Donald Trump just transformed America’s high-skill immigration system.
In a proclamation Friday, the president imposed a $100,000 fee on all new applications for H-1B visas (although the administration would retain the right to offer companies exemptions at will).
Such visas have long been controversial. The H-1B program is meant to help American employers hire foreign workers with rare intellectual abilities. It aims to ensure that the US “knowledge economy” is not undermined by shortfalls of highly skilled labor.
Yet some companies have used the program to essentially replace US workers with immigrants — less because the latter boast exceptional skills than because they have lower wage expectations.
Trump’s $100,000 fee is ostensibly meant to fix this problem. In theory, employers won’t pay that hefty charge to hire a garden-variety foreign coder over an American one. Rather, a company would only be willing to foot that bill for extraordinary foreign talent.
If the president’s policy addresses legitimate complaints with the H-1B system, however, it does so in a needlessly costly manner. Trump’s exorbitant fee would undermine American scientific research, technological progress, and economic growth. And this would translate into lower wages for American workers in the long term.
The problem with the H-1B visa program, briefly explained
The problems with H-1B visas mostly stem from how they’re allocated.
Demand for such visas far outstrips their supply: In 2023, 446,000 people sought an H-1B visa, but America only provides 85,000 of them each year (20,000 of which are reserved for workers who have attained a master’s degree or higher from a US institution of higher education).
Whether a given worker secures an H-1B visa is left largely to chance. Instead of prioritizing the most skilled applicants — or those pursuing the highest-paid jobs — the government selects them at random through a lottery.
This process actually favors low-wage employers seeking to hire workers with middling abilities. If you’re an AI firm that’s looking to hire one particular machine learning engineer who holds superlative skills, you will probably lose the H-1B lottery. After all, any individual applicant has a low chance of getting selected.
On the other hand, if you’re an outsourcing company that’s looking to hire lots of foreign workers with basic IT skills, your odds of winning the lottery are quite good. Such companies don’t need any specific candidate, only a large number of interchangeable laborers. So, they can sponsor many more workers than they actually need and then take whichever ones happen to make it through the filter. If too many of their workers get selected, they can simply decline to complete all of their applications. By flooding the lottery in this way, IT staffing and outsourcing firms secured 40 percent of all H-1B visas in 2023, according to a Bloomberg investigation.
This is suboptimal for the American economic dynamism. Helping cutting-edge tech firms access top talent is better for innovation than helping outsourcing companies hire mediocre IT support specialists. And doing the latter also entails higher tradeoffs for native-born workers, since outsourcing firms subvert the H-1B program’s labor protections.
To secure an H-1B visa, companies must pledge that they will pay their applicant at least as much as they currently pay similar American employees. A company, therefore, cannot lay off its existing IT workforce and then hire lower-wage H-1B workers in their place.
Yet a firm can eliminate its IT department — and then delegate those functions to an outsourcing company, which is largely staffed by H-1B workers. In this way, companies can use the H-1B program to effectively replace domestic workers. And some have in fact done this.
Why Trump’s fee would make the H-1B system worse
Trump’s $100,000 application fee constitutes one answer to the H-1B program’s allocation problem. Outsourcing companies aren’t going to shell out that kind of money for entry-level IT specialists.
By contrast, a well-capitalized firm seeking a specific, exceptionally talented foreign worker may consider $100,000 to be a “rounding error” (as one tech CEO called it Sunday).
The president’s policy is therefore likely to increase the proportion of H-1B visas going to immigrants with genuinely rare skills,
Nevertheless, Trump’s fee entails far greater costs than benefits.
On the latter front, the White House’s policy won’t necessarily safeguard the jobs and wages of native-born IT specialists. Companies can often replace their American tech support staff with remote workers abroad. And as the Economist notes, top outsourcing companies responded to the last crackdown on their H-1B access by shifting their hiring towards India. Meanwhile, AI is enabling the rapid automation of many IT functions.
If Trump’s policy would do relatively little to insulate American IT workers from competition, it would do a great deal to undermine economic growth.
This is because the president’s fee wouldn’t merely change the distribution of H-1B visas, but dramatically reduce their total supply.
For one thing, it’s not clear that private sector employers would be willing to sponsor 85,000 visas a year, at the price of $100,000 per application.
More critically, the statutory cap on H-1B visas does not apply to many universities and nonprofits. If forced to pay $100,000 per worker, however, such research institutions would likely need to turn away many exceptional foreign scholars. Scientific research often generates large economic and social benefits in the long term, but scant profits in the short run. Thus, in many cases, universities will not be able to finance guest workers’ applications, even if their labor is highly valuable to the United States.
At the very least, many schools and smaller American companies would struggle to offer foreign workers competitive wages, if they were forced to eat $100,000 on each hire: A European university that has a $350,000 budget for a research position could actually offer a higher salary than an American university with a $400,000 for an analogous position, because the latter school would need to spend $100,000 just to get its applicant into the country.
American science is already reeling from the Trump administration’s cuts to NIH grants and revocation of student visas. The president’s H-1B policy threatens to further undermine the competitiveness of US research institutions and chase more academic talent abroad.
High-skill immigration is good for Americans
To some on the populist right, sustaining American universities’ access to international scholars may seem like an elitist concern. From this perspective, the priority must be improving American workers’ wages and job opportunities. If US schools can’t find enough native-born scientists to staff their labs, then they should do a better job of educating their American students.
But this perspective grossly underestimates the economic benefits of immigration in general, and high-skill migration in particular.
Even in its current, dysfunctional form, the H-1B visa program appears to boost wages and employment opportunities for American workers. This is true for at least three reasons:
There’s reason to think this same pattern holds at the national level — that companies are more likely to invest in countries that have lots of highly skilled labor. Researchers have found that when multinational firms lose access to H-1B workers, they tend to replace them by increasing hiring abroad. This effectively transfers dollars out of the US economy and into foreign ones.
For these reasons, any reform of the H-1B system that reduces high-skill immigration in the US will hurt American workers in the aggregate.
There are better ways to fix the H-1B program
The H-1B visa program is falling short of its official objectives: It leaves many cutting-edge firms unable to hire top foreign talent, and undermines the bargaining power of some native-born workers.
But there are better ways to address these issues than Trump’s $100,000 fee. For example, the government could distribute visas on the basis of compensation rather than a lottery: Rather than distributing 85,000 slots at random each year, it could award them to the 85,000 applicants offered the highest-paying jobs.
But the president’s approach would reduce America’s dynamism and living standards — while tilting the economic playing field towards the administration’s cronies (who are liable to have an easier time securing fee exemptions). In this way, it is of a piece with Trump’s broader agenda.
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