There is a simplistic but dangerous theory that forms the underpinning of many restrictive immigration initiatives. It is perhaps elegant in its simplicity, but it is dead wrong. Not only dead wrong, but highly dangerous to our economic well-being. The theory is, in essence, that every time we eliminate the opportunity for a foreign national to either come to or remain in the United States, we create an immediate job opportunity for an American, — in other words, immigration and American jobs are somehow elements in a “zero sum game.” One does not have to be a statistician or labor economist to see the obvious flaws in such a theory. For politicians, however, it is a highly attractive battle cry, especially in our current high-unemployment environment. But politicians who try to sell this notion to the American public are not only insulting the intelligence of their constituents, they are embracing a rhetoric that can do long-term economic damage in a time when we can least afford that.
A perfect example of this is the recent Alabama state law, a “show me your papers” law that essentially made every single transaction between the state and its residents into an immigration checkpoint. Part of the rationale offered by Kris Kobach and others who devised and sponsored the legislation was that, to the extent that undocumented workers would be driven from the state, it would create economic opportunity for legal residents of Alabama. But that’s not what happened. Job growth figures from the director of economic forecasting at the University of Alabama did not support the conclusion that the legislation resulted in jobs for Alabama residents. More significantly, the University of Alabama’s Center for Business and Economic Interests released a study of the state immigration law last month and found that it will likely result in the loss of tens of millions in tax dollars and literally billions in lost production. The study found that between 40,000 and 80,000 workers who earned between $15,000 and $35,000 have left the state, thereby causing indirect job loss of between 70,000 and 140,000. How can this be? It occurs because, when wage earners leave the state, aggregate demand for goods and services decreases, thereby causing a loss of additional jobs. The study also found that, because of the law, Alabama’s GDP will take a major hit, in that the goods and services produced by the state will fall between $2.3 billion to $10.8 billion and the state will lose between $56 million to $264 million in state income and sales tax collections. The full study can be found at http://www.scribd.com/doc/79981193/Costs-and-Benefits-Analysis-of-Alabama-Immigration-Law. Alabama lawmakers –many of whom supported the legislation–now want to take a second look at the legislation because of its “unintended consequences,” not the least of which is that the Alabama law gives other states a new way to compete with Alabama to attract business.
Funny, isn’t it, how these laws that are simply intended to create jobs for Americans can have all of these “unintended consequences.” Whether Kobach and Co. intended these consequences or not is beside the point–they simply don’t care about the economic harm because their main goal is to create a police state environment in which it is impossible for undocumented workers–and those who might be presumed to be undocumented–to work, live and thrive. They scorch the earth in one state and move onto another state that might be available and willing to be an incubator for their ideas.
Now comes Senator Grassley with a letter today to President Obama charging that the President does not understand the difficulties faced by unemployed highly skilled Americans. Senator Grassley’s letter, which calls for restrictions to the H-1B program as a solution, unfortunately follows a logic that is strikingly similar to the faulty rationale for the Alabama law. His letter states “Thousands of qualified Americans remain out of work while companies are incentivized to import foreign workers.” The letter advances the notion that highly-skilled workers are simply fungible, both in terms of geography and in terms of skill-set, and, as a corollary, that employers use the H-1B program as a low cost alternative to the hiring of U.S. workforce.
The facts about H-1B’s tell a different story. First, for for-profit businesses there is an annual cap on new H-1B hires of 85,000. This number, along with the number of H-1B workers who are here on extensions, is a very small percentage of the highly-skilled workforce in the U.S. and an even smaller percentage of the U.S. workforce as a whole. But even if one believes–as I do–that in this economy even one domestic hire makes a difference–there are very important reasons for supporting the continued existence of the H-1B program in its current form. It is a proven job creator, not a job eliminator, for American workers.
A 2008 study by the National Foundation for American Policy on H-1B and job creation showed a direct and statistically significant correlation between the hiring of an H-1B worker and the creation of new job opportunities for American workers. The study showed that that for technology companies in the S&P 500, for every H-1B worker requested, roughly 5 additional jobs were created. In companies with fewer than 5,000 employees, 7 new jobs were created for every H-1B hired. Moreover, the study indicated that if–as the Grassley letter intimates–companies hire H-1B workers because they are cheaper then H-1B filings by companies that had hit hard times should have risen, but in fact, they fell.
The plain truth is that it is not cheaper for a company to hire and continue to employ an H-1B worker, and the H-1B program, as it is currently structured, certainly does not “incentivize” U.S. companies to hire H-1B workers. The H-1B rules entail a filing with the Department of Labor in which an H-1B petitioner promises to pay the worker the prevailing wage for the job in the area of intended employment. There is no such rule in place with respect to the hiring of US workers. Moreover, there are other costs and fees associated with hiring an H-1B worker that are not associated with the hiring of an American worker, including legal fees and government filing fees. A business organization operating on an economically rational model would not hire an H-1B worker where it could locate a U.S. worker who could perform the same job duties. While Senator Grassley’s efforts to restrict the H-1B program are also aimed at eliminating fraud and abuse–a worthy goal–the incidence of actual fraud in the H-1B program, as determined by USCIS’s Fraud Detection and National Security H-1B Site Visit Program, is extremely low. The high cost of hiring an H-1B in comparison with the hiring of a U.S. worker, combined with the low incidence of fraud, would indicate that in general, companies are using the H-1B both compliantly and strategically.
As is the case with the Alabama law, adding restrictions and artificial limits to the H-1B program could have serious “unintended consequences.” Not only would we lose the indirect job growth that has been shown to occur, at least in the technology sector, when H-1B’s are hired, but we would lose the important professional and technological cross-pollination that may be the basis of this indirect growth –the learning and sharing of skills and ideas that occur when professionals of varying cultural and educational backgrounds come together to solve a problem. For the benefit of our economy, I would much prefer that these experiences happen here, on U.S. soil, at U.S. employers, than abroad. Moreover, large companies that are deterred by H-1B restrictions from hiring key foreign talent may opt to locate projects abroad, thus resulting in potential indirect job loss in the U.S. According to his letter, Grassley would also limit the expansion of work authorization for foreign students who are educated here and have degrees in science, technology, engineering and math. Again, what would be the unintended consequences of such a move? We would be sending U.S.-educated individuals with highly sought-after skills back to their home countries to help those countries outpace us in the global economy. Our competitors abroad—countries looking for investors and innovators– must be rubbing their hands with glee and cheering Grassley on.
Unemployment is a highly complicated problem that will require a complex solution, or set of solutions. When politicians advance the simplistic argument that immigration restrictions equal U.S. job growth, it is not only dangerous as an inherently flawed theory, it is also a highly damaging distraction from the crucial work of finding smart, nuanced and well-thought out long-term solutions to our unemployment problems. The American people deserve these viable solutions, not simplistic political rhetoric.