Immigration Politics are Holding Up the Technology Sector

This piece originally appeared in the National Journal here, and is reproduced with permission from the author. It is written specifically in the context of United States politics.

Politicians are simply playing at immigration reform. As these representatives and senators take their turn at political games, introducing pieces of legislation designed to go nowhere, the federal immigration bureaucracy once again highlights how much the current opaque immigration system damages the U.S. economy, now in its third year of anemic growth.

Rep. Lamar Smith, R-Texas, recently introduced a bill to eliminate the diversity visa program, which awards 55,000 green cards by lottery, and instead redirects all of those green cards to skilled advanced foreign graduates from U.S. universities. His bill came up for a vote last week, failing in the House.

As a counter, Sen. Chuck Schumer, D-N.Y., and Rep. Zoe Lofgren, D-Calif., who represents part of Silicon Valley, introduced their own legislation to increase the number of green cards for highly skilled graduates without destroying the diversity visa program. It’s a version of Smith’s bill meant to appeal to Democrats who support the diversity visa, but it will turn off Republicans who are newly opposed to it.

Both bills, introduced with provisions unacceptable to the other party, make for political theater but leave the fundamental problem of immigration reform unresolved.

On Oct. 1, new highly skilled migrant workers on H-1B visas can start working in the United States. H-1B visas are a small subset of visas that let U.S. firms temporarily hire skilled foreigners. Along with skilled foreigners on green cards, H-1Bs make a big difference in innovative growth industries, even though only 85,000 a year are hired annually. About half of all H-1Bs work in the computer industry, with most of the rest in engineering, science, mathematics, and technology. 

Over the last decade, the number of jobs in these sectors has grown three times faster than in the rest of the economy. Foreigners seem particularly driven to these high-growth industries. About 35 percent of engineers, 27 percent of computer scientists and mathematicians, and 25 percent of physical scientists were born in foreign countries. 

To be clear, Americans are driven to these industries, too. U.S. firms try to hire H-1Bs and skilled immigrants when they are expanding. Smaller technology firms that employ H-1Bs hire five to seven other employees for each H-1B worker brought in. H-1B workers expand production, meaning that firms have to hire other Americans as well to work alongside H-1Bs. That is one reason why more technology workers do not drive down American wages. 

Every year, firms in Silicon Valley and elsewhere clamber for more H-1B visas than are issued. This year, after just two months of accepting H-1B visas, the government had to stop because the quota had been reached. Last decade, when the economy was growing at a rapid clip, the yearly quota would fill up in a single day. 

Presidents George W. Bush and Obama have done a lot to hobble the H-1B. Under Bush’s TARP, financial firms getting bailed out were not allowed to hire H-1B workers. 

And it’s not like hiring H-1B workers is easy or cheap. Firms already spend about $6,000 in legal and government fees per H-1B and as much as twice that for employment-sponsored green cards. Obama didn’t think those fees were high enough, so he doubled them for firms heavily dependent on H-1B workers, mostly Indian firms, to fund increased border-security efforts. 

Dynamic Silicon Valley firms and the technology industry are highly dependent on skilled workers. As they grow, so does their demand for skilled workers. To continue to expand in this overall moribund economy and remain a bright light of economic success, they need to be freed of obtuse immigration restrictive, quotas, and rules that hobble their expansion.

The bills introduced by Schumer, Lofgren, and Smith would release a bit of the pressure. But when desperately needed reform is stalled over the diversity visa, which has nothing to do with skilled immigration and is blamed for many sins it has never committed, it is clear just how unserious Washington is about solving the immigration mess it created.

[Open Border editorial note: Readers might like to check our pages on high versus low skill as well as our page on the startup visa, which contain related material]

Teens and Immigrants

A CIS study notes the decline in summer employment among teens and blames it on immigration:

While this summer is shaping up as one of the worst ever for teen employment, a new report from the Center for Immigration Studies (CIS) finds that American teenagers (16-19 years old) have been leaving the labor force for some time, starting long before the current recession. The findings show that competition with immigrants accounts for a significant share of the decline in teen employment. The decline is worrisome because a large body of research shows that those who do not hold a job as teenagers often fail to develop the work habits necessary to function in the labor market, creating significant negative consequence for them later in life.

Many of the states where immigrants are the largest share of workers are also those with the lowest teenage labor force participation, including California, New Jersey, New York, Nevada, Florida, Hawaii, Texas, and Arizona.

Here’s more. The study is poorly reasoned. It suffers from the “lump of labor” fallacy, the fallacy that the number of jobs is somehow exogenously fixed. If that were true, of course, it would seem fairly inevitable that more jobs for immigrants would be fewer jobs for teenagers. But the number of jobs employers are willing to offer varies, depending on, among other things, the wage. Since the wage also affects the willingness of workers to work, so it can move to equilibrate supply and demand. Immigration might mean teenagers earn less, but it shouldn’t cause unemployment. It might cause some teenagers to leave the labor force because working isn’t worth their while. But if the point is just to develop “work habits” and put a line on their resumes, it hardly matters how low the wage is. Mom and Dad are feeding them anyway.

Ah– the immigration critic might reply– but you’ve forgotten the minimum wage! American teens can’t compete with more experienced and mature immigrants by offering their services for lower wages, because the minimum wage puts a floor under that kind of competition. So yes, we have a problem. Which solution seems more liberal, humane, just, etc.– (a) deport millions of foreigners, separating families, depriving people of their best opportunity to work for a better future, deprive businesses of their best workers, and so on, or (b) cut the minimum wage?

For more background reading about the effect of immigrants on the wages and employment opportunities of natives in the United States, see the US-specific suppression of wages of natives page on this website.

Redistribution and immigration

A student alerted me to this extraordinarily tight and well-argued post by Paul Krugman, entitled “Notes on the Political Economy of Redistribution.” Krugman:

Mitt Romney is getting beaten up, and rightly so, for claiming that redistribution is un-American. Of course we redistribute, and we’ve been doing it on a substantial scale for generations. Medicare, for example, is in effect a strongly redistributive program: it’s supported by a payroll tax (and other revenue) in which the amount you pay in depends on your income, but it supplies a benefit that depends only on your medical costs. From each according to his ability, to each according to his needs!

So no, Obama isn’t a radical for suggesting that we should continue to do what we’re already doing; the real radicals are the people on the right who want to declare much of what our government has been doing these past three generations illegitimate.

The real question – arguably the central question of political economy – is how much to redistribute. And it’s both interesting and important to try to understand how that decision gets made.

There’s a substantial literature (see, for example, the references here (pdf)) that makes use of something like the following model:

1. The government levies taxes on everyone – say, as a constant proportion of income
2. It uses that revenue to pay for a benefit that everyone receives
3. Voters choose parties based on which offers a tax/benefit program closest to the one that maximizes their own utility
4. The end result reflects the preferences of the median voter

This kind of model suggests that the median voter will in fact want redistribution as long as his or her income – median income – is less than average income, because in that case he’ll have more to gain than to lose from a bit of redistribution. And this condition is always met, because income distribution is skewed to the right (there are people with incomes $1 million above the median, but none with incomes $1 million below the median).

But in that case, won’t the median voter favor complete redistribution, with all income taxed away and then handed out as benefits? No, because of incentives: too high a tax rate will discourage effort and reduce overall incomes. So there’s a tradeoff that leads to some equilibrium level of redistribution…

In particular, imagine yourself as a hired gun for the right tail of the income distribution. What would you do in an effort to stop the median voter from realizing that she would benefit from a more European-style system? Well, you’d do everything you can to exaggerate the disincentive effects of higher taxes, while trying to convince middle-income voters that the benefits of government programs go to other people. And at the same time, you’d do everything you can to disenfranchise lower-income citizens, so that the median voter has a higher income than the median citizen.

So far, efforts along these lines have been remarkably successful. But operatives on the right are clearly worried that their three-decade run of success may be coming to an end. Indeed, the whole panic about the lucky duckies and all that can be seen as reflecting a great fear on the part of the right that any day now the median voter will realize where his true interests lie, and start supporting much more redistributionist policies.

Of course, I want to distance myself from the unchivalrous innuendos of the “hired gun” line. Needless to say, most advocates of small government and free markets are conscientious people who are if anything sacrificing personal gain to advocating what they think is right for the country as a whole. But that’s not the point I wanted to make. One might also object to Krugman’s assumption that taking other people’s wealth by force is morally unproblematic, but that’s not what I want to stress, either.

Since I started thinking about open borders at age 19 or so, the moral value that people attach to redistribution has become unintelligible to me. It’s obvious that the really poor do not live in America, but in India, Pakistan, Africa, Haiti, and so forth. Domestic redistribution is at best from the very-rich to the relatively-rich. I can see how democratic politics might cause that to happen; but what serious reason could anyone have to approve of it?

The best thing America could do for the poor is to open the borders. Nothing else comes close. Failing that, the next best thing America could do is just to grow the economy as fast as possible, boosting our demand for the rest of the world’s products and increasing the rate of innovation. That’s why I would reduce domestic redistribution to a minimum. Whether international redistribution is a good idea is an interesting question. There I can see a moral case on both sides. But to think there’s any moral upside to domestic redistribution seems to me a function of not having thought through the logic of open borders.

Final point: the crude median-voter model seems to underlie much of the opposition to immigration.

A Few Responses to Critics

My co-blogger Vipul Naik is better than I am at reading sources on the other side of the immigration issue. I sometimes like to learn by debating, to know what the other side thinks, and to take their claims and arguments and talking points as a jumping-off point for my own thoughts. Sometimes the other side convinces me and I reverse my views, e.g., on natural rights, which I disbelieved in at the age of 25 but believed in by the time I was 30 or so. But on other issues, including immigration, the truth is more lop-sided, and to read the other side just frustrates me with bad logic and pollutes my brain with false facts. To be fair, I think there are a few needle-in-a-haystack decent arguments on the other side, but to find them I’d have to read so much rubbish that it’s not worth the effort.

So I was glad to read the comments section of Bryan Caplan’s post “Vipul Naik and the Priority of Open Borders,” (a follow-up on Vipul’s post open borders and the libertarian priority list: part 1) because it aggregates a lot of objections to open borders in one place, succinctly stated, and informed by at least some familiarity with Caplan’s arguments. I’ll quote and address them in the order that they appeared. Continue reading A Few Responses to Critics

Has the era of mass migration come to a close?

Thomas Sowell’s Migrations and Cultures is an excellent book. Whether talking about Indian immigrants in Uganda or Jews or overseas Chinese, Sowell demonstrates page after page how anti-foreign bias combined with standard restrictionist arguments lead to harrassment and intimidation of market-dominant minorities, mostly immigrants and their descendants. And he shows, with one example after another, how these actions ultimately hurt the natives themselves once the market-dominant minorities pack up and leave, or are forcibly expelled.

Given the contents of the book, I furrowed my brow that the most salient review blurb was from US restrictionist (and himself an immigrant from Canada) Peter Brimelow (author of Alien Nation and founder-cum-editor of VDARE). Here’s what the blurb says (emphasis mine):

Thomas Sowell is one of the wonders of the American intellectual world…Not only is the book crammed with detailed research that even experts will find instructive, but it is willing to look unflinchingly at evidence that suggests migration can be bad as well a good — and even that the era of mass migration may be coming to a close.

So I thumbed back to the conclusion of the book. The last few pages of the conclusion seem to be informed speculation about the future on Sowell’s part, rather than a summary of the book’s contents. So, agreement or disagreement with these could be quite independent of agreeing or disagreeing with the historical analysis presented by Sowell. Continue reading Has the era of mass migration come to a close?