Hurting Americans in Order to Hurt Foreigners: Benefit-cost analysis challenges the Trump administrations effort to end the H4 EAD program.

Author:Brannon, Ike
Position:LABOR - Employment authorization document - Report
 
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In 2015, the Obama administration authorized temporary work permits for the spouses of H-1B visa holders who were awaiting green cards. Over 90,000 of these H-4 visa holders have since received a permit, known as an Employment Authorization Document (EAD), and three-fourths of them are gainfully employed.

In 2017, the Trump administration announced that it intended to repeal the rule providing this work authorization. This February the administration followed through on that announcement with a notice of proposed rulemaking. The administration's stated reason for repealing the rule is that it would create more jobs for U.S. citizens.

We believe a thorough benefit-cost analysis, as required under Executive Order 12866, would find this justification unfounded. Ending the ability of these workers--who are, by and large, well-educated and high-skilled--to hold jobs in the United States would at best have no net effect on Americans' employment and likely would reduce Americans' employment and wages. Further, ending EAD would hurt the U.S. economy and U.S. taxpayers.

THE ECONOMICS OF SKILLED IMMIGRATION

The effect of any immigrant group on the U.S. economy depends on those immigrants' skills and educational attainment. Highly skilled, well-educated workers, both foreign-born and domestic, have high employment levels, are less likely to avail themselves of public services such as food stamps and welfare, and are more likely to be in occupations that are hard to fill. As a result, they boost U.S. tax revenues while having little effect on government spending.

These skilled foreign workers benefit U.S. economic growth and employment, both for skilled and unskilled American workers. One reason for this is that skilled foreign labor has a relatively small substitution effect on skilled domestic workers because skilled foreign workers are relatively mobile and go where there are many available jobs. In contrast, the U.S. labor force is not so flexible: geographic mobility has gradually diminished in the United States since the 1950s and has fallen by 10% in just the last two years. The chief reason for this trend is the rise in two-income households, which increases the cost of moving for one spouse's job.

Another reason that skilled foreign workers have a positive effect on domestic employment is that they create what economists call a "scale effect": they boost overall economic activity, creating more opportunities and jobs for both skilled and unskilled domestic workers. This effect outweighs the small substitution effect for skilled domestic workers. For example, a 2014 study by Giovanni Peri, Kevin Shih, Chad Sparber, and Angie Marek-Zeitlin showed that reducing the number of skilled foreign workers coming to a community significantly reduced the wages of college-educated, U.S.-born workers in those communities who work with computers.

Skilled foreign-born workers have an unambiguously positive effect on unskilled U.S.-born workers. Skilled workers and unskilled workers are, in general, complementary, just as skilled workers and capital are complementary--that is, an increase in the quantity of one increases the demand and price for the other. Hence, an increase in the supply of skilled foreign workers increases the amount of capital in the economy and--along with it--the demand for unskilled workers. This results in higher wage and employment levels for unskilled workers, even without the scale effect.

Highly skilled foreign workers are also more likely to create new businesses than U.S. citizens with similar skills and education. Foreign-born workers in the United States are 30% more...

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