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BOHANON & STYRING: Why not use auctions to allocate H1-B visas?

April 16, 2016

Economic AnalysisIllegal immigration is a hot political topic. But let’s not overlook the serious flaws in how we handle legal immigration. Consider the latest news about H1-B visas. H1-Bs are for technically trained foreigners. Only 85,000 are available. Applications for fiscal year 2017 available slots topped 85,000 five days after applications started being accepted. H1-B applications have vastly outnumbered slots every year since 2014. Currently, the shortage is allocated via a lottery. If your lucky number comes up, you’re in. If not, tough.

H1-B is an exception to U.S. policy, which generally emphasizes family unification over economic contribution. Other developed nations give preference to the young and highly educated with critical skills. We could debate whether we should allow more H1-B immigrants. But let’s take current policy as given.

One alternative to lottery allocation of H1-Bs would be to let the bureaucrats write even more restrictive rules for who can apply. That would certainly reduce “demand,” but we’d hate to see what the results would look like.

Economists of all political stripes appreciate the role prices play in a modern economy. Prices allocate resources to their highest-value use. Indeed, undergraduate microeconomics courses are often called “price theory.” Sometimes, prices are intentionally not used to allocate resources. The H1-B visa program is an example. But that doesn’t mean we couldn’t use prices to ration these visas.

Suppose we auctioned off H1-Bs. Here’s how it would work. Polton Industries in Indianapolis wants to hire Anil. Anil is an Indian national, a Purdue-trained industrial engineer and has interned for Polton. Anil is a good fit, and Polton expects he can add value. But if Anil has no H1-B, he heads back to India.

Polton might bid, say, $30,000 for Anil’s H1-B. This does all sorts of desirable things. First, since Polton could hire locally without having to buy a visa, it says the company values Anil over any local candidate. Anil isn’t “stealing” anyone’s job. Second, if Polton is outbid by other firms seeking H1-Bs for their own candidates, available H1-Bs are allocated to their highest-valued use: The United States gets the most productive workers. And note that it generates a dependable revenue stream for government, which should please spending-loving progressives.

It’s OK to get carried away about illegal immigration, but let’s not forget the many kinks we have on the legal side. Nor should we be allergic to using the price mechanism to allocate scarce resources.•

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Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to ibjedit@ibj.com.

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