Understanding immigration and trade: what will a shortage of skilled labor do to U.S. competitiveness?

Chief Executive, The, April-May, 2008 by Richard A. Epstein

Three years ago I spoke at a meeting of a trade association known as the Biotechnology Industry Organization. Walking down the aisles, I was struck by the odd juxtaposition of booths. Most featured new biotech products, but about a half dozen showcased immigration firms that help biotech firms navigate their visa problems for key employees.

[ILLUSTRATION OMITTED]

That casual observation solidified a profound truth of immense concern to CEOs. Such kiosks continue to spring up because of the scarcity of H-1B visas. These vital documents pave the path of entry into the U.S. by individuals with specialized and technical knowledge in engineering, health care and computer sciences. Over the past several years, the available quota of these positions has been 65,000. In 2006 that limit was met before the onset of the fiscal year. In 2007, all the visas were gone in two days. Clearly the available numbers are insufficient to cover demand in growing industries. Worse still, the sharp restrictions often make it impossible to hire the many foreign graduate students in American universities at a time when our troubled educational system finds it difficult to churn out large numbers of U.S. citizens skilled in these technical areas. It only adds insult to injury to impose heavy fees on these visas, which are then channeled into job training programs that are little more than unearned subsidies for some domestic workers.

To explain the sharp restriction on the annual number of H-1B visas, CEOs need look only to the same protectionist forces that everywhere block economic and social advancement. The U.S. Department of Labor is charged with the impossible: to insure that the admission of foreign workers does not displace American workers or adversely affect their incomes or working conditions.

The usual method for making this determination is by focusing on job losses to workers who are in direct competition with the new foreign workers. But that procedure deliberately and systematically ignores the huge gains created throughout the economy when these foreign workers produce goods and services that make their employers and other U.S. firms more efficient, thereby creating other jobs and producing better goods at lower prices. Instead, our immigration and visa policy has fallen prey to the same form of selective tunnel vision that leads to opposition to the outsourcing of jobs to foreign countries, or to demands for a renegotiation of the North American Free Trade Agreement, both staples of the Clinton and Obama campaigns.

This sorry episode has long-term consequences for both business and social policy. The CEO whose firm cannot bring foreign workers into the U.S. may instead set up new facilities overseas in order to take advantage of their skills. If the U.S. should impose differential taxes on firms that outsource, CEOs will start to think of contracting out services to independent firms overseas. If the reach of regulation extends that far, then American businesses could be displaced by foreign ones, which allow for the more efficient combination of capital and labor, leading to greater job reductions at home. It is imperative therefore for CEOs to fight this regulatory spiral at every turn, by making it clear to our political leaders--both parties have been guilty of trade offenses--that no good can come from this incessant and counterproductive regulatory agenda. The key move is to expand the number of H-1B workers allowed into the U.S.

Addressing Illegal Immigration

The chronic shortage of H-1B visas is symptomatic of a larger confusion about free trade, free immigration and the relationship between them. As a matter of first principle, immigration policy is always a harder nut to crack than trade policy. Let foreign goods into this country, and they circulate in the general economy like domestic ones. These goods do not vote, they do not buy housing, they do not send children to public schools and they neither commit crimes nor rescue strangers. Letting a person into a country carries with it all these complications and more. The new entrant does not just occupy a role as an employee, but as resident, taxpayer, patient and parent.

Immigration, for better or for worse, has the power to transform our demographic balance by altering the mix of political power and social pressures. Open immigration could lead to an influx of people, straining our public services and infrastructure. Make no mistake about it, a social democratic system with generous public benefits has to get tougher on new immigrants. But how?

The hard trade-off arises from the simple fact that the operation of the U.S. economy is heavily dependent on immigrant labor. Immigration thus presents greater challenges than H-1B visas that let in short-term workers whose presence surely counts as a net contribution to our overall economic welfare. Increasing their numbers and offering an easy path to early citizenship will do much to improve the material and social operation of our economy and social order.