pressure on wages in high-tech jobs while displacing few American workers. Currently, it is common for college graduates in high-tech areas to be offered signing bonuses, stock options, and other amenities by high-tech firms seeking their employment, indications of a skilled labor market that is not in equilibrium. Increasing the number of high-skilled foreign workers allowed to enter the U.S. annually would reduce these hiring incentives, at the same time increasing employment, output, and productivity in the high-tech sector.

Ironically, technology itself may be mitigating the political pressures to further open U.S. labor markets to foreign workers. Increasingly, high-tech firms are able to bypass immigration quotas by recruiting project teams on the World Wide Web, contracting out projects to high-tech workers in India, Israel, and Ireland, who can interview, consult, and deliver information-related services without leaving their home country. Indeed, international Web-based employment-matching services have developed to facilitate the matching of high-tech job needs with the available world-wide labor supply. While the need for the physical presence of workers in U.S. firms will continue, this is another example of the way in which competitive markets often find ways to circumvent legislation aimed at restricting market outcomes.

References:

Norris, Craig D. "A Brave New World of Work," The Washington Post, August 7, 2000, p. A21.

Valbrun, Marjorie. "Black Coalition Frets over Influx of Skilled Foreigners," The Wall Street Journal, July 7, 2000, p. A2.