H-2Bs - Immigrants Without Degrees Spur Economic Growth
Immigration policy debates often suggest a different treatment of immigrants based on education level – research suggests that this may not be warranted.
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Last week, we discussed the impact of restrictions on college-educated immigration, and showed that the US economy (or any economy) sees significant costs due to these restrictions, both from a macroeconomic perspective (reduced GDP) and a labor perspective (most workers earn less with higher restrictions).
Most of the discussion around immigration often creates a distinction between college-educated immigration and all other immigration. The implication from such a distinction is that there is a significant difference in the contribution of different types of immigrants to an economy. Today, we will look at the impact of non-college-educated immigrants.
The H-2B Visa
Fortunately, the US has a simple naming convention for visas – whereas the H-1B visa is intended for college educated foreigners, the H-2B visa is intended for temporary non-agricultural workers. The H-2B visa is far more restrictive than the H-1B. Petitioners (firms) can apply for H-2B visas if the petitioner can demonstrate that the worker under the H-2B is needed only on a temporary basis (a one time need or seasonal basis).
The typical employees hired under the H-2B visa are landscaping and groundskeeping workers, forest and conservation workers, amusement and recreation attendants, and maids and housekeeping cleaners (Source: EPI). Since 2019, just like with the H-1B visa, the H-2B visa began to be allocated via lottery since there were more applications than the number of permitted H-2B visas (annual cap of 66,000 with 33,000 of visas issued for work in the first half of the year). However, the lottery system for H-2Bs applications is a bit different.
When a firm applies for an H-2B visa for its workers, it submits a request for all the H-2B workers it will want. In the lottery phase, a firm (rather than a particular worker) gets selected and all the workers that the firm applied for are eligible to get the visa. This unique visa lottery has allowed for interesting natural experiments.1
Impacts of H-2Bs
Clemens and Lewis (2024) studied the impact of firms winning the H-2B lottery. Firms that win the lottery see their revenues increase by 13%. The impact on the number of domestic US temporary workers is less clear – the impact ranges from 12% to 20% more domestic US temporary workers being hired, but the result is not statistically significant, meaning the impact could be 0%.
Clemens and Lewis also looked at the impacts of winning the H-2B lottery on the investments a firm makes, as well as profitability. The results suggest that firms that win the H-2B lottery increase investment by nearly 4 times. This is somewhat explained by the fact that, with a larger workforce driven by more H-2B hires, the firm needs to purchase equipment and tools needed for the job. Additionally, profits also appear to rise by about 40%, although this result is not statistically significant.
In their study, Clemens and Lewis also found that the above mentioned effects are likely to be larger with smaller, rural-based firms, as well as firms that face greater competition. The reason for the ‘likely’ caveat is that Clemens and Lewis do not have enough observations to fully test this result. However, it is worth noting that a similar result was found in the case of college-educated H-1B applications – smaller firms that had their applications rejected saw larger adverse impacts on their business.
Oversubscribed H-2Bs
The above study looked at the impacts of H-2B employees via firm surveys. A different data approach was used by Amuedo-Dorantes, Arenas-Arroyo, Mahajan and Schmidpeter (2023) (“AAMS”). On January 1, 2018, the Department of Labor (DoL) that administers part of the H-2B visa application process, received 2.5 times more applications than available visas. This resulted in the DoL proposing an allocation mechanism that H-2B applying firms did not know about prior to applying. The application mechanism favored firms that applied earlier in the day on January 1 compared to those that applied later. This situation created a natural experiment, where which firms got their H-2Bs accepted was ‘random’.
Using firm specific data, AAMS found that for each H-2B hire, firm revenues went up around $54,000 (the median firm in the AAMS data earned about $2mln in revenues and firms, on average, apply for eight H-2B applicants). Additionally, firms that had a higher chance of getting H-2B workers (these were the firms that applied earlier in the day), ended up having a higher survival probability by 1.6 percentage points in the first year, and by 3 percentage points cumulatively in two years. Limiting access to H-2B workers has a similar impact on firm survival as increasing import competition in a sector.
Ending the Bracero Agreement
So far we’ve focused on H-2B visas that do not include agricultural workers, which usually fall under the H-2A visa. Prior to the H-2A visa, the United States had an agreement with Mexico – the Bracero Agreement – that allowed workers from Mexico (‘braceros’) to work in the US. The agreement was negotiated in 1942, during World War 2, and was intended to support the war effort via labor assistance in agriculture and war industries. In 1964, the program was terminated, which ended up excluding around 500,000 seasonal workers from Mexico.
Clemens, Lewis and Postel (2018) (“CLP”) looked at the impacts of the termination of the Bracero Agreement. The original reasoning for cancelling the Bracero Agreement was to improve wages of US citizens in the agriculture sector, especially in states that had a high number of immigrants from Mexico under the Bracero Agreement. CLP found that there was no change in real wages for citizens after the agreement was terminated. Moreover, there was also no change on employment as seen below:
The black line represents states that had a high amount of Mexican workers, grey is the states with a low amount of Mexican workers, while the dashed is states with none.
So what can explain the lack of observed hiring of domestic workers after the reduction of immigrants? CLP shows that instead of using immigrants or citizens, many farmers significantly increased the amount of capital employed (i.e. physical equipment such as tractors) and increased innovation by closely working with farming technology developers. For example, in California, a state that had many braceros, after the Bracero Agreement ended, tomato production saw a significant jump in the percentage of tomatoes that were harvested using a machine (dashed-line, right axis).
Lastly, CLP found that in agricultural products where mechanization and technological advancements were more challenging, output simply fell. For example, sugar beets was a crop that was difficult to mechanize, and the chart below shows the fall in sugar beet production persisted for 5 years after the end of the Bracero Agreement (tomatoes, as described above were not impacted):
Immigration – Strong Economic Benefits
Immigration restrictions, whether of college-educated or non-college educated individuals, are often touted as a policy that will raise domestic wages and employment. However, almost unequivocally, the opposite appears to be true. Firm growth struggles with restricted and complicated immigration policies. Restricting access to non-college educated immigrants, does not help domestic workers, as fewer businesses are able to survive, potentially decreasing wages and employment in the future. Moreover, the way firms respond to increased immigration restrictions, suggests that immigrants and domestic workers are not good substitutes – firms appear to reduce output or shut down entirely with stricter immigration suggesting that domestic workers are either not available or perform a different role.
Whether college-educated or non-college educated, immigrants add significant economic value.
Interesting Reads from the Week
- goes over a very important macroeconomic analysis of how unique the recent disinflationary period was, where we not only didn’t see a fall in GDP (relative to potential), but also GDP actually overperformed.
- talks about the latest research on the impact of social media likes on young brains and social senstitivity. Teenagers are more likely to post again sooner than adults after having one of their posts receive more likes.
- and show that even though many STEM (Science, Technology, Engineering, Mathematics) graduates work in non-STEM fields, it still is a valuable degree that boosts earnings. More importantly, the authors emphasize that looking at whether graduates stay in the field of their major might not be too informative on its own.
If you enjoyed this article, you may also enjoy the following ones from Nominal News:
Immigration (Electoral Issue Series – October 27, 2024) – improving legal immigration channels is more cost-effective at reducing unauthorized immigration than additional border enforcement.
Industrial Policy – An Unspoken Issue (August 31, 2023) – many countries are turning towards industrial policy. But few discuss the issue of what will happen to workers once the subsidies to the manufacturing sector end.
The Work from Home Illusion: Is It? (July 15, 2023) – the Economist covered several work from home studies. The conclusions the Economist drew from them, however, were quite wrong. What did these studies actually say, and why work from home might be the optimal form of work.
In the hard-sciences (e.g. biology, chemistry), an experiment is when we take two groups and treat one of them with an intervention (for example, a medicine) and argue that any difference of outcomes between the groups is due to the treatment. That is because there shouldn’t be any difference in the group prior to the treatment if the enrollment into the groups was random. In social sciences (e.g. economics, psychology), such experiments are usually not allowed for ethical reasons or feasibility. However, they tend to occur naturally due to laws and regulations that arbitrarily divide people into two groups. For example, two groups with no discernible difference between them: one that receives government intervention and one that doesn’t.
Well put. I'd still guess that in general the higher paid the immigrant the greater the benefit, but a) that does not exclude non-degree holders and b) there is not reason to trae one off against the other.