End H-1B ‘Hiring Tax’ and Make Visas Portable to Protect Workers (1)

The Trump administration’s $100,000 hike in fees for the H-1B visa could effectively end the program. While that outcome may satisfy some immigration opponents, Congress instead should design better guest worker programs that uphold workers’ fundamental rights—including the freedom to quit—and protect both US and foreign-born workers.

As structured, by attaching a worker’s visa to their employer, the H-1B program shrinks the pool of potential employers and restricts a worker’s fundamental right to quit a bad job.

In over a decade of research examining guest worker programs, a body of evidence shows that only a small number of employers engage in the market for hiring these workers. In the US, employer concentration in guest worker programs often exceeds guidelines set by US competition authorities, according to research in the Antitrust Bulletin. For the H-1B, employer concentration is 40% higher than in the general US labor market, according to another study.

Concentration and frictions in the labor market grant employers the power to pay H-1B workers approximately 37% less than those workers would earn in a competitive labor market. While prevailing wage standards prevent employers from using the full extent of their power, the system remains flawed. All too often, workers who come to the US on visas earn submarket wages working in substandard conditions for subcontractors—and are used as substitutes for US workers, fomenting anger and opposition.

Building a sustainable migration system requires addressing these criticisms. President Donald Trump has long been critical of the abuses of H-1B visa program, undertaken executive actions to reform it, and targeted companies engaging in offshoring and outsourcing.

After Trump’s first inauguration, companies with politically connected board members reduced recruitment of foreign workers. Even so, Trump’s “Buy American Hire American” executive order in 2017 failed to reform core problems with the program, as no executive action alone can do. The proposed $100,000 fee is already being challenged in court.

There is a better way. Prior to Trump’s announcement of a $100,000 fee, employers would pay hefty upfront fees—from $4,500 to $18,000—each time they sponsor a guest worker and each time that worker switches employers. Think of the fees as a “hiring tax.” Ending this tax and making it easier for workers to quit for better opportunities would help curb abuses.

Switching from a hiring tax to a payroll tax that smooths payments out would be a powerful solution. If the goal is to make visas portable, raise wages, and curb abuse, then all upfront fees and paperwork could be replaced by a flat fee paid in regular installments. Crucially, any employer in the US could hire a legally authorized guest worker simply by adjusting their payroll.

A payroll tax can replace a mountain of paperwork by regularly informing the government that a guest worker is being paid by a specific employer. A monthly cost of under $100 for the duration of a visa would cover revenue raised by existing fees.

A payroll tax is easy to implement and adaptable to a variety of policy objectives. If the goal is to raise revenue, payroll taxes could likely generate even more than the $100,000 fee proposed. For illustrative purposes only, a 5% employer payroll tax would generate $300,000 for one guest worker making $1 million a year over the six-year span of a visa.

If policy makers wish to curb outsourcing or support innovation, rates can be adjusted for different types of organization hiring workers. Undermining university and health-care institutions’ use of H-1B visas would be especially self-defeating.

Universities hire H-1Bs when expanding their research activities, while other organizations hire H-1Bs with no measurable innovative outputs, according to research on organizations that sponsor guest workers.

Workers admitted on a visa make valuable contributions to the US economy. Many economists argue that immigration benefits American workers in the aggregate, and champion skilled migration and the H-1B program in particular for boosting innovation, entrepreneurship, and productivity.

Foreign-born workers can increase their income by as much as six times by migrating to the US in a process that can benefit migrants, origin, and destination countries. This creates enormous incentives for workers and firms worldwide to build global talent pipelines, and have the potential to create enormous value. The design of the programs shapes how that value is distributed.

Program supporters have proposed reforms centered on raising the cap on available H-1B visas—set at a paltry 65,000 for the last two decades. Other proposals have suggested using an auction method rather than a random lottery to assign visas, or giving visas to whichever employer will pay workers the most.

Switching to a payroll tax could be compatible with some of these proposals while making progress on the core labor standards issue. My research with colleagues shows that a guest worker in a local labor market with only one employer of H-1Bs is paid 13% less than an H-1B worker in a market with many employers, and a second study finds a similar 12% differential.

When guest workers finally obtain a green card and can freely be hired by other employers, wages go up—between 5% and 25%, according to multiple separate high-quality studies.

Congress could improve outcomes across the board by opening these programs to firms that don’t specialize in managing the fees and paperwork. Doing so requires ending hiring taxes. While there is little love for payroll taxes, any employer in the US could easily participate in these programs through the payroll tax system.

Such a switch would free guest workers to quit bad jobs, boost their wages, and limit the potential for employer discrimination and exploitation. Policy makers could adjust taxes to incentivize intended uses of the program, fund the enforcement of high wage floors and labor standards, and steer economic effort toward more efficient purposes than paperwork processing.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Peter Norlander is an associate professor of management at Loyola University Chicago.

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