The Nobel Prize-winning economist Milton Friedman characterized the H-1B visa as a government subsidy program the year before. Socialism for the rich.
So writes Pedro Gonzalez, “Don’t Bother Learning Code,” American Mind, May 27.
The first sentence quoted above shocked me. Surely, Mr. Gonzalez must be taking the claim out of context. But follow his link and you get to this:
Take the Cato Institute, supposedly a small-government, antiregulation, free-market advocate, which for 10 years has opposed deregulating employment-based immigration. Buying green cards for new hires is a “tax,” it argues, so Cato wants a permanent, massive, overregulated subsidy instead.
Meanwhile, IT employers explain that H-1B holders are a “minor league,” in ITAA President Harris Miller’s words – a try-before-you-buy approach, like Major League Baseball’s farm teams. But Nobel economist Milton Friedman scoffs at the idea of the government stocking a farm system for the likes of Microsoft and Intel. “There is no doubt,” he says, “that the [H-1B] program is a benefit to their employers, enabling them to get workers at a lower wage, and to that extent, it is a subsidy.”
This is from Paul Donnelly, “H-1B Is Just Another Government Subsidy,” Computerworld, July 22.
It’s possible that Donnelly misunderstood Friedman. If so, end of story. But if not, what would Friedman have had in mind? I don’t know of any other lightening of regulation that Friedman would have called a subsidy. Why would he call this a subsidy?
Here’s the bio of Friedman in The Concise Encyclopedia of Economics.
READER COMMENTS
Henri Hein
May 29 2020 at 10:21pm
I did a bit of searching. All instances of that quote by Friedman was provided by Donnelly. On this link, at the bottom paragraph, there is a longer quote supposedly from an email Friedman wrote to Donnelly. In it, Friedman wrote “The majority of H-1B immigrants do manage by hook or crook to get permanent residence and become citizens”. That doesn’t sound like Friedman. So we only have Donnelly’s word for it, and it seems off. In general, I like to think the best of people, but in this instance I’m a bit skeptical.
John Hall
May 30 2020 at 8:36am
I would be interested in a follow up post if you or any commenters find more.
Thomas Hutcheson
May 30 2020 at 11:29am
I have no idea what Friedman had in mind, but maybe it was a kind of second best argument. When there is a massive distortion, like immigration controls, maybe he thought it was even worse to allow a tiny exception.
Jeff Hummel
May 30 2020 at 3:31pm
I too would be suspicious of this Friedman quotation, which apparently first appeared in a 2002 WSJ article by Paul Donnelly. I have not accessed that original article, but I would first check to see if it provides any more of Friedman’s email than what appears in link that Henri Hein tracked down. Note Friedman’s quoted qualification of “to that extent,” when granting that H-1B visas can be construed as a subsidy. Donnelly may have pulled the quotation out of context. The qualification suggests that Friedman’s email started with remarks defending H-1B visas before making what he have considered a minor concession to Donnelly.
Jon Murphy
May 30 2020 at 4:26pm
No, that appears to be the extent of it.
ilya
May 30 2020 at 8:00pm
Let me try a guess. If one were to allow a person that is quaified for those H1B jobs in IT into the US and immediately give them a green card, that would provide benefitial effects to businesses that hire them but would not be generally understood as a subsidy to specific employers – after all, it is a benefit that accrues to the business only insofar as the employee actually agrees to work for it; and if the employment conditions are not satisfactory the hire will be lost to another emloyer. So we can see how the benefits are widely diffused between different companies; and presumably if the email from Friedman exists it contains a discussion of how this solution provides a win-win for the society and the individuals.
But the H1B program famously doesn’t do that part – the free choice of an employer. Once you’re in, you have to work for a specific company that petitioned for you, at least for a couple of years. Imagine an employee that literally has a chioce of either continuing to work for the same employer or moving several thousands miles away from the current life!
Moreover, the process of transitioning to the green card from the H1B is something that requires the employer’s involvement with all the incentives that this brings! Report after report examined the situation on the market and found that this gives an unscrupulous employer power to flout the “prevailing wage” rules.
Yes, there is the better part of the market; top SV companies would bring the employees, pay them constantly rising salaries, use their brains and apply for the green card for them without any issues. But a sweat-shop whose only contribution to economy is allowing corporations to fire their existing IT department and attempt to replace it on the cheap will, of course, try to milk its position as much as possible. And this works as a report after report describe companies who legally do this while consisting of more than 50% of the H1B holders.
This becomes even more of a red flag if you consider that the companies can’t even know who will get the visa and who not and that the process takes a stupid amount of time! A small IT shop who needs to fill one position will probably just not bother; what if they make all this work and nothing comes out of it? The only model that works well with this randomness is as follows:
be big
create a system where you need “warm bodies” without any specific experience
learn to navigate the complexities of the system
apply for thousands of slots
prepare to underpay the people you hired
if the person you hired somehow gets a green card, shrug and prepare to fill the place with another one
lobby Congress to leave the system as it is
You can see how the H1B system as it stands provides benefits to tge companies who use the abovementioned model and in that sense one may reasonably call it a subsidy. Any other system would create other winners and losers and in many other systems the winners would be more widely distributed.
ilya
May 30 2020 at 8:04pm
FWIW the drawbacks of the H1B system are so well known in some circles that one of the design parameters for the high skilled mobility system for foreign nationals of the EU was to “make it similar to the Green Card and not the H1B visa” (that’s also one of the reasons the whole thing got the name “Blue Card”) .
SaveyourSelf
May 31 2020 at 4:45pm
“Please note that individuals cannot apply directly for an H-1B visa. Instead the employer must petition for entry of the employee.” (Citation)
Does this work?
Employer negotiates with foreign worker to enter US to work but at a discounted salary.
US government earns less tax revenue from the lower salary of the imported worker.
This arrangement is the government effectively “giving” tax revenue to a business by “giving up” potential tax revenue it could have claimed if the worker was employed at market wages.
SaveyourSelf
May 31 2020 at 4:50pm
Oh I see now. Henderson is considering the H1B program relative to complete obstruction of border trade. The Friedman quote is comparing the H1B program to zero obstruction of border trade.
Yaakov
Jun 3 2020 at 8:03pm
That is how I understood it from the beginning. I did not understand what was faulty in the quotation until I read Henderson’s closing words.
MikeP
May 31 2020 at 8:40pm
The operative comparison is not foreign high skilled workers on an H-1B visa versus foreign high skilled workers on an unlimited visa.
The operative comparison is foreign high skilled workers on an H-1B visa versus no foreign high skilled workers. No one who argues in the public sphere against H-1B visas argues that foreign high skilled workers should have completely unlimited employment.
By increasing the supply of labor, H-1B visas necessarily provide workers at a lower wage. But it is a “subsidy” only relative to the no-visa state, while the no-visa state is actually a subsidy to workers who imagine they compete with H-1B holders and don’t realize that H-1B holders bring incredible opportunities for comparative advantage and division of labor.
Joy Schwabach
Jun 2 2020 at 11:30am
I agree with others that this is probably a mistake and Friedman never used the word “subsidy” in that context. I just wanted to say, I’m reading your book “The Joy of Freedom” and enjoying it so much. In the 1980’s, I tried writing a book “A Free Market Odyssey” and interviewed you but then only turned it into a few op-eds for the OC Register. Your work is fantastic! So enlightening and entertaining. It’s the best I’ve ever read on the libertarian journey and mirrors some of my own experience.
David Henderson
Jun 2 2020 at 6:41pm
Thanks so much, Joy.
mister bitcoin
Jun 11 2020 at 5:17pm
Do you know David Friedman, son of Milton?
He is probably the best source for verifying quotes attributed to his father
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