Winning the Visa Lottery

Researchers generally agree that immigrants with high skills complement native labor. However, the impact of low-skilled immigration has been less clear, with estimates varying widely based on the assumptions made. In a study published in the American Economic Journal: Applied Economics, Michael A. Clemens and Ethan G. Lewis analyzed the economic effects of low-skilled immigration by using a randomized visa lottery system established by the U.S. government.

The H-2B visa, which allows temporary foreign workers in seasonal jobs, has a cap of 66,000 visas issued annually. This cap was set by tripling the previous year's 22,000 visas, a decision made without considering whether it would become a significant limitation. Despite this, the demand for these visas far exceeds the available slots.

In 2022, employers requested 136,555 workers for only 33,000 visa slots. To address this, the Department of Labor began processing visa petitions in a randomized order, assigning each petition a letter. Employers with an 'A' petition are more likely to hire nearly all the workers they request, while those with later letters are less likely to hire all requested workers.

The study surveyed 472 businesses that entered the 2021 and 2022 lotteries and used a pre-analysis plan to ensure their hypotheses and methods were not influenced by the respondents' answers. The results showed that losing out on the lottery reduced a firm's employment of H-2B workers by roughly half. Meanwhile, firms that won the lottery experienced a 20% increase in revenue, as every additional H-2B worker raised revenue by about 5%.

Investment in equipment, vehicles, and structures also responded strongly to visa availability, with elasticities ranging from 1.5 to 2.1. Interestingly, the employment of low-skilled American workers at losing firms did not increase. Overall, the findings suggest that low-skilled foreign and low-skilled American workers are not good substitutes for each other, as firms denied workers do not simply hire more American workers.

Instead, they become smaller firms, and the overall output of the firm decreases. The authors' estimates indicate that the elasticity of substitution between H-2B and US workers is roughly 0.8 to 2.2, which is much lower than previous studies that found an elasticity of 4 to 10, and far from the perfect substitutability assumed in some influential studies.

The study highlights the potential benefits of increasing H-2B visa numbers, as it could expand production, investment, and profits for American firms without reducing American employment.