Buying Lottery Tickets for Foreign Workers: Lost Quota Rents Induced by H-1B Policy

Rishi Sharma and Chad Sparber

No 2221, RF Berlin - CReAM Discussion Paper Series from Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM)

Abstract: The H-1B program allows firms in the United States to temporarily hire high skilled foreign citizens. The government restricts foreign labor inflows and therefore generates potential rents typical of a quota. However, the US allocates H-1B status by random lottery. We develop a theoretical model demonstrating that this lottery creates a negative externality by incentivizing firms to search for more workers than can actually be hired and, in so doing, completely destroys quota rents. Moreover, some firms specialize in hiring foreign labor and contracting out those workers’ services to third-party sites, and this outsourcing behavior both exacerbates lost quota rents and leads to an increased concentration of H-1B workers among a small number of firms. Simple numerical exercises suggest that the H-1B lottery and outsourcing result in an annual economic loss exceeding $10,000 per new H-1B worker hired relative to what would occur under a quota alone.

Keywords: Skilled Workers; H-1B; Quota Rents; Outsourcing (search for similar items in EconPapers)
JEL-codes: F22 J61 J68 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-lab and nep-ure
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Journal Article: Buying lottery tickets for foreign workers: Lost quota rents induced by H-1B policy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:crm:wpaper:2221

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