thp.immigrdiscusspaper may12 f

8/13/2019 THP.immigrDiscussPaper May12 F

1/36


2/36

The Hamilton Project seeks to advance Americas promise of op-

portunity, prosperity, and growth.

We believe that todays increasingly competitive global economy

demands public policy ideas commensurate with the challenges

of the 21st Century. The Projects economic strategy reects a

judgment that long-term prosperity is best achieved by fostering

economic growth and broad participation in that growth, by

enhancing individual economic security, and by embracing a role

for effective government in making needed public investments.

Our strategy calls for combining public investment, a secure social

safety net, and scal discipline. In that framework, the Project

puts forward innovative proposals from leading economic thinkers

based on credible evidence and experience, not ideology or

doctrine to introduce new and effective policy options into the

national debate.

The Project is named after Alexander Hamilton, the nations

rst Treasury Secretary, who laid the foundation for the modern

American economy. Hamilton stood for sound scal policy,

believed that broad-based opportunity for advancement would

drive American economic growth, and recognized that prudent

aids and encouragements on the part of government are

necessary to enhance and guide market forces. The guiding

principles of the Project remain consistent with these views.

MISSION STATEMENT


3/36

The H mi t Pr je t Br i gs 1

Rationalizing U.S. Immigration Policy:Reforms for Simplicity, Fairness, and

Economic Growth

Giovanni PeriProfessor of Economics, University of California, Davis

May 2012

NO E: Tis discussion paper is a proposal rom the author. As emphasized in Te Hamilton Projects

original strategy paper, the Project was designed in part to provide a orum or leading thinkers across thenation to put orward innovative and potentially important economic policy ideas that share the Projects

broad goals o promoting economic growth, broad-based participation in growth, and economic security.

Te authors are invited to express their own ideas in discussion papers, whether or not the Projects staff or

advisory council agrees with the specic proposals. Tis discussion paper is offered in that spirit.


4/36

2 R ti i i g U.S. Immigr ti P i : Ref rms f r Simp i it , F ir ess, E mi Gr th

Abstract

Tis paper proposes market-based re orms to our immigration system to tie employment-based inows to labor market demand.A goal o the proposal is to create an immigration system that is easier to operate and simpler to navigate or employers, oreign-born workers, and their amilies, and that increases the economic benets o employment-based immigration or the U.S.economy. Te economic consensus is that, taken as a whole, immigrants raise living standards or American workers by boostingdemand and increasing productivity, contributing to innovation, and lowering priceswhile also improving their own well-being and that o their amilies. Te proposed system uses market-based auctions to allocate employment-based permits toemployers and visas to immigrants that have the greatest propensity to contribute to economic activity and thus to generate thelargest benets or the U.S. economy. Tese auctions would also generate revenue or the ederal government; the governmentcould use that revenue to compensate local communities that deliver social services to immigrants, or to invest in the skills oAmerican workers.

Te essential eatures o the proposal would be implemented in a series o incremental phases starting with a pilot programthat uses an auction-based system to allocate temporary employment visas. Afer a success ul pilot with the existing classes otemporary employment visas, the second phase would expand the auction to permanent labor-sponsored visas. A nal phasewould provide a reassessment o the balance between employment-based and amily-based visas, as well as a broad simplicationo complicated rules in the current system such as country quotas. As under the current system, the worker would have theoption to bring her spouse and minor children to this country under her visa. Te number o permits would be prescribedby Congress, and the permit ee would subsequently be determined in the auction. Small businesses and amily businesses,including those run by immigrants, would also be eligible to purchase permits. Employers would have the ability to resell or tradepermits, and oreign-born workers would have the exibility to move between permit-holding employers. Tis added exibilityon both sides provides a strong element o protection or the workers via competition. Te new system would thus eliminate thecumbersome ex ante labor verication procedures or employers who intend to hire immigrants. Tis proposal also recommendsimprovements in immigration en orcement through the use o technology-based en orcement in the workplace and measures toaddress the current population o undocumented workers.


5/36


Table of Contents

aBSTR acT 2

cHaPTER 1: InTRodUcTIon 5

cHaPTER 2: FaIlURES oF THE cURREnT SySTEM 7

cHaPTER 3: BaSIc PRIncIPlES oF THE PRoPoSal 13

cHaPTER 4: PHaSES To coMPREHEnSIvE REFoRM 15cHaPTER 5: SoME FURTHER QUESTIonS and concERnS 23

conclUSIon 25

aPPEnd Ix 26

aUT HoR and acknow lEd GMEnTS 29

EndnoTES 30

REFEREncES 31


6/36



7/36


Chapter 1: Introduction

he increase in productivity that workers achieve whenthey migrate to work in the United States provides onemeasure o the global economic gains rom immigration.

In 2010, high-school-educated immigrant workers movingto the United States rom less-developed countries increasedtheir yearly salaries by an average o $22,000. Te averagegain or college graduates was $57,000 per year. able 1 showsthe estimated gains rom migration (called the migrationsurplus) or immigrants with high school diplomas and college

degrees rom representative countries and regions. Tese gainsrepresent a ormidable motivation or young, dynamic, andskilled workers to come to the United States.

Tose immigrant workers, in turn, bring benets to the U.S.economy. Tey bring a diverse set o skills, human capital,abilities, and ideas. Highly-educated immigrants generateeconomic opportunities or U.S. rms and workers bycontributing to innovation, science, and productivity growth.In act, the college-educated are overrepresented amongimmigrants relative to the U.S. population (see able 2).

Less-educated immigrants also supply use ul skills. Teyprovide much-needed labor to per orm manual non-tradableservices, lling jobs in agriculture, construction, and personalservices where local demand rom employers is ofen notmatched by a supply o American workers. As a result otheir work, immigrants signicantly increase the aggregateeconomic productivity o the country. Highly-educatedimmigrants contribute substantially to technological andscientic innovation, to entrepreneurship, and to economic

productivity.1

Less-educated immigrants ll high-demandmanual and personal service jobs that most U.S.-born citizensshun, and keep the prices o those services more affordable.In both cases, immigrants are more likely to complement the job prospects o U.S.-born citizens than they are to competeor the same jobs as U.S.-born citizens. Overall, economistsdo not nd that immigrants cause any decrease in the wagesand employment o U.S.-born citizens at the local level.Recent estimates o the effects o immigrants on nationalwages are also quite small. Tey reveal that the average U.S.worker as well as the average worker with low schooling levels

TaBlE 1.

Economic Surplus per Worker, Generated by Immigration to the United States

c u tr f rigi e u ti e e ye r s r i the U ite St tes Surp us per r er

Non-college-educated from Mexico $24,374 $14,740

Non-college-educated from the Philippines $37,096 $27,385

Non-college-educated from India $33,885 $28,463

College-educated from India $84,444 $70,932

Average non-col lege-educated foreign-bornfrom Asia, Africa, or Latin America

$27,676 $22,259

Average college-educated fore ign-bornfrom Asia, Africa, or Latin America

$70,444 $56,658

Source: Clemens, Pritchett, and Montenegro (2009).

Note: The yearly salary in the United States is calculated as the average yearly salary earned by a worker from the specied country and with the specied e ducation in year 2010. The surpluscreated is obtained by applying the percentage gains from immigration reported in Clemens and colleagues (2009) to the 2010 yearly salary.


8/36


experiences wage effects that are close to zero, and possiblypositive, rom immigration. Aggregate employment effectson U.S.-born citizens were even smaller. 2 Finally, immigrantsincrease population growth, slow the aging o the population,and have a positive net scal impact on entitlement programslike Social Security. An important goal o immigrationpolicies is to make the best use o these extremely valuablehuman resources and to ensure that they are directed towardsthe economic success o the country and o the immigrantsthemselves.

O course, economic considerations are only one part o thegoals o U.S. immigration policies. Family unity, humanitarianrelie , airness, and ethical values are also pillars o U.S.immigration policy. In order to achieve all o these goals, theUnited States needs an effective and efficient system. However,it has become evident that Americas outdated immigrationsystem is not up to the task. Te proposal suggested inthis paper envisions a deep re orm to be implemented inincremental phases.

TaBlE 2.

College Intensity of Immigration (Percent)

Year Sh re f ege

e u te , U.S.-b riti e s

Sh re f ege e u tem g et immigr t e tries er the

pre i us e e

Per e t ge gr th f ege e u teue t immigr ti er the

pre i us e e

1980 15 29 10

1990 19 28 14

2000 23 27 23

2010 27 37 23

Source: Authors calculations from U.S. Census data.

Note: The population of reference is the adult population (eighteen years and older) residing in the United States. Immigrants are d ened as foreign born who are not citizens at birth.


9/36


Chapter 2: Failures of the Current System

cHallEnGES wITH THE cURREnT SySTEM

wo broad and ar-reaching problems plague the currentimmigration system. Te rst is complexity arising roma system that has been patched up incrementally over time,and that has grown increasingly cumbersome and costly.Te second is the economic inefficiency and inexibilityo the current system, which has proven unable to adapt tochanging global economic circumstances. Tese problemsinhibit economic and productivity gains rom high-skilled

immigration while restricting opportunities or lower-skilledworkers to ll areas o high demand.

Te general principles behind todays immigration systemhave remained largely unchanged since the Immigrationand Nationality Act o 1965, but the manner in which theseprinciples are implemented has grown excessively complex asa result o accumulating legislative changes, special laws, andlimited provisions. Te main path to immigration within thissystem is governed by rigid, arbitrary, and overlapping quotason permanent residence visas. In addition, more than twenty-ve categories and subcategories o temporary visas have

accumulated over time, each subject to restrictions, rules, andsometimes cumbersome conditions. Te result is bottlenecksthat orce individuals who have valid claims to residence inthe United States to wait in lines, sometimes or decades.For example, amily members o U.S. residents rom Mexico,China, India, and the Philippines have to wait or up to feenor twenty years to obtain a visa. Because o the complexity othe system, employers and immigrants may need costly legaland expert assistance at any step o the process. Tese delaysare inefficient and ofen un air to immigrants and employerswho play by the rules.

Te current immigration system also leads to undesirableeconomic outcomes. Many highly-educated temporaryimmigrants who contribute signicant value to U.S. companiesand generate local economic activity and tax revenues areorced to return to their countries o origin because they areunable to obtain permanent residence visas. At the same time,less-educated manual workers in agriculture, construction,and personal services have extremely limited options or legalentrydespite being in high demand rom U.S. employers.Tese restrictions produce ormidable economic incentivesto employ undocumented immigrants, and have contributed

to the larger problem o undocumented immigration withcosts and risks or the immigrants as well as higher costs oremployers who ollow the rules.

THE caSE FoR IMMIGRaTIon REFoRM

Te economic case or immigration re orm rests on theevidence that there are signicant benets rom immigrationunrealized by the current immigration system. Tere are alsoother distributional issues generated by immigration and not

addressed by the current system.Te rst major ailure o the existing system is that it does apoor job o identi ying, admitting, and rewarding workerswhose skills bring the greatest value to the American economy.Te basic reason or this ailure is that the system or allocating visas is not related to the needs o the market. For instance,in spite o the ormidable contributions o highly-educatedimmigrants to science, technology, and entrepreneurship, andtheir related positive effects on productivity and employmentopportunities o U.S.-born citizens, the U.S. system restrictsthe admittance o highly-educated immigrants. Since

2004, the quota on temporary admissions o highly-skilledpersons with H-1B visas has been only 65,000 annually. 3 Inseveral years that quota was exceeded almost instantly, withthe result that visas were allocated via a random lottery topotential employers. Even in the post-recession year o 2011,applications or visas exceeded the quota be ore the end othe year. Another aspect o the H-1B visa rules that is hardto justi y on economic grounds is the act that only privatecompanies (but not public and nonprot companies) aresubject to the quota.

Tese limitations reduce economic opportunities in theUnited States because some companies may move part otheir research, development, and business services abroadwhen constrained by the number o highly-educated potentialworkers they can nd domestically. 4 Such responses deprivethe United States o jobs and innovation, reduce local demand,and have other negative effects. Similarly, the exceptionalquality o U.S. universities and educational institutionsattracts numerous brilliant international students, and theinstitutions invest considerable resources in building thestudents human capital. But the current immigration systemdoes not provide international students who have nished


10/36


Box 1.

Immigration of Highly-educated Workers: Effects on Productivity and Economic Growth

Scientic and technological innovation is the engine o productivity growth and the growth o living standards in thelong run. Highly-skilled workers, especially those with college and advanced degrees, are particularly important orlong-run growth because o their contributions to innovation. Tere ore, one o the most important potential benetso immigration is the attraction o highly-skilled workers. Te act that a large share o college-educated immigrantshave doctorates, and that a very large share o them are employed in scientic and technological elds makes themkey contributors to U.S. leadership in science and technology.

While accounting or only 13 percent o the population, oreign-born individuals account or about one-third o U.S.patented innovations (Kerr and Lincoln 2011). One-quarter o all U.S.-based Nobel laureates o the past fy yearswere oreign born (Peri 2007). Immigrants have been ounders o 25 percent o new high-tech companies, with morethan $1 million in sales in 2006, generating income and employment or the whole country (Hunt and Gauthier-Loiselle 2010). Over the period 19752005, as can be seen in Figure 1, all o the net growth in the number o U.S.-based Ph.D.s was due to oreign-born workers. Currently about hal o the Ph.D.s working in science and technologyare oreign born.

Innovation and technological progress are the engines o economic growth. Hence, human capital and very high levels

o skills are central to continuing economic success in technologically advanced countries. Several economic analystshave emphasized that the inow o highly-educated immigrants is a valuable competitive edge that the United Stateshas over other advanced and competing countries such as Japan and Germany. 5

Another interesting dynamic effect o highly-educated immigrants is that, because they tend to concentrate in urban areas,they stimulate local virtuous cycles by creating spillover effects on the productivity o local economies, which creates local jobs and promotes growth. Moretti (2010) nds that a high-skill job in a city created 2.5 additional jobs in the local non-tradable sector through linkages o production and local demand effects. Moretti (2004) nds that an increase in the shareo college-educated immigrants by 1 percent increases productivity and wages or everybody in a city by 1 percent. Tesechannels also imply that college-educated immigrants contribute to increase the value o land and housing in those cities(as ound by Saiz 2007). Tis makes homeowners, who are in large part U.S. citizens, wealthier.

N u m

b e r o

f P h D s

0

10,000

20,000

30,000

40,000

50,000

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

U.S. citizens Visa holders Total

FIGURE 1.

Doctorates Awarded by U.S. Universities, by National Origin

Source: National Science Foundation (NSF). Multipl e years. Survey of Earned Doctorates.


11/36


their educations with a path to establishing a career in theUnited States, and so that potential is lost to this country.

Not only does the U.S. system ail to identi y immigrants withskills needed in todays economy, it also ails to respond tochanges in those needs with economic circumstances. Tesystems numerical limits and quotas are arbitrarily xed

and in requently changed. Labor market conditions haveno effect on the number o employment-based visas: whentimes are good, growth robust, and the needs o Americanbusinesses greatest, no visas are added, and when times aretough and growth slower, visas are not reduced (nor is theirprice adjusted).

When temporary immigrants do come to work, they ofenhave little incentive to invest, assimilate, and sink roots inthe United States because o a pain ul disconnect betweentemporary work visas and the possibility o a permanent work visa. Workers entering on H-1B visas must

be highly skilled, and hold job offers romAmerican employers. Tey have undergonethe verications required or their visa,and will work productively and pay taxesor years in the United States. But theseefforts count or little when they applyor permanent residence visas becausethey are constrained by the yearly quotaimposed on labor-sponsored visas (140,000per year) and to the country-specic quotathat dictates that no individual countrycan account or more than 7 percent o

total labor and amily permanent residence visas. As a consequence, many engineersand scientists rom China and Indiaexpect to return to their country o origin, despite having a job, valuable ski lls, and an employer willing to sponsor them.In short, the current system has no ex post reward or peoplewith excellent job per ormance, high motivation to stay in theUnited States, and skills needed by the U.S. economy.

Te second major ailure o the current immigration systemis that it provides inadequate opportunities or legal entry oless-educated workers relative to the needs or manual labor

rom U.S. employers. Te lack o any signicant channel oadmissions or them in the U.S. labor market has contributedto the problem o undocumented immigration.

Close to 11.5 million undocumented immigrants live in theUnited States and present a serious social and economicproblem. Some o them risked their lives to come to the UnitedStates, in violation o U.S. law, in order to work and securebetter utures or their children. Tese individuals have verylimited rights in the labor market, and thus are subject toexploitation.

Te basic incentive or undocumented immigration iseconomic: it arises because less-educated immigrants are inlarge demand by U.S. employers and, at current wages, inshort supply. Immigration and related en orcement policieshave contributed to or exacerbated the problem. For instance,lax workplace en orcement and the mild sanctions employersace or hiring undocumented immigrants have increasedthe prevalence o undocumented employment. However, theproblem also has its roots in the immigration laws. Te verycumbersome, complicated, and restricted temporary visaprograms (H-2A and H-2B) do not even begin to satis y thedemand or immigrant labor by U.S. employers in agriculture,construction, and hospitality services. Tis, combinedwith the low supply o U.S.-born citizens in these manuallyintensive jobs and with the pressure rom competition tokeep costs low, creates large economic incentives to employundocumented workers.

Te third major ailure arises rom the complexity,inexibility, and outdated rules that characterize the currentimmigration process. Te system is organized in manytemporary and permanent visa types, each with specicrules and requirements and overlapping quotas. Tis leads tobottlenecks and inefficiencies, and arbitrarily creates winnersand losers.

For example, the system or assigning permanent residence visas (known as green cards) based on amily unicationhas an overall annual quota o 450,000. Tose visas aredivided into our subcategories, or pre erences, and ranked inorder o importance, depending on the amilial relationshipbetween the applicant and the sponsor. Each subcategorythen has its own specic quota. Finally, all visas are thensubject to a country-specic quota that limits applicantsrom any single country to no more than 7 percent o thetotal permanent residence visas. Te result is that individualsrom more-populous countries, rom countries with a long

the current system has no ex post reward for

people with excellent job performance, high

motivation to stay in the United States, and skills

needed by the U.S. economy.


12/36


Box 2.

Immigration of Less-Educated Workers: Complementarity, Efciency, and Lower Prices

A large percentage o non-college-educated immigrants per orms relatively simple manual services in the agricultural,construction, hospitality, and personal service sectors. As shown in Figure 2, within occupations that do not require acollege degree, immigrant employment is relatively concentrated in those occupations that require little communication butinvolve manual tasks. Because o this specialization, the inow o immigrants into these types o jobs has little effect on the

wages o Americans. Americans, due to the increase in average schooling, as well as the increase in their average age, haveprogressively moved to jobs with greater cognitive and communication requirements and have shunned physically intensive jobs. Immigrant specialization in these occupations has lled a void and, in act, has encouraged U.S.-born citizens to takeon more skill-intensive occupations.

Indeed, Peri and Sparber (2009) nd that in U.S. states with large inows o less-educated immigrants, U.S.-born citizenshave been aster in moving up to occupations using more cognitive-interactive skills. At the same time in those states, rmscan count on immigrants to per orm manual tasks and so are able to keep production local and costs low. Ottaviano, Peri,and Wright (2010) show that manu acturing sectors with large inows o immigrants increased productivity aster. Peri(2012a) shows that when U.S. state economies expand because o immigration, states also increase investments and improvetheir productive efficiency through specialization. Rauch and rinidade (2002) show that immigrant networks help rms toexport more and to access new export markets.

Overall, economists do not nd that immigrants cause any decrease in wages or employment o U.S.-born citizens at thelocal level (Card 2009). Recent estimates o the effects o immigrants on national wages (Ottaviano and Peri 2012) over theperiod 19902006 are also quite small. Overall, most o the recent estimates and simulations reveal that the average U.S.worker as well as the average worker with low schooling levels experiences wage effects close to zero, and possibly positive,rom immigration. Aggregate employment effects on U.S.-born citizens were even smaller (Docquier, Ozden, and Peri 2010).

Te evidence suggests that immigrants in the short to medium run are absorbed through an expansion o the economy.Te receiving community increases in its size, maintaining wages and employment o U.S.-born citizens and increasingsomewhat aggregate productive efficiency. While Americans in some specic occupations have suffered rom competitionwith immigrants, many other Americans experienced benets. Te cross-occupational mobility o U.S.-born citizens,moreover, has ensured that, as a group, American workers have been positively affected by immigrants. Hence, in themedium run, less-educated immigrants increased overall GDP without hurting wages o less-educated American workers.

Moreover, cities with a large inow o immigrants have experienced a decline in the prices or local services. Cortes (2008) showsthat the cost o gardening, baby-sitting, elder care, and ood preparation are lower in cities with larger share o immigrants.Also, many o those services are in the categoryo home-production: immigrants have mostlyhelped womens opportunities and encouragedtheir participation to the labor market. Cortesand essada (2011) show that, in cities with largeinows o immigrants, women take advantageo the lower cost o home-production servicesby working longer hours. Immigrants in thissector, there ore, create jobs or themselves(as very ew U.S.-born workers do these jobs)

and also create the opportunity or jobs (or atleast to extend jobs) or women by providing asubstitute or their home-production services.Finally Borjas (2001) shows that, becauseimmigrants are highly mobile across citiesand regions, they increase the efficiency oallocation o labor. By moving rom regions inrecession to regions in expansion, they reducethe wage and productivity uctuations due toregional imbalances.

FIGURE 2.

Immigrants and Manual Intensity AcrossOccupations Requiring Less than College Education

S h a r e o

f i m m

i g r a n t s

Communication/manual intensity

0.0 0.5 1.0 1.5 2.0 2.50%

10%

20%

30%

40%

50%

60%

Source: U.S. Bureau of Labor Statistics, O*NET databas e.

Note: Occupations, according to the U.S. Census denitions, are arrayed along an index that measuresthe relative content of communication (oral and written) relative to manual tasks performed on the job.

The shar e of immig rants is m easure d in year 200 8, includ ing only ad ult worke rs.


13/36


Box 3.

Fiscal and Demographic Effects of Immigration

Recent estimates o the overall scal effects o immigrants are difficult to nd. Smith and Edmonton (1997) nd a very small and positive net scal effect o immigrants, in the aggregate. Tis average effect, however, resulted romcombining very unbalanced contributions. Immigrants with a college education generated large and positive netli etime contributions o $105,000 each, whereas immigrants with a high school education or less produced negativeli etime contributions o $89,000 each.

Te scal effect o immigrants is unbalanced in another respect. While a large part o their contributions goes to theederal government in the orm o income and Social Security taxes, a large part o their cost is sustained at the stateand local levels in the orm o costs imposed on school districts and local services. Tis local burden, vis--vis a nationalsurplus, is an important aspect o the current situation. Clearly, local communities could be compensated or highercosts by using locally the higher scal resources that immigrants generate nationally, but currently this does not happen.Also, recent research has revealed that the burden on local communities could be a major actor behind negative publicopinion about immigration. Using very detailed opinion surveys, Card, Dustmann, and Preston (2009) nd that the mostrelevant aspect in determining the opinion o U.S.-born citizens about immigrants is the perception o their local impact,in schools and in the neighborhoods, rather than the perception o their overall economic impact. Being able to trans ersome o the aggregate economic gains to communities with large numbers o immigrants seems a crucial mechanism in

redistributing the gains and in gathering support or progrowth and labor-oriented immigration re orms.

Some studies show that immigrants are more likely than U.S.-born citizens to use wel are, mainly due to theirlower income (Borjas and Hilton 1996). Tere is no evidence, however, o wel are magnet effects (Kaushal 2005).Immigrants, that is, do not seem to migrate to U.S. states in response to the generosity o their wel are systems.Instead, they respond much more to the labor market conditions o different states and cities by moving towards jobs.Immigrants are driven by work motivation. Hence appropriate immigration policies could also improve and balancetheir net scal impact, helping to direct the economic benets that immigrants produce towards local communities.

Finally, over the longer term, immigrants affect population growth and the age distribution. Te act that immigrantsare younger than U.S.-born citizens, and that their ertility is higher than the ertility o U.S.-born citizens, prevents theU.S. population rom declining. Immigrants also help to maintain the balance o the distribution o U.S. population

in its age structure. Figure 3 shows that the oreign-born adult population is signicantly more concentrated betweentwenty- our and orty-eight years o age than is the U.S.-born population.

Compared to countries withmuch smaller inows oimmigrants, such as Germanyand Japan, the United Stateshad a much higher growth rateo population during the pastdecade and a much smaller shareo elderly people as o 2010. 6 Bothaster population growth and the

rebalancing o the age structurereduce the dependency ratio. 7 While immigrants will age, theircurrent inow allows or a moregradual transition towards a newequilibrium with lower pensionsand a higher retirement age.

FIGURE 3.

Immigrant and U.S.-born Citizens Age Distribution, 2010

Source: Authors calculations using data from the U.S. American Community Survey (2010)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1 8

2 0

2 2

2 4

2 6

2 8

3 0

3 2

3 4

3 6

3 8

4 0

4 2

4 4

4 6

4 8

5 0

5 2

5 4

5 6

5 8

6 0

6 2

6 4

6 6

6 8

7 0

7 2

7 4

7 6

7 8

8 0

8 2

8 4

8 6

8 8

9 0 +

P e r c e n

t o

f p o p u

l a t i o n

Age

Foreign born U.S. born


14/36


history o immigration to America, or rom countries withcultural traditions that emphasize expanded amily networksexperience extensive wait times that stretch to decades,denying some people who have a legal claim to residence thepossibility o moving to the United States. For instance, thewait or adult siblings rom the Philippines is twenty-threeyears. An adult child rom Mexico waits feen years. Even orspouses and children o immigrants rom those countries, theprinciple o amily reunication is currently, de acto, heavilypenalized because o delays that can last or years.

Additionally, because o the many layers o complexity andthe consequences o making errors, many companies andindividuals choose to navigate the immigration process withthe help o expensive legal advisors. Te ees to a consultingcompany assisting in the process to obtain an H-2A visa(seasonal agricultural) range rom $2,000 to $3,000 per visa. Companies assisting their employees in obtaining orrenewing an H-1B visa and eventually getting a permanentresidence visa may easily bear costs in legal and consultingees o $10,000 or more during the process.

A nal economic ailure in the current system arises becauseo scal institutions and how they interact with immigrants.Immigrants, on average, have lower earnings than U.S.-borncitizens. From a static point o view, then, they contributeproportionally less in income taxes, which are progressive.In addition, they and their larger amilies are more likely toincur costs related to education, the care o their children, andthe use o certain public services. However, on average theyare also younger than U.S.-born citizen, and, accounting ortheir age and their li etime contributions, some studies ndthat they contribute more in taxes than they take (see Box 3).

A scal imbalance arises because a large part o immigrantstax contributions goes to the ederal government in the ormo income and Social Security taxes, but a large part o theircost is sustained at the state and local level in the orm ohealth care, education, and local services. Te act that benetsare mainly national but costs are mainly local generatesimbalances in which some localities bear disproportionateburdens rom immigration while others benet. While, inprinciple, the winners could compensate the losers, in practicethis does not occur.


15/36


Chapter 3: Basic Principles of the Proposal

he proposal described in this paper provides a blueprintor comprehensive immigration re orm whose goal is toalign the laws with some o the economic imperatives

driving immigration, and to make the system airer, moretransparent, and easier to navigate.

Te proposal uses a gradual implementation o a market-based system that ocuses, at rst, on employment-basedimmigration. Te goal o the employment-based system would

continue to be to help U.S. businesses, American workers,and immigrants to jointly benet rom working togetherin the United States. Te three-phase approach provides anopportunity to test the system, work out logistical challenges,and reveal economic benets prior to expanding the systemmore broadly.

Moreover, small initial phases are more likely to beimplemented. In light o the recent ailures in passing acomprehensive re orm, an incremental approach seemsto be the only one with some hope o success. In time, theproposal builds on the initial re orms to employment-based

immigration visas by expanding the scope o the market-based system, simpli ying rules and quotas elsewhere in theimmigration system, and rebalancing the number o permitsbetween extended amily and employment-related visas.

Te key components o the re orm include the ollowing points:

Establish a Market-Based System for Employment-BasedVisas. One principle o the re orm is that a simpler, moreexible, and more market-driven system o labor-sponsoredpermits or immigrants would enhance the economicbenets o employment-based visas. Building on thisprinciple, the proposal would use market mechanismsauctionsto allocate permits to employers who hireimmigrants who would then apply or corresponding visas.Te auctions would begin with temporary work-based visas. Tis proposed re orm contrasts with the currentsystem, in which work-related temporary permits andpermanent labor-sponsored permits are allocated by ordero application, or in certain cases by lottery, and always arebased on xed ees and quotas enacted decades ago. Tissystem would maintain the central role o employers inselecting immigrant workers and would add exibility to

the decision by making the permit tradable. It also wouldgrant immigrant workers the mobility across employersneeded to avoid exploitation and un air treatment.

Protect the Rights of U.S.-Born Workers and Immigrant VisaHolders. Tis proposal replaces the (ex ante) cumbersomeand time-consuming labor verication procedures with job mobility and audits as the key mechanisms to protect vulnerable immigrant workers. Te cost o the permit to hireimmigrants creates an incentive to hire U.S.-born workerswhen the workers are equally productive, protecting U.S.-born workers, in part, rom competition.

Simplify and Consolidate Visa Categories. Te principleso simplicity and transparency drive simple changes andconsolidations to employment-based visas rst, and toamily-sponsored visa later. Examples are the consolidationo several employment-based visa categories into only threecategories, and the elimination o the country-specicquota o 7 percent, while leaving the overall number oamily-sponsored visas unchanged. Both measures wouldgo a long way in reducing queues and making the systemless arbitrary.

Establish a Path to Permanent Immigration forEmployment-Based Visas, but Reward and EncourageReturn to Country of Origin. A urther way to encourageproductive relations and investment between workersand employers is to provide temporary immigrantswith an option o permanent residence conditional onsuccess ul completion o an initial provisional period.New immigrants receive a provisional visa to work oran initial period during which they may earn their rightto permanent residence by having a continuous andproductive working career and by paying taxes. At the endo the period, they will have access to permanent residence.In addition, posting a bond that is unded by putting apart o the immigrants wage in an escrow account and isor eited i the immigrant becomes a resident could provideimmigrants with an incentive to return to their country oorigin afer temporary employment.

Rebalance Labor-Sponsored Visas and Family-BasedVisas. Te reorganization o labor-sponsored visas shouldeventually be accompanied by a rebalancing between


16/36


amily-based and labor-based visas in avor o the lattertype. Tis rebalancing will be instituted during the thirdphase o the proposal, ollowing evidence o the successo the prior phases. Many o the people currently seekingaccess to the United States via amily-based visas could beattracted by labor-based visas in the new system. Tis couldacilitate phasing out visas that are set aside specically orextended amily reunication o siblings, adult marriedchildren, and parents o U.S. citizens (possibly with someexception or children with special needs or parents inneed o assistance), and redirect those individuals to labor-sponsored visas.

Expand Opportunities for Immigrants with DesiredSkills. High-skilled workers contribute signicantly tothe economy, and U.S. universities make a signicantinvestment in their international students. Hence, in thethird phase o the re orm, I propose that immigrants whoobtain a university degree rom accredited universities inthe United States be granted a provisional working permitand the corresponding visa i they are hired by a U.S.employer. Foreign-born workers who obtain a Ph.D. at anaccredited U.S. institution, and distinguished scientists oracademics, should also be able to apply immediately orpermanent residence.

Address Causes of Undocumented Immigration. Providingmore signicant and more viable opportunities oremployment to less-educated immigrants, as describedabove, should reduce the pressure or undocumentedimmigration. A path to earned legalization or undocumented

immigrants, with signicant nes and requirements,should also be enacted with broad re orm. With a clearpath to earned legalization established, a reinvigorated

effort on en orcement, including more-stringentworkplace verication, would urther reduce incentives orundocumented employment. Te Department o HomelandSecurity could use the state-o -the-art E-Veri y system andbiometric ID cards, ollowing the positive experience at porto entries with the U.S.-VISI system. Using the availabletechnology to identi y immigrant workers, togetherwith sanctions or employers who hire undocumentedimmigrants, up to revoking the ability o repeat offenders tohire immigrants, and with reasonable options or employersto legally hire less-educated immigrants, is the best strategyor reducing the problem o undocumented immigration.

While comprehensive immigration re orm is the ideal goalrom an economic and efficiency standpoint, it is a challengingnear-term policy goal. Tere ore, I propose incrementalphases toward a market-based system that allow time orpolicymakers, businesses, and immigrants to test the system intrial phases be ore expanding it more broadly. Te sequentialnature o this plan allows the benets o a well-designed,simple, and market-oriented system to become evident whenapplied to a subset o labor-sponsored temporary permits inthe rst phase. Tis evidence will help to in orm and guideurther phases that deal with parts o the immigration systemthat are more controversial, such as expanding the numbero immigrant visas and addressing the balance o labor-sponsored and amily-sponsored visas. Te clear economicbenets and the simplication that will be produced in thetemporary worker visa system by the early phase will pavethe way. Te early stages will also generate resources or theagencies involved and impart important price signals aboutthe demand or different types o immigrants. Tese pricesignals will help provide guidance on numbers or the laterphases, including signaling when they should be implemented.


17/36


Chapter 4: Phases to Comprehensive Reform

his paper proposes a vision or comprehensiveimmigration re orm that is broken up into a series oincremental phases. 8 Te proposal begins with the part

o immigration law that is easier to re orm according to marketprinciples: that o temporary visas or working purposes (Phase1). Te proposal then introduces some simplications in thetemporary visa categories and tackles permanent immigrationor labor purposes (Phase 2). Finally, Phase 3 revisits the totalnumber o permanent immigrants and the balance between

labor and amily-sponsored permits. Each phase introducesurther improvements and, by relying on a price system that isintroduced early in the process, provides signals about the typeand number o immigrants demanded by the market. Pilotingelements o the system in the rst phase also allows immigrants,employers, and the government to adjust to changes and reneeach element be ore the system is expanded. Tese phases aredescribed below, and urther numbers and implementationdetails are provided in the appendix.

PHaSE 1: USE MaRkET-BaSEd MEcHanISMS To allocaTE TEM PoR aRy EMPloyMEnT-BaSEd v ISaS

FoR SPEcIFIc ExISTInG caTEGoRIESTe rst phase o the proposal is to pilot the use o amarket-based mechanism or allocating work permits thatallow employers to sponsor temporary employment-basedimmigration visas. emporary working visas are expresslydesigned, even in the current system, to ulll the labordemands o employers. But in the current system they arenot allocated to employers efficiently, nor is their allocationaffected by economic conditions. A rst phase o re orm is tointroduce a price mechanism to allocate visas efficiently andaccording to their most productive use, rather than relying ona rst-come, rst-served rule or on a random assignmento visas (as done currently). In this phase I introduce thisnew way o allocating permits only or a limited number otemporary visa categories. Permits or the H-1B category (andpossibly the L-1A, L-1B [intra-company trans ers] and N visas [pro essionals rom NAF A], which serve very similarhighly-skilled pro essional workers and could be olded intothe same category) will be sold in one auction. Permits orthe H-2 categories (agricultural and nonagricultural seasonalworkers) will be merged and sold in another auction. Te totalinow o immigrants in these categories will not change during

this phase. o achieve this, the number o permits in each othe categories will be set equal to the number o temporary visas in those categories in line with annual averages over thepast ten years. 9 Permits purchased by employers will match,in terms o type and duration, visas issued to workers. Tepermits will be sold in a quarterly electronic auction organizedand supervised by the Department o Commerce. Permits canbe resold in a secondary electronic market between employersthat operates continuously. For the duration o the temporary

visa, workers are ree to move across employers and to be hiredby any other employer who has a valid permit or that type oimmigrant worker (H-1B or H-2). Te price o permits wouldbe determined by the auction.

a. Use an auction to distribute permits

Employers purchase permits o the same type as the visas (H-1B and H-2) to hire immigrant workers in the corresponding job. Tis reaffirms the central role o employers and theirdemand or specic skills as the driver o the demand orimmigrants. Te straight orward workings o the auctionsgive small rms the same access that large rms have to the

labor market or immigrants.

In this phase the duration o each visa type will remain the same(three years or the H-1B and twelve months or the H-2). Saleso permits will be held every quarter using an electronic auctionsupervised by the Department o Commerce. Te Department oCommerce can outsource the implementation o the electronicauction to a competent agency that could set up the system andall the details.10 Some o those details are described in Box 4.

Trade of permits and immigrant mobility. Te rst timean immigrant is hired in the United States, she needs to

be sponsored by a U.S. employer with a valid permit. Anemployer that hires an immigrant and then loses her canll the vacancy by sponsoring a new entry, or by hiring animmigrant already in the United States. Te employer canalso sell the permit to another employer in the secondarymarket. An electronic database o permits, kept by theDepartment o Commerce, which will supervise the auctions,must record these transitions and keep track o immigrantworkers and employers. Te Department o Commerce mustshare this in ormation with the Department o HomelandSecurity. Given that maintaining a temporary visa requires


18/36


Box 4.

How Would the Auction Work?

EMPloyERS and BIdS

All employers le electronically their bids or the permits (number and price offered) up to the date the auction isheld. Te Department o Commerce adjudicates permits, beginning with the highest bid down to the point whereall permits are sold. Te price paid by each employer can be the price it bids or the clearing price (the price, thatis, o the lowest winning bid). 11 In the rst case, the Department o Commerce will receive higher ee revenues(potential uses o these ee revenues are described in the text). In the second case, employers will appropriatea larger part o the surplus rom hiring the immigrant worker. Once an employer has a permit, she can ll theposition with any immigrant worker. I the worker is abroad when she is hired, the employer can sponsor herrequest or a temporary visa o the same type and duration as the permit owned by the employer. Te Departmento Homeland Security would per orm the background checks needed and would issue the visa to the worker whenshe enters the country.

dETaIlS oF THE aUcTIon: MInIMUM BIdS and THE RolE oF PRIcES

Te total number o yearly permits in each o the two auctions is initially xed by Congress and should be equal tothe average number o visas awarded yearly in each category (H-1B and H-2) during the past ten years. A minimuminitial clearing price could be set. Te current ees or most temporary visa are between $1,000 and $5,000, and theconsulting services provided by companies and lawyers to navigate the complex system are easily $5,000 per visa.Te initial minimum price could easily be around $7,000 or a three-year H-1B and $1,000 or an H-2 permit. 12 Tis system o auctions would eliminate the costs o waiting, the legal ees, and the cost o labor verication,as the process to obtain the permit is drastically simplied. Hence, the initial minimum ee suggested aboveis comparable to the current cost o bringing in a temporary worker but has the benets o eliminating waits,simpli ying requirements, and providing a permit that can be resold on the secondary market. Te market woulddetermine the actual clearing price o permits, which I believe will be signicantly higher than the minimum.

An important purpose o the auction is to provide a market signal o the demand or necessary skills. Te prices othe permits will be important inputs or Congress and policymakers about the desirability o raising (or lowering)the number o permits in the later phases o the proposal, and in general afer the system is set up. Te Departmento Commerce will monitor the auctions. I the clearing price or some type o permits increases signicantly, theDepartment will signal this to Congress and may propose an increase in the number o permits. Te price o thepermits will be a clear quantication o the value attributed by the U.S. market to immigrant labor or that specictype o permit. Moreover, it will measure the revenue to the government rom a new immigrant. A large increase osuch permit prices will signal to Congress that there are too ew permits relative to demand. A price signal that mayguide Congress in the adjustments o the number o permits would have several benets. First, the system wouldprovide some exibility in times o economic expansions and recessions via price eedback. Second, once data onbids and clearing prices are accumulated, they will become an easy indicator o the evaluation o immigrants bythe labor market. Employers would have a much clearer idea o the cost o hiring immigrants rather than havingto quanti y the cost o immigrants by guessing the delays, staggered costs, and ees or legal advice throughout the

existing process. Tird, by requiring the Department o Commerce to regularly report to Congress about permitsales and prices, Congress is encouraged to discuss immigration issues and policies on a regular basis rather thanonly in response to emergencies. Te system also provides a scope or learning rom experience and data.

Te permit auction is simple enough to be accessible to all employers, including small businesses. wo provisionsto help small businesses could be added. First, each company may have a maximum number o bids in each auction.Second, there may be a number o permits explicitly set aside or companies smaller than a certain size. 13


19/36


workers to be employed (except or very short potentialunemployment spells), most o the permits will be matchedto visas at all times, except or a very small number ounemployed workers and the same number o vacant permits,due to the rictions o the search process.

Ensure fair conditions for immigrant workers. In order tohire an immigrant and hence to nalize the use o the permit,each employer has to satis y the normal conditions in terms osa ety, working conditions, and other requirements appropriateto the job in which the immigrant is hired. In this respect, jobsper ormed by immigrants are no different rom those per ormedby U.S.-born citizens. Te Department o Labor would be incharge o veri ying the appropriate behavior o the employersby per orming random audits to veri y that current U.S. lawsregarding working conditions are being met. Te Department oHomeland Security (Immigration and Customs En orcement)will per orm the needed audit to check that the rm owns theappropriate permits and that those permits are current.

Te most effective guarantee o air treatment, however, is theact that the worker is not constrained to her rst employer. Teimmigrant can leave at any time to work or any other employerwho has a valid working permit or the same type o immigrant.Tis job mobility is the best guarantee against exploitation andshould go a long way to ensure air treatment o immigrants.A related eature that rein orces competition to the workersadvantage is the trans erability o permits (through resale ortrade) or employers. Employers sell and exchange their permitswith other employers on a secondary market, as described above.Tis reduces the cost o mobility i a hired immigrant changes jobs and hence will increase the willingness o employers topurchase permits and enter the market or immigrant labor,enhancing competition. By decoupling the employer permitrom the immigrant visa, moreover, an employer can use oneH-1B permit or different workers who cover only shorterperiods. For instance, or highly-skilled jobs a multinationalcompany may keep some permits to cover one-year visits ooreign employers rom a oreign affiliate (serving the purposeso current L-1 and L-2 visas).

An important simplication introduced in this phase isthat new permits will not be subject to the labor vericationrequirements. Tose requirements are very cumbersome, andare seen by many employers as the main reason or long delays inobtaining a temporary visa. Because immigrants are not tied toan employer and are subject to the same labor laws as Americanworkers, there should be no need or such verication. Similarly,there will not be any ormal requirement on wages because themarket will determine the appropriate wage or each occupation.Tis will make the process to obtain a permit much easier andaster or the employer and stimulate entry o employers inthe auctions and competition, which is a more effective way oguaranteeing air treatment or immigrant workers.

Cost for employers. Te permit ee paid by the employermakes immigrant workers more costly than Americanworkers (everything else being equal). However, the supply oimmigrants is quite inelastic. Te employer thus may pass onto the salary o a worker a part o these costs. Te employerwill not explicitly discriminate or exploit the immigrant,who benets rom the same protection as a resident andwho is mobile across employers. Less-educated immigrantswill probably continue to nd work primarily in manual-intensive occupations that pay lower wages relative to clericaland communication-intensive jobs where similar U.S.-borncitizens are employed. Tis would not be different rom whathappens now. A large body o evidence shows that wageso new immigrants are 10 to 15 percent lower than those oU.S.-born citizens with similar observable characteristics,due to the types o jobs and tasks per ormed. 14

In addition to providing a visible signal o demand orimmigrant labor, the price o the permits will have three

urther use ul effects. First, it will encourage employersto select workers with high productivity who are likely tocontribute signicantly over time to their businesses. Second,it will generate income or the government, which couldhelp compensate local communities who accept immigrants.Tird, as already mentioned, it will help protect Americanworkers rom undesirable competition and increase theincentives to employ immigrants in jobs in which they aregenuinely complementary to U.S.-born citizens, and or whichAmerican applicants are hard to nd at the prevailing wage.

b. Use permit revenues to offset costs arising from

immigrant owsTe permit ees paid by employers would generate a new source orevenues or the ederal government. Te revenue rom ees shouldrst go to und the new structures needed by the Departmento Commerce to set up the auction, or to outsource this phase.Te Department o Labor will have some resources reed romthe elimination o the requirements or labor verication, andshould use those resources to intensi y workplace audits. TeDepartment o Homeland Security may need new resources to setup a database integrated with E-Veri y and the permit database.Te Department o Homeland Security should also receive someo the extra resources rom the permit sales.

Te rest o the revenues could be trans erred to states,local governments, and school districts to help offset theincreased localized costs o schooling, local services, policedepartments, and reghting departments that may ariserom newly arrived immigrants. A common complaint isthat children o immigrants crowd schools, reduce resourcesper child, and need more assistance with learning English;these complaints are especially common in schools with largeimmigrant communities. Te revenues rom the permit sales


20/36


and ees would be a way to link the inow o more immigrantswith the inow o money or local schools, enhancingthe support or the new system. Using the database, theDepartment o Commerce would distribute revenues to statesand then to school districts in proportion to the presence oH-2 visa holders (who are more likely to generate local costs).Another part o the revenues should be directly distributedto counties and municipalities to und police departments,reghting departments, and local public services. Whilemostly unsupported by the analysis o the data, which showslower crime rates or immigrants and especially low rates orthe newly arrived (e.g., Butcher and Piehl 1998, 2007), localcommunities ofen perceive the inow o immigrants asrequiring intensication o law-and-order measures. Tis newpolicy allows local communities to benet rom the economicsurplus generated by immigrants. Tis policy also maycontribute to changing local attitudes towards immigration.

An alternative is that the revenues rom immigrant permitscould be designated to some other specic uses with signicantpositive impact on U.S. citizens or example, the retrainingo the less educated, public debt reduction, the unding oSocial Security, or the unding o Medicare.

PHaSE 2: SIMPlIFy THE TEMPoRaRy vISacaTEGoRIES, and ExTEnd THE aUcTIon SySTEMTo InclUdE PRovISIonal vISaS THaT can BEconvERTEd InTo PERManEnT RESIdEncE vISaS

In this phase, the auction system is extended to include all themost relevant employment-based temporary visa categories.Tese are merged and simplied into only three categories o visas, with ve-year or twelve-month durations. Te auctionsystem will also be extended to provisional permits linked toprovisional visas that replace the permanent employment-based visas and provide a transparent path to permanentresidency afer a temporary period. All the new visas wouldalso incorporate incentives to return to the country o origin.

a. Phase 2A: Simplify visa categories

In this phase the most relevant categories o the currenttemporary employment-based visas (H-1, H-2, I, L, Q, R andN) are merged into only three types o visas. Tey are awarded

to new arrivals and each is valid or a xed number o years.Te visas will be given to workers selected and hired by U.S.employers who purchased permits in auctions that operate asI described in Phase 1.

Te rst category o visas would be designated or occupationstypically requiring a college education ( rom a list that canbe compiled and updated by the Department o Labor): C(college) visas. Tis category will essentially replace the H-1B visas and absorb the I, L, Q, R, and N visas. Tis type o visa

will be valid or ve years. Te second type is or occupationsnot requiring a college education (also dened rom a listcompiled by the Department o Labor): NC (non-college) visas. Tis category will replace the current H-2 visas,allowing some o those agricultural and service workers tohave a longer-term perspective. Tis type o visa will also be valid or ve years. Te third is or occupations with a seasonalemployment pattern (such as some types o agricultural jobsor jobs in the hospitality and tourism industry): S (seasonal) visas.15 Tis type o visa will be valid or twelve months.

Te total number o permits and visas or each category couldbe set based on the number o temporary employment visasin the current system, while also considering the price or thetemporary permits auctioned in Phase 1. For instance, large andincreasing prices or the H-2 permits would suggest that in thisphase Congress could allocate a larger number o NC and S visas,relative to the total o H-2 visas available the previous period.Tere would be no other country-specic or occupation-speciclimits besides the quota or each permit, and no restrictions basedon the public, private, or nonprot nature o the job.

In this phase, I also introduce two extensions that wouldurther increase the exibility o the system and the economicefficiency o immigrant worker allocation. First, immigrantscan buy their permit rom their employer once they are in theUnited States and have worked or an initial period (six monthsor longer). In act, they should be eager to do this in order toincrease their mobility; this purchase should be encouraged.Workers who do not have liquidity to purchase their permitbut want to do so are encouraged to make arrangements

with the employer to pay or the permit in installments romtheir wages. Tis way the employers will recoup the cost opurchasing the permit.

Second, to encourage mobility and entrepreneurship, aworker who becomes an employer by starting a company canpurchase her own permit back rom the employer. Similarly,a person who is willing to invest in the United States and tohire a minimum number o workers in a rm would obtain atno cost a ve-year C or NC visa, and her company would ownthe corresponding permit. Tis mechanism would absorb thecurrent E visa or investors.

Te new system o temporary visas and permits will have threecategories and one auction or each. Te mobility o workersacross rms within each category and the trans erability opermits across employers are exactly as described in theprevious phase. Immediate amily members o temporary visaholders can be brought in the country afer payment o a ee bythe immigrant, proportional to the permit ee.


21/36


b. Phase 2B: Extend the auction to provisional visas with possibility of permanent residence

Afer the auction system has been extended to most temporaryemployment-based visas, the system should begin to auctionprovisional permits tied to visas that can be converted intopermanent residence visas. In order not to initially increasethe number o visas, the existing labor-sponsored permanentresidence visas (140,000 per year under the our pre erenceclasses) would be trans ormed into ve-year provisional visas(C and NC) and auctioned. Tis means that they are valid orve years, and that they have the possibility o renewal intopermanent visas afer that period.

Workers seeking to immigrate would apply or a provisional visa through the auction, and the C and NC visas wouldprovide a certain path to permanent residence. Tese permitsand visas will not be called temporary or permanent, butprovisional. Afer the provisional period, immigrants couldapply or permanent residence and be subject to no quotas.Tere would be, however, incentives to return to the countryo origin afer the provisional period.

Immigrants who have been hired in the temporary C, NC,or S categories can be hired successively in a provisional Cor NC visa. Both the C and NC visas (afer ve years) can beconverted into permanent residence permits. A worker whoapplies or permanent residence needs to have a reasonablycontinuous working history, ull tax compliance, a cleancriminal record, and the sponsorship o a current employer.For workers who would like to stay in the United States,this mechanism generates strong incentives to work and toinvest in skills, including some skills that are specic to theemployer. Immigrants who have been on a provisional visaand who apply or permanent residence are not subject toquotas. Te only numerical restrictions are on the numbero initial provisional visas issued every year. Tis systemwould there ore create a predictable path to earn a permanentresidence visa and encourage investments in skills or workerswho intend to stay. Te working o the auctions or provisional visas will also be exactly as described in Phase 1, except thatthe minimum permit ee will be set at a different (higher) levelthan the ees or the corresponding temporary permits and

the auction price o a provisional visa will likely be higherthan the price or a corresponding temporary visa.

Because not all immigrants intend to stay and not all continueto nd meaning ul opportunities in America, it is also use ulto provide an incentive or immigrants to return to theircountry o origin. For instance, NC workers, who typicallycome rom less-developed countries, could return to theircountries with very valuable human capital and substantialsavings at the end o the ve years o temporary work in theUnited States. During the ve years o temporary residence a

percentage o the workers wages (a reasonable amount wouldbe about $2,000 per year) could be deposited by the employerin an interest-bearing account. Tis return account wouldbe portable across employers and should be administered bythe Department o Commerce, which would be kept currentabout the employment status and employer o the immigrantworker. Te account cannot be liquidated to the worker unlessshe repatriates or moves to another country or work. Ishe stays and applies or residency, the amount saved in theund (which could be $10,000 or more) must be paid to theU.S. Citizenship and Immigration Services as a permanentresidence ee. Te amount would make it attractive or someworkers, especially NC workers coming rom less developedcountries, to return, because it would constitute a signicantcapital to start a business in their country o origin.

A continuous working history, needed to obtain permanentresidence, implies that a worker should be unemployed onlyin a ew spells o reasonable length or example, three to ourmonths each or two to three spells over the ve years. I theimmigrant becomes unemployed or longer periods duringthe provisional phase, she would have strong incentives toreturn to her country o origin. First, immigrants would notreceive unemployment benets during their provisional period.Second, by leaving they will receive all the savings accrued upto that date in the return account. Tird, they will keep theoption o being hired again in the uture by a U.S. company andstart another ve-year temporary period. I a worker does notquali y or permanent residence at the end o the period becauseo excessively long spells o unemployment or noncompliancewith taxes or because she has a criminal record, she may decideto leave voluntarily; in that case, she would still receive themoney rom the return account. I she re uses to leave, she risksbeing repatriated by the Department o Homeland Security,which will appropriate the return account to cover the cost orepatriation. Moreover, she loses the possibility o being hiredby U.S. employers in the uture. I a worker chooses to return toher country o origin at any time during the provisional period,she is given the current value o her return account.

An important benet o transitioning to these provisional visas isthat they combine three desirable eatures, all o them contributingto select and incentivize the right type o immigrants. First, bygiving a clear prospect or two alternative paths (invest in localskills and become a resident, or save and return), this systemencourages people to sel -select in the most appropriate path.Tose who want to stay are motivated to invest in skills. Tosewho want to return are motivated to work and save as much asthey can. Second, it allows ex post criteria such as merits on the job, commitment to working, paying taxes, and good behaviorto be used as criteria to award permanent residency becausethe employer has to recommend the worker or a permanentresidence visa. Tird, it will eliminate the disconnect between


22/36


temporary and permanent residence visas: in the new system,i an immigrant has a job and is productive and valuable to anemployer and has a provisional visa, she can become a permanentresident without being subject to a urther quota. Tis is air andwould keep workers motivated.

wo more important provisions are incorporated. First,

provisional workers could bring their dependents (spouse andminor children) on a dependent visa during the provisionalperiod, at the cost o a ee. Second, during the initial ve-yearperiod these workers would have the same access and rightsto protection, air wages, housing, schools, and local publicgoods as permanent residents and citizens. Tey will not beeligible, however, or means-tested wel are programs or orunemployment benets. Tis would provide an initial periodduring which immigrant workers earn their way to the ullrights o permanent residence.

Notice that Phase 2 combines a merge or simplication o

temporary employment-based visas that increases theiraverage duration to ve years ( rom an average two to threeyears), and hence would increase the average presence oimmigrants even or a given number o permits. At thesame time, the current 140,000 permanent labor-sponsored visas would be trans ormed into provisional visas with thepossibility o permanent renewal; some o those immigrantswill return to their countries, which implies a decrease in thenumber o permanent immigrants.

PHaSE 3: ExPand MaRkET-BaSEd REFoRMS ToEncoMPaSS MoRE oF THE IMMIGRaTIon SySTEM

Tis phase would reassess the balance between work visashigh-skilled, low-skilled, and seasonal workersand amily-based visas, and provide a broad simplication o ar-reachingelements o the current system such as country quotas.

a. Simplify family-based visas and revise balance betweenemployment based-visas and family-based visas

Eliminate the country-speci c quota for permanentresidence visas. Family ties are o undamental importanceor individuals all over the world. Western societiesemphasize the centrality o the nuclear amily (spouses

and minor children), whereas Asian-, A rican-, and Latin-American cultures put a high value on having the extendedamily (including married siblings and married children) inthe local community. Te current delays in the visa systemdeny permanent residents o the United States, especiallyrom Mexico, China, and the Philippines, the possibility omaintaining the unity o the nuclear amily. I propose toeliminate the country quota on permanent residence visasand leave only the numerical limits or amily-sponsoredpermits. Currently there are 450,000 visas or siblings andadult children o U.S. citizens, and children and spouses o

permanent residents. Spouses, minor children, and parentso U.S. citizens are exempt rom the numerical limits.Removing the country quota would speed up signicantlythe process to obtain a visa or citizens o the affectedcountries.

Phase out the sibling and adult children family-sponsored

programs and direct those individuals to the labor-sponsored program. In order to expand the scope or a growth- and labormarket-driven immigration system, the law should reduce thenumber o amily-based visas while expanding numbers oemployment-based visas. Te law could emphasize, at the sametime, the nuclear amily as the basis o society. In the amily-sponsored program, there ore, I propose keeping spouses andminor children o residents as the main groups eligible oramily-sponsored visas. I propose phasing out the programsor siblings (currently ourth pre erence) and or adult marriedchildren (currently third pre erence) o U.S. citizens. No newapplications would be accepted or these. Tose already in thequeue will be processed, in due time, ree o the country quota.Moreover, siblings and adult children in line to obtain a visawould be encouraged to pursue a permit by nding a job in theUnited States within the new labor-sponsored system describedabove and enlarged in this phase. Afer all, the reason whymost adult siblings and adult children o U.S. citizens cometo the United States is to take advantage o a job opportunitysignaled by their U.S. relatives. I there were an efficient way oremployers to sponsor immigration permits, then there wouldbe much less demand or amily reunication visas. I alsosuggest eliminating the diversity lottery visa program becauseit does not serve its purpose o increasing diversity (given itslimited scope) and admitting immigrants at random does notmake economic sense. I would also consider phasing out theprogram or parents o U.S. citizens, with some exceptions(e.g., parents in need o assistance). Using annual averages or20002010, the phasing out o the siblings, adult children, anddiversity lottery programs would ree about 150,000 visas, plus100,000 or the parent program. Tose numbers would go,in the new steady state, to the new labor-sponsored programin the orm o new auctioned provisional permits and to theimmediate amilies o immigrants who have earned the newprovisional visas.

b. Increase the opportunities for workers with desired skills toimmigrate, and follow the auction price signals

Let the price signal for C and NC permits guide thedecisions of Congress about the number of permits. Up tothis point, the total number o immigrants has been keptconstant, at its initial quantity. Te auction system has simplyallocated them efficiently, signaled the market values orthem, simplied the procedures, and generated revenues.Beginning in Phase 3, the number o new C and NC visascan be modied in response to the price signals rom the


23/36


auctions. While economists would look avorably on the set-up o some automatic adjustment o the number o auctioned visas in response to prices, Congress is likely to remain incharge o these aggregate numbers. In this phase, however,the possibility o scaling down the siblings and adult childrenlottery-sponsored program in avor o the employment-sponsored provisional program provides an important roleor prices in allocating these new permits. Beginning withthis phase, the prices o temporary and provisional permitswould provide an important aggregate signal o the demandor immigrant labor in different skill groups.

Provide provisional visas and permits to immigrants hiredby U.S. employers who have graduated with four-yeardegrees from accredited U.S. colleges and universities. Analternative way to increase the supply o highly valuablecollege-educated immigrants and to give pre erence tothose with a U.S. education is to make an exception tothe quota or those educated in the United States. Onepart o the immigration system that has worked very wellin the United States and that builds on and propagatesU.S. international excellence in science, technology, andtertiary education is the part regulating student visas.Student visas are currently allowed without an overalllimit. Foreign-born students are ofen among the highest-per orming students in U.S. colleges and universities. Teycontribute tuition and ees to public universities, and hencecross-subsidize U.S.-born students. Tey are more likely tospecialize in science, engineering, and math, and to go on tograduate school and obtain a doctorate. U.S. leadership ininternational tertiary education, driven by a large numbero top universities, means that there is an abundance o verytalented students who are eager to matriculate at Americanuniversities. 16 Entry o oreign-born nationals or studyhas increased steadily rom 200,000 per year in 1990 toalmost 400,000 in 2010 (see Appendix able 1). Moreover,immigrants studying in U.S. colleges tend to do very well interms o integrating themselves into the U.S. labor market.

While leaving the current student-visa system unchanged,because most colleges tend to do a very good job oselecting their candidates, I propose a provision that i aoreign student graduates rom a our-year accredited U.S.university and nds a job, then she can have a provisional,non-trans erable college permit (and the corresponding visa) available outside o the auction and or a set price. 17 I also suggest that immigrants graduating with a Ph.D.rom a list o accredited U.S. universities would be eligibleor a permanent residence visa, afer they are hired, afer abackground check, and with the sponsoring o the currentemployer. Te same access to a permanent residence visa (not counting against the quota) should be givento individuals o exceptional achievements currentlyadmitted in the O and P programs.

concURREnT PHaSES

Address the issue of currently undocumented aliens byenvisioning for them a demanding but clear path to earninglegal residence. Tis would not be an amnesty: nes anddemanding, but reasonable, requirements will be set.

An estimated 90 to 95 percent o the 11.5 million undocumentedimmigrants have lived in the United States or at least threeto our years. A ull 60 percent o them are estimated to havelived in the United States or ten years or more. Figure 4 showsthat there has been virtually no net inow o undocumentedimmigrants during the past our years due to the economicrecession and to the tougher policing o the United StatesMexican border. Tis provides a window or dealing with theissue o undocumented workers without the pressure o largecurrent and recent inows.

I am in avor o setting a demanding path or undocumentedworkers requiring the payment o a substantial ne (at least aslarge as the cost o an NC permit), the payment o back taxes,and success ul completion o an English knowledge test in orderto earn legal provisional residence. Moreover, only immigrantswho can document their stay in the United States and theirwork history or a minimum o three years should have accessto such a path. Under these and possibly additional conditionsthese workers should be allowed temporary visas o the NC type,and then a path to a permanent residency, possibly with a longerprovisional period requirement be ore they become eligible orit. Tose undocumented workers who do not quali y (becausethey have been in the United States or less than three yearsor because they have a criminal record) will have to leave theUnited States. Tere have been several good proposals describinghow the undocumented could earn a path to residency, and Ileave some o the details to others (see, e.g., Council o ForeignRelations 2009; Orrenius and Zavodny 2010).

An easier path to residence should be allowed or people whoarrived in this country as minors with their amilies. Forthose people, extending the provisions o the DREAM Actwould be reasonable, giving them the opportunity to apply orpermanent residency when they complete high school, as longas they have been in this country or ve years or more. 18

Tis program o an earned path to citizenship would certainlybe demanding and costly on the organizational side. Itwould require the government to set up a system to registerthe undocumented workers and to process their requests.Te Department o Homeland Security in cooperationwith the Department o Commerce, who would issue theworking permits, would be responsible or these steps. Tisprocess would also generate immediate revenues ( rom theees), which could be substantial. It seems to me the onlyreasonable, affordable, and humane solution or the problemo undocumented workers. I 90 percent o the immigrants,


24/36


as current estimates suggest, would be eligible or such apath to earning legal provisional permits, then 10.4 millionimmigrants would pay a potential ee o roughly $5,000(using a low prediction or the cost o a provisional NCpermit), generating over $50 billion in total revenue. Tis

revenue should go to cover set-up costs o the system, andthe rest should be distributed proportionally to states andcommunities where these immigrants work and reside.

Once a clear path to earned legal provisional residenceis dened, the U.S. government should reinvigorate theen orcement effort, ocusing on the workplace and using up-to-date technology. Employers hiring undocumented workersshould receive severe nes, and repeat offenders should lose theability to hire immigrants, and could be subject to civil lawsuits.

Te establishment o the electronic markets, with identiersor employers and or immigrants, would create an easy wayto keep track o immigrants and employers and to veri yelectronically that all immigrants are authorized and allemployers in compliance. Audits in the workplace, requentbut nonintrusive, should be per ormed by the Departmento Homeland Security to guarantee that rms own theappropriate permits.

Te intensive use o technology in workplace en orcementshould be encouraged. Te use o E-Veri y, a web-based systemthat allows employers to veri y the authenticity o the visa o animmigrant, and biometric ID cards, should become mandatory.

Te available technology would allow easy identication oimmigrant workers. Ten, high nes and severe sanctions oremployers, combined with the options or those employers to hireless-educated immigrants by purchasing a permit, could nallysucceed in drastically reducing the problem o undocumented

workers. All efforts at tougher en orcement are likely to ail iemployers are not given options to hire less-educated immigrantslegally, in numbers and at conditions that reect the labormarket reality o the country. Tis is where the ImmigrationRe orm and Control Act (IRCA) o 1986 ailed. Introducing alegal and reasonable way to hire less-educated immigrants withan NC permit (temporary and then renewable into permanentresidence) would decrease the pressure to hire undocumentedworkers because it would give employers an option. Moreover,i the price or S or NC worker permits gets too high, this mayincrease pressure on employers to hire illegally or risk losingmoney. Tis may be a urther reason that Congress may consider

adjusting the number o permits in times o high demand.

Te Department o Commerce, which would be in charge o thepermit sales and trans ers, and the Department o HomelandSecurity should share the database o the temporary visasand permits purchased and the locations o immigrants andemployers. Tis would also generate a very valuable databasewith in ormation on geographical and occupational distributiono immigrants o each category. Tis in ormation will be neededwhen redistributing part o the income generated via the sale opermit ees (as described above).

FIGURE 4.

Estimates of Undocumented Immigrants in the United States, 19902011

M i l l i o n s

13

12

11

10

98

7

6

5

4

3

2

1

0

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

INS data

DHS data (based on 2000 Census)

Pew data

DHS data (based on 2010 Census)

Source: Department of Homeland Security (2012a); Passel (2006); Passel and Cohn (2011); U.S. Immigration and Naturalization Service (n.d.).


25/36


Chapter 5: Some Further Questions and Concerns

How QUIckly SHoUld THE Plan BE PHaSEd In?

Each phase has a duration that should be appropriate tothe goal that it accomplishes. Te rst phase should lastlong enough or all the agents (workers, employers, and thegovernment) to become well acquainted with the details o theauction or permits and its unctioning. A period o one to twoyears seems appropriate to accomplish this phase.

Te second phase should promptly extend the auction

system to most temporary visas and merge those into thethree new categories. Within the rst year o this phase, theauction should be extended to the permanent visas. Whenthe immigrants begin to exercise their option or permanentresidence visas, namely afer ve years,the new system begins to affect the totalnumber o permanent residence visasand their composition between labor-based and amily-based visas. Hence, thiswould be the right time to enact the thirdphase o the re orm, which would tacklethe issues o increasing the total number

o labor-based, high-skilled visas andre ocusing amily-based visas towardsimmediate amily only. At that point theevidence rom the price mechanism willindicate what skills are in higher demand,and i there is a large demand or oreignworkers. Also, policymakers will be able to gauge how manyimmigrants will want to become permanent residents andhow many will want to instead return to their countries oorigin. Moreover, the government will have a clear projectiono the revenues generated by immigrants, and data on how thesystem works and on the employer and immigrant satis actionwith it. Tis could in orm a

thp.immigrdiscusspaper may12 f

Documents