Winning the visa lottery

Businesses that rely on temporary foreign labor may find their expansion plans significantly curtailed if visa quotas are not met.

Researchers Michael A. Clemens and Ethan G. Lewis studied the economic effects of restricting low-skill foreign worker visas, specifically the H-2B visa program, using a randomized government lottery. The H-2B visa is for temporary foreign workers in seasonal jobs, and its annual cap of 66,000 has fallen far short of demand. The U.S. Department of Labor began assigning H-2B petitions in randomized order, creating a lottery system where firms drawing earlier letters were likely to receive their requested workers. Clemens and Lewis surveyed 472 businesses that entered the 2021 and 2022 lotteries. Their findings show that losing the lottery significantly reduced a firm's employment of H-2B workers by about half. Firms that won experienced revenue increases of approximately 0.20 and significant boosts in investment. Crucially, employment of low-skill American workers did not decrease at firms that lost the lottery; instead, these businesses simply became smaller, with reduced output. The study suggests low-skill foreign and American workers are poor substitutes, and scale effects from denying workers cause overall business contraction.

The study reveals that restrictions on low-skill immigration lead to business contraction rather than job creation for native workers. This challenges assumptions that these labor pools are direct substitutes. The data indicates that when firms cannot access the foreign labor they need, their overall output shrinks, leading to fewer jobs across the board, including for American employees. This suggests that current immigration caps may be hindering economic growth by artificially limiting the operational scale of businesses dependent on this workforce.

This research signals that policymakers should reconsider H-2B visa caps, as a marginal increase could stimulate production, investment, and profits without negatively impacting U.S. employment. The findings also highlight the importance of reliable labor access for business stability, as firms facing chronic visa uncertainty may underinvest or even cease operations. Future policy debates regarding low-skill immigration will likely be informed by this evidence, emphasizing the interconnectedness of foreign and domestic labor markets.