Date: Thu, 16 Sep 2010 22:20:43 -0700 From: Norm Matloff To: Norm Matloff Subject: surprising Zavodny article To: H-1B/L-1/offshoring e-newsletter In 2003, the Dallas Federal Reserve Bank released a study on the H-1B work visa by one of their researchers, Madeline Zavodny. One of the major findings was that the H-1B program did not seem to negatively impact wages of American workers. The study was actually quite severely flawed, as I showed in http://heather.cs.ucdavis.edu/Archive/Fed03.txt But it was just what the industry lobbyists wanted to hear, and they've cited Zavodny's study quite often since then. The Fed, of course, has been a major source of support for the H-1B program. Bob McTeer, who as Dallas Fed President was Zavodny's boss at the time, has often advocated expanding H-1B, and former Fed Chair Alan Greenspan has on several occasions explicitly praised H-1B as a way to hold labor costs down. In other words, I had Zavodny pegged as a doctrinaire, libertarian/open borders/free market type, and had expected her op-ed piece enclosed below to bring up the usual misleading arguments. I was thus rather pleased to see the more nuanced tone. I still disagree with some of the prescriptions she and her coauthor make, and I still believe they suffer from "numeritis"--blind number crunching without knowing what the numbers actually mean--on the H-1B issue. Yet, I find the authors' essay here well-reasoned, given their premises, and can find some common ground. Let's see what commonalities we have: Here is the obvious one. The authors write, # Finally, the auctions would provide the government with new revenue in # an era of huge deficits. Some of that money might be used to offset # costs incurred by states or localities with large numbers of # immigrants, or to retrain American workers displaced by immigration. I'll discuss the issues of auctions and retraining later, but the salient part of this passage is that the authors recognize that American workers are displaced by immigration! The authors also say, # The visas would be "portable" -- that is, the holder wouldn't be tied # to one employer -- to ensure that workers are treated fairly... Exactly! The current H-1B system, especially for H-1Bs who are being sponsored for green cards, renders the foreign workers de facto indentured servants. That's why they are paid less than comparable U.S. citizens and permanent residents, as several careful studies and government reports have shown. It's also why the H-1B program is so popular with employers. Which brings us to the auctions idea. This notion has been promoted in the last couple of years by the Programmers Guild and other tech worker organizations. The industry lobbyists claim that tech companies hire H-1Bs because they are "the best and the brightest," rather than the cheapest. As I've also shown, the vast majority of H-1Bs are not of best/brightest caliber. But a small percentage are really brilliant, creative workers, and I've always strongly supported encouraging and facilitating their immigration. By granting H-1B visas to the employers who are the highest bidders, we give priority to the types of workers that benefit our nation, and reduce the use of H-1Bs as cheap labor. I won't comment on the authors' points on low-skilled immigration, but it's nice to see that they agree with me on the high-skilled end. In terms of implementation, I've recently advocated that instead of using absolute salaries as the "bids" in these auctions, the basis should be ratios of salaries to the official government prevailing wages in the workers' occupations. Of course, as it is, the legal prevailing wage definition is riddled with loopholes and thus produces wage levels well below market wages, so that should be fixed too. But by defining bids as these ratios, occupations with lower wages would not be at a disadvantage. Employers of engineers, say, would not be at a disadvantage relative to employers of physicians. Another point of agreement I have with the authors is that our current immigration system places too much emphasis on family immigration. It is of course justified for nuclear family members (which is already a large number), but the phenomenon of chain migration that developed around 1980 or so just isn't what Congress intended. Needless to say, I have disagreements with the authors on various points as well. I certainly don't agree that the work visas should be good indefinitely. The auctions, though helpful, would not solve the cheap labor problem for various reasons, especially if the prevailing wage law were not reformed, so the authors' proposals here would end up perpetuating work visas as a mechanism for hiring cheap labor. Even more importantly, I would point out that the authors' premise concerning green cards is invalid. Yes, there are long waits for green cards, but only for THIRD-TIER workers. The best/brightest are in the first two tiers, which have reasonable wait times; the first-tier wait time has essentially been zero in recent years. In other words, the authors' premise on green cards is completely at odds with their expressed goal of our nation acquiring the best/brightest. The workers that are "most-valued," in the authors' phrasing, actually don't have a green card problem under the current rules. The authors are well-intentioned but sadly quite naive in their idea that the auction fees would go to retraining the displaced workers. The reason the workers are displaced in the first place is that they are too expensive. A software engineer who is displaced and then retrained in a new programming language would STILL be unattractive to employers, because his/her experience level corresponds to higher wages. See my previous writings on this, plus the Dept. of Commerce study. Lastly, the authors are also naive in one sense in saying that the foreign tech workers are "least likely to be a burden on taxpayers." The fact is that large numbers of these workers sponsor their elderly parents for immigration after the workers naturalize, and place the parents on welfare (SSI, Medicaid, low-income housing etc.). Again, I must commend the authors for their thoughtful piece. But I do hope that they will dig below the surface on these issues, and take a second look at their assumptions. Norm http://www.nytimes.com/2010/09/14/opinion/14orrenius.html?_r=3 Foreign Stimulus By PIA ORRENIUS and MADELINE ZAVODNY Published: September 13, 2010 THE debate over Arizona's controversial immigration law and Congress's passage last month of another border security bill gives the impression that the only problem with our immigration policy is its inability to keep people from entering the country illegally. Not so. The country has an antiquated, jerry-built immigration system that fails on almost every count. The good news is that there is a way to replace it that will promote economic growth while reducing the flow of illegal workers. First, work-based visas should become the norm in immigration, not the exception. The United States issues about 1.1 million green cards a year and allocates roughly 85 percent to family members of American citizens or legal residents, people seeking humanitarian refuge and "diversity immigrants," who come from countries with low rates of immigration to the United States. The remaining 15 percent go to people who are immigrating for work reasons -- but half of these are for workers' spouses and children, leaving a mere 7 percent for so-called principal workers, most of whom are highly skilled. No other major Western economy gives such a low priority to employment-based immigration, and for good reason: these immigrants are the most skilled and least likely to be a burden on taxpayers. With so few slots allocated to work-based green cards, wait times continue to grow. Immigrants typically enter on temporary visas and adjust to permanent status over time. But most green card categories have strict numerical limits that fall far short of the number of immigrants on temporary visas who wish to stay. The most recent data suggest that 1.1 million approved applicants are waiting for employment-based green cards. Immigrants from China and India are among the most adversely affected because, in general, no more than 7 percent of green cards can be allotted each year to applicants from any one country. There is a better way. Provisional work-based visas, sponsored by employers and valid as long as the holder has a job, should replace green cards as the primary path to legal immigration. These visas should not be subject to country quotas and should be open-ended, so that people who don't seek permanent residency will not get kicked out of the country, as happens now. The visas would be "portable" -- that is, the holder wouldn't be tied to one employer -- to ensure that workers are treated fairly. But because these visas would be tied to employment, immigrants would have to leave the country if the economy deteriorated and they couldn't find work. In place of our current system's lotteries and "first-come, first-served" policies, the government should hold regular auctions where companies can bid for permits to bring in foreign workers. Employers would bid highest for the most-valued workers, creating a selection mechanism that wouldn't rely on the judgment of bureaucrats or the paperwork skills of immigration lawyers. Separate auctions would be run for high- and low-skilled workers, because permit prices would depend on prospective wages. Bringing low-skilled workers into the program is vital to stemming illegal immigration, as the current system's lack of sufficient visas for the low-skilled is a main reason that people cross the border illegally. These auctions would be more efficient than the current system because they would respond to changes in labor demand. When prices rose, the government could react by increasing the number of permits, better syncing immigration with the business cycle. Work-based immigration would rise with economic growth and fall with rising unemployment. Finally, the auctions would provide the government with new revenue in an era of huge deficits. Some of that money might be used to offset costs incurred by states or localities with large numbers of immigrants, or to retrain American workers displaced by immigration. For the past two decades, policy makers have tinkered on the margins of the immigration system, reacting to the latest crisis or political priority. Greater emphasis on work-based immigration as part of a coherent immigration process would go a long way to enhance our economy's competitiveness and the nation's well-being. Pia Orrenius, a research officer at the Federal Reserve Bank of Dallas, and Madeline Zavodny, a professor of economics at Agnes Scott College, are the authors of "Beside the Golden Door: U.S. Immigration Reform in a New Era of Globalization." A version of this op-ed appeared in print on September 14, 2010, on page A29 of the New York edition.