Could temp worker visas reduce entry level employment?

Ask an Economist

I have been working for the past two years to break into the IT world, specifically in data analytics. So far, it hasn’t worked—there seem to be very few openings for entry-level employees.

The controversy over President Trump’s suspension of temp worker visas got me wondering if there might be a connection. I have seen both sides argue about the effect of H1B visas on employment and salaries, both in IT and in the nation at large, but I am wondering about the effect on entry into the field.

The reason I wonder is that IT skills are very transferable, and a citizen or green card holder is much more able to take advantage of that ability, while a worker on a temp visa may require a bigger benefit to justify the hassle and risk of leaving. In this hypothesis, corporations choose temp workers instead of potentially training their competition’s talent, and not because of a salary differential. Over time, this degrades the pool of local employees, justifying further temp worker visas.

My two questions are, one, is this economically plausible? And two, is there any evidence of it occurring in the US?


I think the basic mechanism you describe could well be part of the complex story of how the H1-B visa affects domestic workers in IT. The H1-B visa program does expand the supply of workers for certain kinds of jobs potentially reducing the incentive for firms to train those workers domestically, all else equal. Meanwhile, because H1-B workers are tied to their employer, employers may well prefer to train them to domestic workers.

Does that, therefore, mean that the H1-B visa program is a net negative for domestic IT workers? Not necessarily. There are three countervailing effects. 

First, bringing a worker into the country also brings a consumer in. Workers also purchase consumer goods, and the increased demand for goods may raise the demand for domestic workers too. This is one reason why many studies of the impact of immigration find very small (or no) effect on the wages of domestic workers.

Second, so-called "agglomeration effects" may apply. Agglomeration effects occur when a worker's productivity increases if they are physically near other workers in the same field. This can occur for a few reasons. It may be that workers can share ideas and knowledge, raising their productivity. Or it may be that being part of a larger group allows each worker to specialize in their comparative advantage. Agglomeration effects are believed to be quite strong in IT (which is one reason Silicon Valley is so productive), and so it may be that increasing the supply of IT workers with the H1-B program boosts the productivity of domestic workers.

Third, entrepreneurial and inventive immigrants may enter the US because of the H1-B visa, and these individuals may ultimately create firms and innovations that lead to more demand for IT workers. More than half of the entrepreneurs in Silicon Valley are immigrants. While the H1-B visa, on it's own, would not allow an immigrant to start their own business, they are a path to permanent residency, and a draw for students to enroll in US universities.

Ultimately, the net impact of the program on domestic IT workers remains debated.


Answered by:
Dr. Matthew Clancy
Assistant Teaching Professor
Last updated on July 10, 2020