June 26, 2007 | WebMemo on Immigration
The Senate immigration bill includes provisions that would create a temporary guest worker program that would be a bureaucratic nightmare for American employers. It would force employers to navigate a complex bureaucracy and would entangle any company that hired a guest worker in stifling labor regulations. Rather than have the federal government micromanage employers' hiring decisions, Congress should create a system of employer sponsorship for guest workers and allow employers to bid to purchase permits to hire guest workers. This would preserve the flexibility that keeps the U.S. labor market vibrant, ensure that guest workers have skills that are truly needed, and prevent guest workers from undercutting the wages of American workers.
The Guest Worker Program
The Secure Borders, Economic Opportunity and Immigration Reform Act of 2007 (S. 1639) would create a new temporary guest worker program. The program is intended to alleviate the labor shortage that a dramatic reduction in illegal immigration would cause without encouraging more illegal immigration. Foreign workers would be permitted to apply for a Y visa to work in the United States for two years and could renew the visa twice, with at least a year outside the United States between each renewal. In theory, the program would allow foreign workers to legally enter the U.S. to ease labor shortages and then return to their home countries. Both America and the temporary guest workers would benefit. However, Congress has loaded the bill with provisions that would shackle employers and prevent the program from fulfilling this goal.
A Bureaucratic Mess
As drafted, the temporary guest worker program would force employers to jump through many hoops to actually hire a guest worker. To hire a Y visa holder, a firm would have to:
In addition, the guest worker program would be open only to employers located in counties with unemployment rates below 7 percent, whether or not the local unemployed population matches the skills that an employer needs.
The Senate bill would sunset the temporary guest worker program after five years, unless renewed by Congress, leaving employers uncertain about whether or not they could hire guest workers after that point.
Labor Market Flexibility Benefits Workers
On paper, many of the proposed program's provisions appear sound, if bureaucratic. Some Members of Congress fear that a temporary guest worker program could depress the wages of American workers or cost American workers their jobs, and these regulations are intended to address that fear. In practice, however, they would tie employers' hands by dramatically reducing their ability to hire the best worker for the job when the job needs to be done.
There are many good reasons for a company to lay off or decline to hire a particular worker. Many employee skills cannot be quantified, and an employee who looks good on paper may be a poor match for a particular job, despite having good qualifications. For example, a worker might have personal conflicts with co-workers that prevent him or her from being a team player.
The government should not force companies that have applied to employ guest workers to hire or retain workers unsuited to their job. The freedom to hire and fire workers at will is essential to America's strong labor market. It puts workers in the jobs for which they are best suited and encourages companies to take chances by hiring workers on a trial basis. Ultimately, this benefits workers by raising average wages and providing more job opportunities. The French model of heavily regulated hiring and firing has led to unemployment rates twice the U.S. average. America should not shackle American employers as France moves to free its labor markets.
Permit Auctions: A Better Solution
If Congress is concerned about guest workers undercutting American wages, it can address the issue without micromanaging employment decisions. The key to a temporary guest worker program is employer sponsorship. Rather than force employers to navigate the federal bureaucracy to prove that they need a guest worker, the government could simply auction permits to hire guest workers. Employers who need to hire a guest worker would bid for a permit, and the winner would have the right to hire a Y-1 visa holder.
The market would set the price of the permits according to demand, and only employers who actually need guest workers would be willing to pay the price for a permit. This mechanism would also dissuade employers from hiring guest workers for lower wages than Americans would accept. If Indian engineers are willing to work for $40,000 a year, for example, while American engineers charge $70,000, then market forces would bid up the cost of a temporary guest worker permit by as much as an additional $30,000 a year. While the foreign engineer might work for less, the cost of the permit would offset this wage advantage.
Permit auctions would accomplish everything Congress intends the current regulations to do, but without micromanaging employers or reducing labor market flexibility. Further, Congress could put the money from permit auctions into the State Impact Assistance Account that the bill creates to help states deal with any financial burdens associated with the temporary guest workers.
The temporary guest worker program in the Senate's immigration bill is flawed. It would force prospective employers to navigate a complex bureaucracy to prove that they need guest workers and would dramatically reduce the labor market flexibility of any company using the program. Employing guest workers, even in industries where they are needed, would be unnecessarily expensive, time consuming, and even risky, due to the law's requirements. The resulting loss in labor market flexibility would harm both employers and employees, as demonstrated by inflexible France's sky-high unemployment rate. Congress should scrap this technocratic proposal and instead allow the government to auction permits to hire guest workers.
James Sherk is Bradley Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.
 Section 402 (a).
 For a general analysis of the principles for a temporary worker program, see "Permanent Principles and Temporary Workers," Edwin Meese III and Matthew Spalding, Ph.D., Heritage Foundation Backgrounder No. 1911, March 1, 2006, at www.heritage.org/Research/GovernmentReform/bg1911.cfm .
 Section 403 (a). For more on the problems with the prevailing wage provision, see James Sherk, "Senate Immigration Bill Marred by Prevailing Wage Provision," Heritage Foundation WebMemo No. 1475, May 29, 2006, at www.heritage.org/Research/Immigration/wm1475.cfm.
 Section 403 (a).
 Ibid. The legislation does allow employers to petition the Secretary of Labor for a waiver of this provision, but nothing in the legislation requires the Secretary to grant an exception in the case of a skills shortage.
 Section 401 (d).
 Horst Siebert, "Labor Market Rigidities: At the Root of Unemployment in Europe," The Journal of Economic Perspectives, Vol. 11, No. 3 (Summer 1997), pp. 37-54.