Living Economics

For economic and political reasons, many foreigners want to emigrate to the U.S. legally or illegally.

What is the most efficient way to allocate the limited number of annual immigration quotas? Economics 101 tells us that the biggest economic benefit would result if they are auctioned to the highest bidders.

This seems to be a win-win solution to a difficult allocation problem. A worker migrating from a country with wages averaging 20% below those in the U.S. can expect to gain $100,000 over a lifetime. So potential immigrants would gain even if they bid $50,000 for a visa (NBER Bulletin). The U.S. would also gain by attracting needed workers and recouping some of the cost needed to service the immigrants. Essentially, the auction bids siphon off the economic rent¹ arising from the limited visa quotas.

There is another obvious advantage in auctioning visas. Many American workers complained that foreign workers on temporary visas have taken away jobs and depressed local wages. If the foreign workers must pay for their visas, they would likely demand higher gross wages that leave them with the same net wages. Employers would have less incentive to hire foreign workers just for their lower pay if the visa bid is high enough to offset the low net-pay advantage. Instead, they would invest to upgrade the labor productivity of their jobs to justify paying more for native-born workers who might not have taken the jobs at the previously lower pay.

But visa auction may not work for all immigrants. If the idea of immigration is to attract labor to jobs that are hard to fill with native-born Americans, potential immigrants might have to be offered an incentive to take some jobs instead.

There is an obvious need for globally scarce highly-skilled workers. It is not clear they would be willing to suffer a wage cut (in the form of visa auction bid) to work in America. If the auction bid is shifted to employers, that would only increase the cost of American employers without increasing the pool of skilled workers.

Auction bids do not have to come in the form of cash, however. For example, there is also an urgent need to fill the rank of the all-volunteer armed forces with people to fight wars on distant shores. Foreigners with the required linguistic and cultural skills might have to be enticed with outright citizenship to join the armed forces. For that matter, illegal immigrants could also be required to join the armed forces to gain legal immigrant status or subject to deportation. This idea is only one further step from the offer of expedited citizenship to non-citizen soldiers after serving one day (previously several years) on active duty. More than 80 have actually received posthumous citizenship (Economist).

Foreign doctors who want to immigrate to the U.S. were once obligated to work under J1 waiver visas in under-served areas for three years in return for their immigrant status. This arrangement worked very well for the rural areas until foreign doctors were allowed to work under H1-B visas which do not require any such hardship-post obligation.

Visa auction works particularly well for well-off immigrants who are more interested in getting more travel-friendly passports. Now, many countries grant investor visas to immigrants who are willing to invest in businesses worth some minimum sum of money. Most of this money is wasted on made-up businesses (Economist and WSJ 11/2/2007).

But auctioning visas does not solve the problem of illegal migration. Why bid for visas if there are back doors to sneak in?