Recently, the Trump administration announced that there will be a new $100,000 fee for H-1B applications (on top of existing fees, not to mention attorney fees). The H-1B visa allows companies to hire foreigners with college degrees for positions. Companies can participate in a lottery, and if they win the lottery, they can hire foreign experts. The H-1B can eventually be converted into a green card. Because universities are not eligible for the lottery, it is a way for international students to aim to remain in the United States after earning their degrees. Many of these policy changes are still pending, so this post is not about the changes themselves, but rather what the changes have sparked some thoughts on.
The Trump administration says the fees are necessary to prevent U.S. companies from hiring foreign workers cheaply at the expense of American workers. Given its structure, it is unlikely that the H-1B visa would have such an effect. However, for this post, I will accept this argument as given.
Will this fee create more jobs for American workers? I want to think so. Ultimately, if prices for foreign workers rise, fewer foreign workers will be employed. This is exactly the law of demand at work. As the price increases, the quantity demanded decreases.
But the Trump administration’s argument has an implicit premise: that domestic workers are a second-best option for companies compared to foreign workers. Not necessarily. The law of demand tells us that firms will adjust employment, but it does not tell us how much based on profit rates firms will adjust. Perhaps they will fill that role with American workers. After all, the cost of domestic workers is currently relatively low compared to foreign workers. However, the company may change its operations or move overseas.
The law of demand states that as the price of something increases, the quantity demanded decreases (assuming all else is equal). According to economic theory, changes in relative prices cause people to adjust their behavior. But theory cannot tell us how they adjust. It depends on the relevant choices you face when making a choice. What the relevant alternatives are will depend on the specific circumstances of time and place, as well as corporate and personal goals.
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