Low-Skill Foreign Employees’ Impacts on US Firms and Workers

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The US has long limited admission of contract foreign laborers for low-skill work in order to avoid adversely affecting US workers. Some employers have claimed that the labor supplied by their foreign workers is critical for the success of their businesses. In The Effect of Low-Skill Immigration Restrictions on US Firms and Workers: Evidence from a Randomized Lottery (NBER Working Paper 30589), Michael A. Clemens and Ethan G. Lewis find that firms authorized to employ more low-skill immigrants significantly increase production. They do not find any decrease in employment of US workers.

The H-2B visa is the principal work visa for low-skill nonfarm labor in the US. Major industries employing H-2B workers are administrative and support services — especially grounds keeping and landscaping; hospitality; arts, entertainment, and recreation; and forestry, fishing, and hunting. Employers petition the Department of Labor and the Department of Homeland Security to hire H-2B workers. There is a statutory cap of 66,000 H-2B visas a year; in 2022 there were over four times that many applicants. Three-quarters of H-2B workers are citizens of Mexico.

Winning the H-2B lottery, which allows firms to hire low-skill immigrants, contributes to revenue growth and does not appear to reduce employment of US citizens.

Since 2019, the Department of Labor has been randomly assigning H-2B petitions letters “A” through “E” and processing them in that order. “A” petitions are likely to be processed, whereas others are not. Workers who are already in the US are exempt from the cap. This means that, on average, some 12.7 percent of workers in the lottery are always given visas. Additionally, some workers are able to obtain an H-2B visa from a supplemental visa allocation after the initial processing.

The researchers survey members of four industry associations that hire H-2B workers: the National Association of Landscape Professionals, the Outdoor Amusement Business Association, the Seasonal Employment Alliance, and the American Seafood Jobs Alliance. They ask whether the firms were able to hire any H-2B workers in 2021, which lottery letters they received, how many different types of workers they employed, and how many workers they petitioned for. They also inquire about revenue, investments, and business conditions. The sample of 289 firms accounts for 8.9 percent of the universe of petitions in the 2021 H-2B lottery.

Firms that win the 2021 H-2B lottery — that is, firms with petitions receiving an “A” — employ 2.3 times as many foreign workers as those who are assigned another letter. When a firm increases its number of foreign workers, there is also a positive but statistically insignificant increase in its US temporary worker hires.

Winning the lottery increased revenue by 18.5 percent in 2021, on average, across the distribution of firms. Firms that are growing slower, have more competitors, and are smaller, more rural, and in lower-population areas exhibit larger effects of foreign employment on revenue.

Additionally, winning the lottery causes investment in equipment and real estate to rise by a factor of 2.1, which corresponds to a 1 percent increase in foreign employment causing a 1.3 percent increase in investment. This effect is driven by small firms, for which a 1 percent increase in foreign employment leads to a 2.5 percent increase in investment.

The researchers estimate that a 1 percent increase in foreign employment causes a 0.1 percent increase in the growth in profits. Lottery losers do not shift into black-market employment. Employers who are willing to hire on the black market have little incentive to pay the fees, fixed wages, and travel costs imposed on H-2B hiring.

On balance, the results suggest that raising capital investments, hiring US workers, and hiring unauthorized foreign labor are poor substitutes for legal low-skill foreign labor.

—Whitney Zhang