The US anti-immigration laws are bankrupting the Silicon Valley (Tech Crunch). H-1B – work visa – related costs and quotas impede American tech companies from employing foreign minds trained in American universities .
Running a business (profitably) is not easy; an economic crisis and the world wide competition in the industry will make sure you constantly optimize your costs and outputs. By all means, cutting back on costs is vital. In the tech industry’s case, firms look up cheaper yet highly skilled sources of labor – foreign labor. International students in US universities acquire virtually the same level of skills as their American colleagues, yet because of their lower opportunity costs in their home markets they will settle on mutually agreed lower wage rates with US employers. Cheaper yet equally or more productive labor will improve firms’ cost structure which in turn will lead to an increase in revenues, and maybe even profits!
The moral of this story is that the US should get rid of restrictions on foreign labor in general, and of H-1B visas in particular as soon as possible. The cost of foreign skilled labor increases as more and more countries improve their institutions, and encourage local entrepreneurship and cooperation. More and more foreign workers will find it less costly to work in their own countries just as some American workers might find it less attractive to work in US.
Hence, if there were no bureaucratic costs and restrictions like the H-1B visas, the match between the right workers/skills with the right jobs/salaries would have been more independent of the geographical distance between the suppliers and buyers of qualified labor. As a result, US firms would have access to many more competitive foreign labor markets. All the “excess wealth” created using cheaper labor will make new investments possible, new job openings. In the end, American workers are better off as well. They will have a wider variety of types of jobs to choose from. So what if you’re not satisfied with IBM salary/work package, you can try Google. After all, not everything you think you are very good at is worth actually doing for a living out…
But here is a good question, why do American universities sponsor foreign students in the first place? The way I see it, schools don’t fund internationals thinking that the fruit of their investments is going to be captured by one of their local companies, nor can schools expect their national students not to look for better paid jobs outside the borders. So, schools don’t worry about the most efficient allocation of their students as skilled workers. It is really for open markets to take care of this, and for governments to facilitate and not discourage these transactions from happening.
I’m not sure the US should have a Silicon Valley anymore. If US workers have higher reservation wages than foreigners then they can just go do that next best alternative and all is fine, no?
It’s also weird to claim that everyone will be better off with free migration, without any compensation. Nothing in Economic theory supports such a claim and a lot of things support the opposite.
I think we need a good, large and microfounded model of international trade with which we could simulate the counterfactual and figure out what policies will make sure any change in trade policy will not leave any group particularly worse off.
The apparent failure of NAFTA-vintage models shows what a hard task this is. — The status quo might be the best bet until we get a good grasp of the underlying micro- structure, unless we want to risk putting a lot of people through gratuitous hardship.
I think the profession can come up with some serious recommendations re: fiscal policy reform, for example. I don’t think we can say the same regarding trade.
I think I see what you mean and for that I partly agree with you. If you compare labor market liberalization with the overnight Soviet economy – market economy change, than yes, I feel for the truly desperate times those people have gone through. As one of them, I could probably write a whole book about it. But, really, trade is freer now than it was 50 years ago thanks to institutions like WTO, and regional and local FTAs. Sadly, I think much of what is left of the current debate over trade clings to the idea of job creation=job protection, an illusion fed with political promises without any regard to the microeconomics or the dynamics of the labor market.