President Trump’s Cancellation of Many Work Visas Will Hurt the American Economy

The Trump Administration has just issued an proclamation that will restrict the issuance of many temporary economic migrant work visas. The proclamation will go into effect on June 24 at 12:01 a.m. eastern daylight time. The visas affected are the H-1B visa for skilled temporary migrant workers, the H-2B visa for temporary lower‐​skilled non‐​agricultural employment, most J visas, and L visas for intracompany transfers.

Trump’s proclamation justifies the restriction on new visas by citing the recession caused by COVID-19 and the government’s response to it so far. Like most of the other policy responses to mitigate the costs of the pandemic, ending visas will also have a negative impact on the U.S. economy. The proclamation contains justifications that might as well have been cut‐​and‐​paste economic from restrictionist websites. Essentially, the administration argues that more migrant workers will take jobs from Americans and visa restrictions are necessary to protect their jobs.

That is untrue for a whole host of reasons that I’ve written about before. Below are the main reasons why decreasing immigration won’t help the economy.

First, cutting legal migration won’t save jobs for Americans and could end up destroying many in the process. In the past, the government has restricted legal immigration to combat recessions and high unemployment with disastrous results. President Herbert Hoover vastly reduced legal immigration in 1931 during the Great Depression. Combined with mass‐​deportations of about 500,000 Mexican workers, President Hoover’s EO had a negative effect on the wages and job opportunities of Americans at worst and no effect at best.

The best research on how cuts in immigration affect native wages and employment is by economists Michael Clemens, Ethan Lewis, and Hannah Postel, who study how the 1964 termination of the Bracero program impacted employment and wages. Specifically, Congress canceled the Bracero program to raise the wages of American farm workers by reducing the total size of the workforce—the same justification used by the Trump administration in this proclamation. They found that ending lower‐​skilled migration for farm workers had little measurable effect on the labor market for Americans who worked in those occupations except it slowed wage growth. Farmers chose to use more expensive machines to harvest crops and altered the crops they planted instead of raising wages.

Reducing immigration will also negatively affect the American economy by reducing demand, and by reducing the number of consumers. This will reduce the number of employment opportunities as employers won’t have as many customers as they otherwise would. One estimate of this effect says that each immigrant creates 1.2 local jobs for local workers, most of them going to native workers, and 62 percent of these jobs are in non‐​traded services, from 1980–2000. As economist David Card said, immigration causes “The demand curve [to] also shift out.” Reducing legal immigration prevented that shift from occurring.

Second, the impulse to close immigration to protect jobs for American citizens is called the lump of labor fallacy, which is a fundamental misconception that there is a fixed amount of work in a society. Believers in this fallacy apply it to immigration by arguing that any job held by an immigrant could be held by an American citizen, but this just simply isn’t true. The number of jobs available depends on myriad economic factors and is never stable.

The so‐​called displacement effect, which is the term for when immigrant workers push native‐​born American workers out of the labor market, is rarely ever observed in practice and always very small when it is detected. Most economic research on the effects of immigration on employment find no statistically significant evidence that immigrants push natives out of jobs, even in extreme cases like the Mariel boatlift that increased Miami’s labor force by 7 percent in 42 days in 1980. Immigrants and natives typically move to the same economically expanding areas of the country, which we wouldn’t see if immigrants were taking jobs from Americans.

Third, immigration doesn’t much affect the wages of native‐​born Americans in the long run. Initially, more immigration might slightly lower wages. However, that decline in wages raises the relative price of capital, which are the tools that workers use to produce goods and services. As a result, the profits from capital increase and investors respond by producing more capital, which causes its price to fall. A consequence of more capital is that workers become more productive, which results in higher wages. The labor demand curve is almost perfectly elastic in the long‐​run. This economic effect, however, doesn’t impact all workers equally.

A large increase in the supply of low‐​skilled workers could lower the relative wages of similarly‐​skilled workers even after the capital markets adjust, it’s just that economy‐​wide wages should be about the same as they were prior to the immigration. New immigrants only have a consistently negative impact on the wages of other immigrants, but not much of an impact on natives. That’s because immigrants are most substitutable or competitive with other immigrant workers and are not that substitutable for many native‐​born American workers. Native‐​born American workers also react to immigration by making themselves less substitutable with immigrant workers by getting more education.

As the National Academy of Sciences noted:

“When measured over a period of 10 years or more, the impact of immigration on the wages of native‐​born workers overall is very small. To the extent that negative impacts occur, they are most likely to be found for prior immigrants or native‐​born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills.”

Fourth, cutting the number of H-1B visas will reduce American innovation as they are disproportionately likely to patent and make other discoveries that help fuel productivity growth. Cutting off H-1B visas will not result in the hiring of more American workers and could even cut the number of job by making it more expensive and uncertain to fill position. As the cost of hiring increases, less hiring occurs. H‐​1Bs are blamed for low wages, but there is little evidence that they actually lower wages. Furthermore, H-1B migrants likely saved many American jobs during the COVID-19 recession. A huge percentage of them work in IT – which has been essential in transitioning Americans to remote work. Without their contributions, many Americans who can keep their jobs by working remotely would be out of a job. This is exactly the time to boost the number of IT workers in the United States through migration, not to cut it.

Lastly, migrants on the temporary work visas affected by Trump’s proclamation come to the United States because of economic opportunity. If the benefits of coming to the United States are greater than the costs (psychological costs, cost of moving, opportunity costs, danger of migrating, etc.), then migrants will come. The biggest benefit of coming to the United States is higher wages, which are higher because migrant workers are more productive here than in their home countries, so they supply more goods and services. Fewer migrants will come here anyway because there is less economic opportunity and more danger due to the virus. Those that come do not displace native‐​born American workers.

Trump’s proclamation severely limiting temporary migrant visas, like most of his previous “temporary” bans, will probably last longer than is necessary or won’t be canceled at all until a Democratic president takes office. The recent Supreme Court case of Trump v. Hawaii gives the president broad power to limit the entry of immigrants for just about any reason under the sun, and that won’t change anytime soon.