Are restrictive guest worker programs in employers’ interests?

1 Comment

This post revisits a subject I last wrote about in December 2012. In that post, I discussed Daniel Costa’s critique of guest worker programs as they exist now, and noted how moves in the direction of more liberal guest worker programs of the sort considered on this site would be less susceptible to those problems than the status quo. Discussions of the (real or alleged) worker exploitation found in guest worker programs are often used as justification for ending the programs and moving instead to a more closed border regime.

Below are some examples of critiques of guest worker programs:

The critiques span a range of perspectives, and need to be addressed in terms of their explicit claims, philosophical assumptions, and tacit connotations. For what it’s worth, I think many of the factual claims are correct, but some of the connotations are mistaken. In this post, I concentrate on a specific claim, usually subtextual, but occasionally explicit, namely:

Guest worker programs where workers are tied to a specific employer and cannot easily move to other employers without losing their legal status in the country:

  1. allow employers to exploit workers in ways they wouldn’t if the workers were free to move around,
  2. benefit employers at the expense of both migrant workers and the native workers who do similar jobs, and
  3. exist in their current form (as opposed to a more liberal form) precisely because they allow employers to exploit workers.

(for a related discussion, and some articulation of these points, see here).

I think (1) is true but the emphasis is off, (2) is true only in certain circumstances, and (3) is probably not true.

#1: Do existing guest worker programs allow employers to exploit workers?

You might think it’s obvious that, if workers do not have the freedom to legally switch between employers without putting their legal status in the country in jeopardy, this gives employers carte blanche to reduce workers’ wages and working conditions to a point where it just beats the option of returning to their home country. But this isn’t so straightforward.

The worker does have a choice at the beginning: a choice in deciding whether to enroll in the guest worker program to begin with. At this point, the worker hasn’t signed up to what amounts to indentured labor. At this stage, the worker should be able to shop around for the employer who offers the best deal. That’s why inserting exclusivity and non-compete clauses into job offers raises their price.

So what’s the issue? Why doesn’t employer competition at the point when workers are signing up for the guest worker program drive wages up? We can think of a few stories:

  • Perhaps the issue is that it is easier for employers to collude to keep wages down for workers who are not physically present in the country, more so than for workers who are already in the country and can shop around for job interviews prior to signing up. In this case, the issue is not so much with workers’ inability to move between jobs as it is with the fact that workers can’t really search freely for jobs.
  • Perhaps the search costs for workers in other countries are sufficiently high that it creates barrier for entry for many potential employers, so the ones who are able to bear the search costs can get away with offering lower wages. I say “get away” but we could legitimately interpret this as just saying that they pay lower costs because search costs eat up part of their budget.

I think the second point is probably more of the story. It’s hard to find workers in a different country who would be suitable workers. Conversely, the search costs for workers themselves are high. These high search costs take away some of the economic surplus of the worker directly, but also keep many potential employers effectively out of the market.

Whatever the mix of these (or other) reasons, I think the issue at hand is a mix of naturally higher costs involved in hiring across large geographic barriers, and specific barriers imposed by border enforcement. If workers could enter legally and freely move around interviewing for jobs, then the fact that once they get a job they are stuck with it wouldn’t be such a big issue. It would still be an issue, and I would still support getting rid of tying workers’ legal status to employers. If employers and workers want long-term loyalty, they can arrange for it the same way they do with native workers: insert non-compete clauses or include a bonus for completion of the work. And note that the existence of non-compete clauses and credible commitment devices could help both employers and workers, not just employers (my co-blogger Nathan suggests Chapter 1 of his book The Verdict of Reason for a more detailed discussion of the role of credible commitment devices. He also notes that, to the extent that migrants are legally more heavily tied to a particular employer, this might disadvantage natives competing with them, who cannot make such a credible commitment. I’m not convinced that this is a significant factor but it is plausibly important for some guest worker programs).

Regardless of the specifics, allowing more people to enter a particular occupation is likely to, at least in the short term, drive down wages for that occupation (though there are many interesting exceptions and caveats, as noted at our suppression of wages of natives page). But this is more a general statement about supply and demand than a claim about worker exploitation.

A related point. There have been many claims, some backed by evidence, of employers offering workers one thing when recruiting them, and then reneging on their terms, or offering far less, when the workers are in the new land. Because of the restrictive terms of their guest worker program and the absence of, or difficulty of accessing, legal recourse options, workers are stuck. I think this is often true, but the existence of large-scale repeat migration suggests that, at some level, a large number of workers implicitly know that the claims that employers make when recruiting them are overstatements. Why do employers bother making false claims when recruiting, and then offer less when the workers are already in the land? This is probably a marketing/signaling/price psychology issue that I don’t have full understanding of. Michael Clemens makes the point in his paper on migrant labor to the UAE (quoted by Carl):

Three key results emerge from analysis of these data. First, the economic benefit to migrant workers is extraordinarily and systematically large: migration to the UAE for basic construction work causes their daily wage to rise by a factor of five, and causes employment to rise by at least 20 percentage points. Second, there is no sign that many of the commonly-mentioned costs of migration are systematically experienced by migrants’ households; migration to the Gulf causes the fraction of households in debt to sharply decline, and there is no evidence of labor force entry by school-age children or labor-force exit by adult family members. Third, households are generally well-informed about working and living conditions in the UAE, and there is no evidence that they enter into migration systematically overestimating the benefits. Households with migrants give estimates of migrants’ income that closely reflect true income in UAE administrative records…

[…]

The principal focus of scholarly and popular writings on labor migration to the Gulf is the harms and abuse perceived to be associated with the phenomenon, not the benefits to workers or countries. The foremost theme of scholarly research on Gulf migration, Gardner (2012) writes, is “the problematic and exploitative labor relations that seemingly characterize the experiences of many of the poorest transnational labor migrants who spend time in the Gulf states.” To take two of numerous examples of academic research on foreign workers in the UAE, Keane and McGeehan (2008) describe “appalling” conditions in “a form of slavery,” while Zachariah et al. (2003) find that “nearly one-fifth of the Indian migrants have not received the same job, wages, and non-wage benefits as stipulated in their work contracts.”

An even greater focus on perceived harms to workers emerges in more popular writings on migration to the GCC. For example, Human Rights Watch (2006) describes workers in the UAE as subject to “wage exploitation, indebtedness to unscrupulous recruiters, and working conditions that are hazardous to the point of being deadly.” Of all internet pages in English that mention migrant workers in Dubai, almost one-third contain the words “slave” or “slavery.”

…the migration of workers from South Asia to the UAE has been an important force for employment and poverty reduction for South Asians. It generates employment for hundreds of thousands who would otherwise be without work and creates billions of dollars in earnings each year for low-income South Asian workers…

Clemens also notes the same for agricultural guest labor in the United States:

If you think these difficult jobs are bad for Mexicans, think about this: 85% of the NCGA’s Mexican seasonal employees last year were repeat employees. They came the previous season, and they chose to come back the following season. It is inappropriate and unfortunate that some labor advocates call H-2 visa jobs “close to slavery.”Slaves had no such choice, and would not have happily gone back to the plantation that owned them. Furthermore, the H-2 visa holders who work for the NCGA are not tied to a single farm: their visa allows them to work throughout the 700-farm network, so that there are opportunities to move if any given farm violates labor standards. Any shortcomings of the H-2 program are not the fault of migration itself; they can be fixed by fixing the program.

#2: Do employers benefit on net by restricting workers’ ability to move between jobs?

First off, let’s look and see if we see evidence of employers trying to restrict worker mobility for native workers. We do see some non-compete clauses for workers at top technology companies and finance companies, generally companies that have secrets that they don’t want competitors to gain. And we might see companies offer special pay and bonuses to workers for completion of projects. Contractors may in particular be subject to rules where they receive pay only if their work is completed. So, there is some evidence of employers benefiting enough from restricting worker mobility that they put clauses in job offers that include such restrictions, but these restrictions tend to be limited to some high-skilled jobs that involve sensitive secrets, or contract jobs where the job really needs to be completed in full to deliver benefit.

In general, do employers benefit from not having their workers suddenly leave the job? In some obvious ways, yes: after investing in the search and recruitment costs for workers (which are more for more high-skilled workers, but exist for workers at almost all levels) the employer would be pretty unhappy if the worker just left the job. Even so, it just doesn’t follow that employers benefit from a regime where workers’ ability to leave jobs is contractually restricted. Some reasons are below:

  1. Even if employers don’t value their own workers shopping around, they value poaching employees from other employers, and the net effect of these is ambiguous. As co-blogger Michelangelo Landgrave put it in an Open Borders Action Group post comment:

    A given firm might benefit from being able to restrict its own workers from working elsewhere AND being able to hire anyone they want.

    However a firm doesn’t have that choice. It can either:

    A:Restrict its employees options and NOT be able to hire whoever they want. (Current scenario.)

    B:Or be able to hire anyone they want, but their own employees can also work with whoever they want.

    Firms want C, but they can only choose B or A. B is thus their preferred choice out of the available options.

    Note what this predicts: if a guest worker program isn’t portable, employers will generally try to exploit the way it benefits them: namely, the fact that workers don’t have the option to look around. But that doesn’t mean it benefits them more than it harms them.

    Could there be situations where employers on the whole are benefited and employees harmed by the non-portability of visas? Yes, but this is certainly not the only possibility or even the default possibility.

  2. In many cases, the fact that workers’ legal status is in jeopardy if the worker is fired can be a minus for the employer: Firing aversion is already common among employers — they find it difficult to fire workers even if they are not performing at full potential. The fact that a worker’s legal status in the country is contingent on employment means that the employer finds it harder psychologically to fire the worker. This then becomes a drawback of the non-portability of the visa. See also this Open Borders Action Group post.
  3. Having employees who are hanging around solely because they can’t legally leave is often bad for productivity and morale: Workers who are stuck with an employer because they have no other legal options may be half-hearted and uncommitted. In the best case, their lack of interest in the job means they do a somewhat substandard job. In the worst case, they might actively sabotage at the job. This risk is higher in more high-skilled jobs, but exists everywhere. Now, this isn’t a dealbreaker — if it were, slavery would have been a complete economic failure — but it is a downside.

Now, there are certainly some employers whose entire business model is built on exploiting the legal restrictions on worker movement, where they are able to justify the search and recruitment costs of workers based on the fact that workers are required to work only for them rather than switch jobs. In a world with open borders or much more liberal guest worker programs, these business models would be under jeopardy. So in some sense, these employers exploit the status quo. You could argue that they’re exploiting it in a way that’s still socially beneficial on net (cf. Matt Zwolinski’s discussion of the two kinds of exploitation).

There are also some plain unscrupulous and terrible employers, who physically abuse workers, and there are reasons to believe that the existing structure of immigration law allows them to get away with sloppy treatment of workers. Though, compared to rogue border enforcement agents and those managing immigrant detention centers, I think the incidence of such terrible employers is relatively small.

My co-blogger Nathan Smith made an interesting related point over email on how the status quo, where employers need to file expensive paperwork for workers, might in fact mean that the restrictions on worker mobility are actually what makes employers still be willing to file the paperwork and pay the fees. I’m not sure of the extent to which this is true, but it has a ring of plausibility to it. Even if it were true, that is not a defense of the status quo, but it does suggest that even to the extent employers benefit from restrictions on worker mobility, these benefits become particularly important in light of the legal costs imposed by paperwork for migrants.

#3: Are the restrictive provisions of guest worker programs a direct result of employers lobbying for less freedom for workers?

I would really be interested in evidence for this proposition, because I just don’t see it. I wouldn’t say that employers are at the forefront of seeking full labor mobility for their workers, but if anything, they do seek more flexible rules that would benefit workers. For instance, I believe that making the H-1B visa semi-portable (in the sense that people who switch jobs when on a capped H-1B don’t need to try again for the lottery) was largely supported by, and in fact even lobbied for by, employers. This is in keeping with Michelangelo’s comment quoted earlier in the post, where employers gain from a flexible labor market by being able to poach workers from other employers, even if they lose a bit in terms of their own workers being able to leave at will.

Similarly, moves to increase flexibility with Optional Practical Training are generally met with approval from the business community, and the OPT is generally liked by employers and workers because of the reduced paperwork and the greater flexibility that works and employers have. As I discussed in my blog post on the OPT, Bill Gates, speaking as a representative of high-tech companies, lobbied for an extension of the OPT. Commentators with a better understanding of the situation than I possess have predicted that the business community will take badly to changes that make it harder for people to switch easily between jobs when on OPT:

Accordingly, Secretary Johnson directed USCIS and ICE to “develop regulations for notice and comment to expand the degree programs eligible for OPT and extend the time period and use of OPT for foreign STEM students and graduates.” The business community would like to see a significant expansion of STEM eligibility in the new rules. But the business community may not appreciate some OPT restrictions that the Secretary has suggested might be paired with expanded STEM eligibility. Currently there is great flexibility associated with OPT. F-1 graduates on OPT can be self-employed or work as independent contractors, and if they work as employees on a W-2, there is no prevailing wage requirement associated with their employment. The flexibility associated with OPT has proven extremely helpful to foreign entrepreneurs and inventors who use the post-graduation period to refine their inventions, products and business ideas, form companies, and find investors.

Anecdotally, employers rarely seem excited about H-1B paperwork, and saying that you need a H-1B visa to work for an employer has rarely been known to boost your chances of getting a job. It’s true that employers who are in a position to sponsor Green Cards for their H-1B workers might not be too excited about it because of the flexibility the Green Card offers their worker. But this is more that the employer isn’t interested in spending extra money to give the workers additional flexibility. It’s not so much that employers actually prefer to hire H-1B workers.

Are there exceptions? Yes, there are some employers whose business model is built around H-1B workers who offer better value for money. Some of these companies benefit from the fact that it’s hard for the worker to switch to another job while on H-1B (because that involves paying the H-1B fee over again). I haven’t seen evidence of it, but some of these companies might actually lobby against increased portability of H-1B visas.

Does the same dynamic apply to low-skilled work, such as agricultural labor? First off, let’s think of it: the agricultural guest worker program in the United States is sufficiently cumbersome that most farmers don’t bother going through it at all, instead employing illegal immigrants to meet their farm needs. There are a few groups, such as the North Carolina Growers Association, that have managed to pool together farmers’ resources and get more efficiency of scale when using those to hire workers. The NCGA (at least per their official claims) does not tie workers to particular farmers, but gives them flexibility to shop within the farm network. Obviously, since the NCGA’s raison d’etre is helping farmers navigate a complex system, they’d probably be hurt if the borders were completely opened. At the margin, though, they’ve advocated for greater liberalization and flexibility in guest worker programs.

Putting the blame where it belongs: restrictionist attitudes

The upshot of the above is that some employers benefit from some aspects of the status quo that restrict worker flexibility, but this isn’t true of employers at large, nor is there good evidence that employers at large have lobbied for it or consider it an optimal option. As for the raw issue of supply and demand, more open borders for a particular profession would probably allow for wages to fall more in that profession, so opting for a restrictive guest worker program isn’t optimal from that viewpoint. Some of the standard armchair arguments about how employers benefit from the status quo are mistaken. Even when correct about individual details, they draw incorrect broader conclusions.

I want to end with an analogy that is less than ideal but is still illuminative. You could argue that the status quo War on Drugs (which has previously been discussed in connection with open borders) benefits drug dealers at the expense of consumers, who have to pay much higher prices than they would in a free market for drugs, and that, basically, the status quo is a sop to drug dealers.

I think it is true that most of the people who peddle drugs under the status quo probably wouldn’t be the ones selling them in a world where the drugs in question are legal. So in a sense, they benefit from the status quo and it’s in their interest (insofar as selling drugs is a rational choice) to oppose any drug liberalization. But it would be wrong to conclude that the main reason we don’t have full drug freedom is lobbying by drug dealers! Drug dealers are not generally a politically influential segment of the population (though there are parts of Mexico and other Latin American countries where they are). They “benefit” in a sense from the status quo, but this is more an accidental gift to them, rather than a legal framework they shape. The main reason we don’t have a more free market in drugs is that the general population isn’t convinced it’s a good idea. The same way, the main reason we don’t have freedom of movement for labor is that the general public is very opposed to expansion of migration.

PS: When I return to the high-skilled hacks series, I’ll explore in more detail the historical justification and explanation of particular features of high-skilled US immigration law. I hope that I (or others) will do similar work for low-skilled work visas. When I do so, I expect to get a clearer idea of how true some of the claims I made in this blog post are. If I change my mind about some things, I’ll make relevant (and clearly noted) updates.

Related reading

These posts are somewhat related, but didn’t fit in well with the flow of my post (or the links to them are too obscure within the post), so I am including them here:

Thanks to Nathan Smith and Rebekah Smith for offering feedback prior to publication, in response to which I made some edits to the article.

Open Borders editorial note: As described on our general blog and comments policies page: “The moral and intellectual responsibility for each blog post also lies with the individual author. Other bloggers are not responsible for the views expressed by any author in any individual blog post, and the views of bloggers expressed in individual blog posts should not be construed as views of the site per se.”

One thought on “Are restrictive guest worker programs in employers’ interests?”

  1. Pingback: Immigration Restrictions Enable Abuse | Open Borders: The Case

Leave a Reply