Trump’s Executive Order Limiting Work Visas Is a Sure-Fire Way to Delay Economic Recovery

Just when you thought that President Trump could not be any more anti-immigration, he makes an effort to outdo himself by signing an executive order this past Monday. In addition to extending his executive order in April that banned certain green card visa applications (see my analysis of that executive order here), he has now banned certain work visas through the end of 2020. The main visas covered under Trump's latest executive order are as follows:

• H-1B Visa: A temporary work visa for speciality occupations. While these jobs require a Bachelor's degree and practical application of one's studies, a lot of H1-B recipients are in the sciences, technology, engineering, and mathematics (STEM). For further detail, you can read my 2017 analysis on H-1B visas here.
• H-4 Visa: These visas apply to immediate family members of H-1B visa workers.
• H-2B Visa: A temporary work visa for temporary, non-agricultural workers on a one-time, seasonal, or intermittent basis. Examples include landscaping, amusement attendants, and housekeeping cleaners. 
• L-1 Visa: A non-immigrant, temporary visa for high-level employees of multinational businesses. 

The stated purpose of Trump's executive order is to "protect unemployed Americans from the threat of competition for scarce jobs." Trump is also concerned about placing a "risk of displacing and disadvantaging United States workers during the current recovery." Basically, his argument is that allowing for temporary workers are a threat to the U.S. labor market and the job prospects of U.S. citizens. Now is the part where I go through the reasons why Trump's latest executive order is misplaced:

1. We tried this before and it failed. Trump likes to think this will boost economic recovery, and yet, that has not happened. To deal with the Great Depression, President Herbert Hoover greatly reduced immigration while deporting 500,000 workers of Mexican descent. The outcome was that it lowered wages and job opportunities for native workers (Lee et al., 2017). In 1964, President Lyndon Johnson cancelled the Bracero program in the hopes of increasing the wages of U.S. workers for farmers. The only measurable effect of cancelling the Bracero program was slowing wage growth (Clemens et al., 2018). During the Great Recession, reducing H-1B visas has been shown to slow job growth for natives in IT-related industries by 55 percent (Peri et al., 2014).
2. Native workers are not being displaced. As I explained in April, Trump is adhering to what is referred to as displacement theory. Essentially, his simplistic view is that guest workers will displace native workers, thereby delaying the recovery. This has hardly played out in practice. Any displacement has been small and primarily has occurred with high school dropouts. Plus, the long-term wage effects of immigration are small. 
• As the Cato Institute explains in its May 2020 report on H-1B visas, H-1B workers earn well above the prevailing wage, which is another way of saying that H-1B workers are not in direct competition with natives. 
• The fact that native workers are not being displaced is all the more so true with L-1 visa holders. The reason for that is L-1 visa holders are already-existing employees of multinational companies. 
3. Immigration can create jobs for native workers. Trump's executive order is violating the lump sum fallacy. His zero-sum thinking essentially leads him to believe that the size of the economy (and by extension, the labor market) is a fixed amount and that it cannot grow. This is patently false. There is some research showing that immigrants on average create 1.2 local jobs per local worker (Hong and McLaren, 2015). In the case of H-1B visa holders, their skills complement the labor market. This is why the American Enterprise Institute found that H-1B visa holders specifically contribute to positive job growth. 
4. H-1B workers contribute positively to productivity. Per my 2017 analysis, H-1B visa workers generate more jobs for native workers on net, greater productivity growth, more patents, and greater tax revenue. Cato Institute points out that due to the great amount of innovation produced, lowering H-1B workers would be tantamount to a less productive society. 

Bottom Line: These visa limitations that Trump imposes will only serve to harm the workers that Trump intends to help. Trump's basic misunderstanding of immigration and labor markets will not last for a few days, but will reverberate in the long-term. If Trump wants a speedy economic recovery, keeping away talented workers and limiting ways for businesses to grow is a funny way of showing it. 

6-28-2020 Addendum: A panel of economic experts surveyed found that a) Trump's ban will weaken the United States' position in STEM and other research, b) fewer students will be attracted to U.S. universities, and c) research activities are bound to move abroad. 

10-26-2020 Addendum: A research paper from the National Bureau of Economic Research (Bahar et al., 2020) measured cumulative average abnormal returns (CAARs), and found that Trump's executive order cost the equivalent of $100 billion.