“When misled outrage prevents the solution.”

By Andres Rodriguez Brauer

Looking back at the past year, perhaps the most notable and important tendency to rise up in the western world was that of right-wing populism. Largely related to an anti-elite and anti-immigration sentiment, the West fell victim to the shocking victories of Brexit and Donald Trump. These events have cemented a worrying wave of anti-globalization politics, present in both major parties of the UK and US respectively. While these anti-globalization sentiments were most obvious through Bernie Sanders and Donald Trump’s opposition to the Trans-Pacific Partnership in the 2016 campaign, the current administration’s views on high-skilled immigration has begun to express the same disposition.

President Donald Trump recently announced a desire to pause new green cards for foreign workers in a counterproductive attempt to decrease unemployment and increase wages. He also promoted reforming the H-1B visa system in an effort to promote these same goals. These actions indicate a belief in the lump of labor fallacy, as he is assuming that there is a fixed amount of jobs that people must fight over.

Workers undercutting other workers doesn’t result in mass unemployment, but rather causes a shift in labor supply to the right. This partial equilibrium suggests that rather than creating unemployment, it would simply lower wages for high-skilled workers in the United States.

The Facts

However, this basic analysis still fails to illustrate the whole picture. Increased competition and creative destruction end up decreasing total costs of production and increasing economic efficiency. High-skilled immigration lowers costs for firms and increases competition by stimulating innovation and entrepreneurship, both directly and indirectly. These developments decrease prices for consumers, which increases their real purchasing power and increased demand for labor, as the production constraint increases. Additionally, the increase in entrepreneurship increases demand for high skilled workers. Lastly, these high-skilled immigrants are consumers themselves, which also means that the demand for all products increases, including those that require high-skilled immigration themselves.

Therefore, theoretical effects point towards ambiguous wage and purchasing power for upper middle class workers in the STEM field, with the rest of the population achieving significant gains in real income. Empirical studies suggest that the wage effect for high-skilled labors is ambiguous, with studies deviating on the direction and size of the effect. However, the majority clearly point towards increased economic productivity, cheaper goods for all Americans and lower income inequality.  

This scientific analysis strongly supports the need for expanding the amount of high-skilled immigration into the United States. This is especially true when we consider this policy in the context of the economic developments of the past few decades. The technological developments since the 1980s have led towards increased demand in skilled labor and decreased demand for low-skilled labor, which results in the very income inequality that has led to the rise of populism in the United States. Expanding high-skilled immigration can help counter those very worrying long term trends by lowering income inequality and increasing economic growth.

Democrats in Conflict

Hillary Clinton was very much in favor of high-skilled immigration, an issue that was perhaps not emphasized enough during her campaign. She outlined her plan to increase high skilled immigration to the United States by allowing for start up visas and would have attempted to provide nearly automatic green cards to foreigners that acquire STEM advanced degrees in accredited institutions. That being said, Bernie Sanders, who challenged her in the Democratic primary, has historically opposed increasing worker visas and has utilized rhetoric very similar to that of Donald Trump on the issue.

In 2007, he opposed expanding visas for both low-skilled and high-skilled labor, in an effort to prevent increased unemployment and lower wages for Americans. This message has been consistent with his track record and is in-line with the logic he utilizes for opposing trade agreements.  During his platform for the 2016 campaign, the independent senator for Vermont reworded his opposition, branding his opposition to high-skilled visas such as H1-B and J-1 programs as an issue of “foreign worker exploitation”, while attempting to avoid stating that immigration will lower wages. That being said, the fear that undercutting American workers will result in lower wages and employment is still obvious, as his platform states that “Senator Sanders will ensure that if there is a true labor shortage, employers must offer higher, not lower wages”. Furthermore, his internal logic is obvious during his interview with Ezra Klein, where he deemed open borders as a “Koch brothers proposal” and “right wing”, which “would make everyone in the United States poorer”.

Populist Proposals on Both Sides

Both populist leaders seem to be gathering plenty of support on the issue. In the Republican Party, Marco Rubio had previously pushed for the cap on H1-B visas. Now the situation has changed and both the White House and Congress are looking for ways to restrict the current program. Senator Tom Cotton and David Perdue are attempting to reduce the number of green cards issued by the United States, with Marco Rubio being “open” to the idea. Senator Orrin Hatch, a historically strong supporter for trade and work visas, is now working to compromise on the issue of H1-B visas and reduce the “abuse” of the system in order to stop undercutting American workers. Republican congressman Darrell Issa would increase the de-facto minimum wage for H1-B visas to $100k a year, which would limit high skill immigration and would reduce a large amount of the economic benefits that could come from the program. Yet, other national figures such as John McCain and Lindsey Graham, continue to be supportive of the program. Others, such as Paul Ryan, have yet to come out with a clear position, indicating that the party remains split.

In the Democratic Party, we see California representative Zoe Lofgren introduce a similar bill to Rep. Issa, but the de-facto minimum wage for H1-B visas would be $130k. While most Democrats have failed to outline a clear position on the issue, it seems probable that the Bernie Sanders faction of the party will continue its opposition and would be willing to work with Donald Trump to restrict the amount of high-skilled immigration into the United States.  That being said, it is yet to be seen if the rest of the party will follow.

Ironically and tragicomically, the rise of populist leaders aiming to combat the rising income inequality and stagnant wages is now preventing the solution to the very issue. Donald Trump has significant support on the issue of H1-B visas and it certainly seems he will be able to count on the support of the majority of Republicans to restrict the program. However, they will still have to depend on Democrats to be able to pass the reform and it is yet to be seen how they will respond. Will Hillary Clinton’s defeat and Bernie Sanders’s leadership steer the party towards populism, virtually assuring the demise of high-skilled immigration into the United States? Or will the anti-Trump, pro-immigration sentiment prevail over the protectionist tendencies of the party? These questions are essential for the future of the United States economy and the state of income inequality in the country.

Sources:

Image Source: WikiMedia

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