Tag: work visas

Selling Work Visas: Auctions or a Tariff?

Yesterday Professor Giovanni Peri presented an immigration reform plan that would auction work visas to employers.  As I wrote yesterday, Peri’s plan would diminish the misallocation of current visas but not do much to increase the quantity of work visas.  Since the real problem with America’s immigration system is a lack of work visas and green cards, Peri’s plan seeks to solve a rather miniscule problem by comparison.

Proponents of selling visas either support auctioning a limited number of visas to the highest bidders or establishing a tariff that sets prices but allows the quantity to adjust.  An immigration tariff is far superior to an auction of numerically limited work visas.  You can read my proposal in more detail here or listen  me explain it here.

Here are three reasons why an immigration tariff is better than an auction:

First, a tariff is the most market friendly way of restricting work visas.  Limiting the government’s role to setting the price of work visas, allowing the purchased quantities to adjust, would make for a much more market-friendly and flexible system.  A tariff would decrease immigration relative to open borders, but misallocation isn’t a big concern because immigrants with the most to gain would pay the tariff.

Second, an immigration tariff is more economically efficient because the quantity of work visas would adjust to market demand unlike an auction of numerically limited work visas.  When there is economic growth more people would buy work visas to keep pace with labor demand.  In slow economic times the number of visa purchases would automatically shrink.  With an immigration tariff, there is no need for a government commission to somehow figure out how many are demanded.  They can just set the price and let the market figure out the quantity.

Third, an auction system will not do much to diminish unauthorized immigration going forward.  An immigration tariff allows immigrants, temporary workers, American businesses, and families to plan ahead, save, borrow, and pool resources to pay the tariff.  Tariff prices will change, no doubt, but they won’t change all of the time as they would under Peri’s system.  An auction would provide less price certainty, fewer guarantees of entering legally, and incentivize more unauthorized immigration than a tariff.

Selling Work Visas

Professor Giovanni Peri today made an interesting proposal to auction work visas to the highest bidding employer. His reform is similar to an auction proposal made by Gary Becker, but more specific. His idea is innovative and deals with transitioning from the current maze of quotas, visa categories, and other barriers to a more open system that better allocates visas to the highest bidders.

The one  problem with Peri’s proposal is that it does not meaningfully increase the number of work visas. The limited number of work visas, not the distribution, is the main problem with America’s immigration system.  Instead, he calls for reallocating visas from families to the employment based category. He then wants American employers to bid for the limited quantity of work visas issued quarterly. A government commission would adjust the quantity and immigrants would be free to move between employers who purchase visas.

Economists like Becker and Peri are rightly concerned with how societies allocate scarce resources to different uses, but the scarcity of work visas is an artificial one created by the government, not one that results from a scarcity of the factors of production or other inputs. This is why there should be no numerical limits on the quantity of work visas issued even if they are priced. Charging for work visas is a substantial improvement over the current system, as I say here, here, here, and here. Most of the welfare gains come from allowing the quantity of visas to adjust to the price, not the other way around. An efficient visa selling process will operate more like a tariff than an auction.

For normal goods and services, a rising price incentivizes consumers to limit their consumption and producers to increase production. A government commission tasked with adjusting visa quantities would face political rather than market incentives and not increase visas in response to rising prices. Unless the incentives are carefully aligned, the result would probably be a more arbitrary and numerically limited immigration system.

Another problem with Peri’s proposal is that it only allows employers to bid for work visas. Immigrants should also be able to bid because they have the most to gain from migrating and have a better notion of their value on the labor market. Immigrants already pay to be smuggled into the United States—some Chinese pay $75,000 per person—so that money might as well be collected by the federal government instead of a coyote. If employers buy visas for specific immigrants, contracts or bonds can effectively guarantee compliance.

Peri’s proposal is a thoughtful and serious attempt to reform immigration but it does not address the main problem with our immigration system: too few work visas.

DREAM Act Would Improve a Bad Situation

The U.S. Senate may vote in the next few days on a piece of legislation known as the DREAM Act. The Development, Relief and Education for Alien Minors Act would offer legal status to as many as 2 million students who are currently in the United States without authorization, many of them Hispanic immigrants who entered the country illegally with their parents.

The act would legalize students who entered the United States at least five years before its passage and were under the age of 16 when they entered. A practical effect would be to make many of these students eligible for in-state tuition at colleges and universities.

The DREAM Act is not a perfect call for those of us who believe in limited government, but in our less-than-perfect world, the act would make a bad situation better. As I wrote earlier this year in a post on the Cato on Campus web site:

Ideally, there would be no reason to propose the DREAM Act if there were more opportunities for legal immigration and if the government were far less involved in providing higher education. Far fewer minor children would enter the country illegally if more work visas were provided for their parents to enter the country legally. In-state tuition and government aid would cease to be a major issue if responsibility for providing higher education shifted more to a competitive private sector.

Given our current system, however, the DREAM Act would somewhat improve a bad situation. It would extend legal status to a group of people who have completed high school, typically speak English well, and are thus able to pursue higher education or better support themselves in the labor market. It would help to maintain a healthy growth rate of the U.S. labor force and provide entrepreneurial spirit associated with immigrants.

The DREAM Act would also extend more equitable treatment to students whose lack of legal status is no fault of their own. Their parents, although undocumented, have usually paid the same sales and property taxes paid by legal residents with similar incomes. The DREAM Act would lift thousands of students out of a legal netherworld and allow them to improve themselves while at the same time contribute to a more productive United States.