The debate between the advantages and disadvantages of immigrant workers
and their effects on local workers' wages has been a long standing one.
One way to eliminate this problem is to leave it to the market, which will
solve it through the forces of demand and supply. So, should we have markets
for immigration? Immigrant workers increase productivity, decrease costs
to consumers, promote cultural interchange, increase corporate profits,
establish close relationships between rich and poor nations, facilitate
foreign direct investment and better the lives of workers from less fortunate
economies. Given the potential they hold, the continuing small size of migrant
worker programs (MWPs) observed in the world's industrialized economies
requires some explanation.
In order to answer this question, one must examine the pros and cons of
migrant worker programs.
The first section of the paper looks at the problems associated with 1) the tethering of migrants to employer-sponsors, creating a non-market system with a host of inefficiencies, as well as the potential for human rights violations; 2) the costs of bringing in migrant workers which have not been accurately incorporated into the fees paid by employers and entrants; and 3) the redistribution of native income away from workers and towards employers and. The second section looks at problems associated with the H-1B visa program. The third explores the fundamental restructuring of MWPs and some market-based solutions and finally, the last section draws on the problems stated in the other sections and concludes by supporting a market-based immigration system.
Consequences of direct sponsorship, costs and risks
When the host-country employer sponsors migrants seeking work abroad, they
are closely tethered to their host country employer-sponsors and are therefore
not free to search for alternative employment opportunities in the host
country. This is against the gains derived from migrants' freedom to respond
to wage signals and terms of employment, which is central to the economic
argument in favor of transnational job search. Another problem with tethering
arises when migrants are placed in employment situations where they can
be vulnerable to exploitation by unscrupulous employers. Lastly, if migrant
workers are not permitted to seek alternative work in the host country,
their "company loyalty" creates preference for migrant workers
over natives, as employers know they will not have to earn migrant worker
loyalty with the expenditure of resources that would be needed for native
workers (Weinstein, 2002). In this way, some migrants will out-compete natives
solely due to direct migrant sponsorship.
Besides the problem of direct sponsorship, there are many other costs and
risks involved. Migrants have very varied impacts on important aspects of
society in their host countries, for instance, on national security, cultural
diversity, local environmental issues, and the use of public services. Unfortunately,
these indirect effects of migration are complex and few MWPs have set up
revenue schedules, attempting to total the full extent of these impacts.
The program does not generally provide the resources needed to lessen the
negative effects of migration on the host country. This means resources
are drawn away from other programs or there are insufficient resources to
make the migrant presence a clear net benefit to the host country (Weinstein,
2002).
Another related problem is visa trading on black markets. When the working
papers of a migrant are more valuable to a second employer than the employee
is to the original sponsor, there is a temptation to sell the migrant's
work authorization papers to a higher bidder (Weinstein, 2002). Such trading
in documents is extremely hard to monitor as it necessarily occurs in an
informal, unregulated environment
Do Migrant Workers Cause Wage Depression?
The issue with MWPs is that they have the ability to lower wages in the
host economy, allowing employers to increase profits and decrease prices,
specifically by lowering labor costs (Borjas, 1995). Economic theory presumes
that increases in the supply of a commodity (labor) will lead to declines
in its price (wage). The host nation's welfare will be increased if mean
income, as opposed to median income, is used to gauge the national well-being.
However, the concern is not the harmful impact on the labor-market, but
the fact that there is an overall transfer of wealth away from workers to
capitalists. If the social welfare function depends on both efficiency gains
and the distributional impact of immigration, the benefits arising from
migration surplus can be outweighed by the wealth distribution from workers
to owners of capital (Borjas, 1995). Thus, the problem is the redistribution
of income, not the fall in native wages.
However, wage depression does occur and it happens mainly due to "native
flight" or ghettoization. When MWPs target occupations already failing
to attract native workers, those occupations become even less attractive
to native workers as their wage growth is depressed relative to non-targeted
sectors. This means that wage depression is occupation specific and in targeted
occupations wage depression can set up a positive feedback loop. As more
migrants move to a particular field failing to attract native workers, wages
fall increasingly short of competitive offerings, causing an acceleration
of native flight towards non-targeted fields. The term used to describe
this cycle, "native worker shortage," is ill-suited as the problem
is self-inflicted by employers (Weinstein, 2002).
An Example: The H-1B Visa Program and IT Workers
The H-1B program expands the labor supply of Information Technology (IT)
workers, but at the same time restricts the ability of H-1B holders to compete
in an open market. Workers who hold H-1B visas are bound to a specific employer
for the duration of their six-year visa - the tethering effect. As a result,
employers can abuse the program by paying a salary often below the market
value. This in turn affects the wages and job security of domestic IT workers,
as employers can threaten to replace them with cheaper, temporary immigrant
labor (Watts, 2001).
The controversy lies in the debate as to whether there really is a shortage
of qualified IT workers, as the industry-executives claim. Their argument
is that the IT industry accounts for nearly one-third of the growth of the
US economy, and because IT has penetrated almost all sectors, a shortage
of IT labor threatens the global competitiveness of the entire US economy.
However, statistics show that 21 major IT companies laid off more than 120,000
workers in the first half of 1999 (Nguyen, 1999). At the same time, H-1B
is not reserved solely for IT workers. The difficulties in defining who
is an It worker and in determining the actual supply and demand for It workers
have contributed to the politicization of the H-1 debate. The other problem
is the decreasing number of high-tech degrees awarded between 1990 and 1996,
of which a significant number went to foreign nationals studying in the
US, who are subject to the H-1B visa cap (Watts, 2001). Thus, the big question
is, should the visa cap be alleviated to cover up the shortage if there
is a shortage, or is the shortage a result of IT companies trying to increase
their profitability, which in turn tethers immigrant workers to their employers?
Longer-term labor shortages only exist if there is some artificial mechanism
that prevents wages from rising to a marker-clearing wage. None of these
mechanisms seems to be present in today's competitive labor markets (Espenshade,
2001). Rising wages or total compensation would be one sign of growing labor
scarcity. But scientists' and engineers' annual salaries, measured aggregately
in constant dollar, have been falling (Espenshade, et al. 2001).
Structural Reform & Market-Based Solutions
The problems faced by migrant workers are evident. Instead of addressing
each problem individually, what we need is fundamental structural reforms
of current MWPs. Failures are the result of inadequate marketization. By
proposing a truly market-based model, it is possible to create an efficiently
functioning MWP, while directly addressing the causes of the problems described
above.
The basic idea is to move away from a system of sponsored work visas to
one which openly embraces the "immigration surplus (Borjas, 1995) ."
This will lead to a new kind of MWP based on a self-funding market system
for the licensing of tradable work permits. Adopting a licensed tradable
work permit (LTWP) will abolish arbitrary employer quotas. The total number
of migrants set by the market does not exceed the hosting capacity of the
country concerned. In such a self-funding system, employers are free to
follow market signals in their quest to boost productivity and control wage
pressures. This aligns the interests of workers and citizens with those
of employers. Migrants benefit substantially, as the tradability of permits
guarantees their right to flee abusive or unsatisfactory employment, and
they receive equal wages for equal work (Weinstein, 2002).
There needs to be three essential reforms. Firstly, migrant workers need
to be given freedom of movement within the admitting sector of the host
labor market, by shifting employer outlays away from direct visa sponsorship
towards a system of tradable work permits. Secondly, MWPs should be allowed
to lower wage costs if productivity gains are to be achieved. They need
to honor pre-existing social contracts and recognize native workers as the
natural licensors of tradable work permits. Thirdly, the total number of
migrants should be set by the ability of the MWP to recover the expected
total impact according to the detailed requirements and preferences presented
by the host government (Weinstein, 2002). A nation, which tends to view
migrants as diluting its national identity, may attach high costs to importing
even small number of migrants. Another nation may consider that the presence
of moderate numbers of migrants brings great cultural benefit and may assign
negative costs (i.e. benefits), to indicate the benefit of hosting migrants
from different cultures (Weinstein, 2002).
So, how does one implement these reforms? The collection of possible solutions
to the MWP question belongs to the class of Coasian models (Coase, 1960).
A true Coasian solution would seek to determine the size of the program
endogenously from supply and demand profiles of workers, employer and government.
The government would assume all the administrative and transport costs for
a group of migrants, calculate the additional external impacts of hosting
them. The native workers would establish their licensing schedule for migrant
work permits as a function of the number sought by employers. The employers
would then indicate the maximum price they would be willing to pay for any
number of permits. The government, workers and employers combine to form
a central exchange to accommodate a secondary market in migrant work permits.
The permits are traded at a price that fluctuates according to shifting
supply and demand.
The Coasian solution may be unlikely to represent diverse groups of individuals
equitably, as workers earn different wages, work different hours, have different
preferences, etc. In such situations, the wage impact of any given MWP on
native workers needs to be estimated in the sector affected. The government
can simulate the government-worker-employer tripartite as if it were feasible
to hold a Coasian negotiation between rational, self-interested actors through
a control and command scheme.
Conclusion
Migrant workers are currently making a considerable contribution to world
productivity; and this will only be enhanced if the resistance to migrant
labor could be decreased at a systematic level. While there are concerns
over native wage depression, security and sovereignty of host nations, without
a fundamental shift in policies concerning migrant labor, the potential
benefit of MWPs will probably be held hostage to continuing concerns for
native workers. A reformation of the H-1B program is needed to create an
open market for business and labor. The US Senate is considering legislation
regarding raising the cap for IT workers, excepting foreign-born graduates
to US universities from the H-1B visa cap and making H-1B portable and allowing
visa holders to freely move between sponsoring employers. These kinds of
reforms will help guarantee a more open market for migrant labor. There
is a positive vision for creating a healthy market for immigration, where
markets do what they are supposed to do by making migrant workers, employers
and native workers better off than they were before.
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Espenshade, T. J. Usdansky, M. L. & Chung, C. Y. (2001). "Employment and Earnings of Foreign-Born Scientists and Engineers." Population Research and Policy Review. 20: 81-105.
Weinstein, Eric (2002). "Migration for the Benefit of All: Towards a New Paradigm for Economic Immigration." International Labour Review v141, n3 (2002): 225-252.
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