The slow recovery in the United States from the Great Recession has been characterized by an unusually high unemployment rate. Observers have disagreed about the relative importance of skill mismatch and insufficient aggregate demand as causes of high unemployment. The two explanations are not mutually exclusive, but Paul Krugman (2014) has taken a strong position on the issue by totally rejecting the merits of the skill mismatch explanation. In his typically colorful language, he dismisses skill mismatch as a “zombie” argument.
However, empirical evidence about skills demanded by employers and skills offered by workers indicates that a mismatch of skills cannot be rejected for certain kinds of labor. Data from the two opposite ends of the education spectrum indicates skill shortages that are attributable to binding quotas on immigration of workers. Employers are unable to hire enough high-skilled workers subject to H-1B visas, and farmers are unable to hire enough legal agricultural laborers to plant and harvest crops. Current visa programs are so restrictive and cumbersome, that employers have reluctantly settled for hiring a large percentage of illegal workers. In a dynamic economy, there are always temporary mismatches between specific skills demanded by employers and those currently supplied by workers. Indeed, the process of workers adapting to technical change has been described as a race between technology and education. However, the current skill mismatches are larger and more persistent than ordinary skill gaps. The cumbersome visa programs act as a friction that makes the labor market less responsive to changes in the demand for specific skills than it would otherwise be.
HIGH-SKILLED IMMIGRANTS
Employers who are unable to hire enough high-skilled workers regularly apply for H-1B visas that give them the right to hire qualified foreign workers for at least 3 years. The U.S. Customs and Immigration Service (USCIS) administers the program, and their rules require that application fees for visas and lawyers’ fees must be paid by employers, not employees (West). There is a quota of 85,000 (65,000 with at least bachelor’s degrees and 20,000 with at least master’s degrees) visas per fiscal year, and visas are typically exhausted within weeks after the April 1 opening, as they were this month for fiscal 2015. Getting access to high skilled workers is valuable for employers, but time and resources spent on the visa process are costly. Firms unable to obtain visas can partially offset their loss by outsourcing services to foreign firms. In some cases, the foreign firm may hire the same worker the American firm wanted to hire with the H-1B visa. The mobility of Indians moving between employers in the U.S. and Hyderabad has been documented. A recent example of a company trying to circumvent the visa restriction is the case of a California start-up, Blueseed. They have proposed to build a platform in the Pacific Ocean just outside the U.S. territorial limits that would house high-skilled workers who would not require H-1B visas (Slaughter). The mismatch between employer demand for high-skilled workers and the supply of high-skilled workers with visas is not an illusion or a “zombie”. The persistence of the mismatch over many years also indicates that it is not temporary. Technical change biased toward using more high-skilled workers has contributed to the mismatch. The size of the mismatch does vary with the state of the economy, and the shortage of high-skilled workers was smaller during the Great Recession.
Shortages of qualified workers have been especially severe in science, technology, engineering, and mathematics (STEM). Shortages could be satisfied by hiring foreign-born graduates of U.S. universities. They know English, and they are already familiar with the American culture. A network for obtaining STEM workers already exists, as the majority of Ph.ds granted by American universities in recent years in engineering, certain sciences, mathematics, and economics have been earned by foreign nationals. The large contribution of immigrants to start-up businesses, especially in STEM-related fields, has been well-documented (Slaughter). Earnings of immigrant STEM workers are above the average earnings for all occupations, and these relatively affluent workers are not burdens to U.S. taxpayers. Legislation that would increase the number of H-1B visas and relax other restrictions on high-skilled immigrants was passed by the Senate in 2013, but the bill has not yet been acted on by the House. The allocation of visas to workers would place greater weight on the skills of immigrants compared to the current allocation mechanism that heavily emphasizes family reunion. The Senate bill is comprehensive and includes both high-skilled workers, for whom legality is not an issue, and low-skilled workers, for whom legality is a very contentious issue.
LOW-SKILLED IMMIGRANTS
Under current working conditions and compensation, farmers cannot hire enough Americans to plant and harvest their crops. Immigrant workers with little formal education are willing to do the work, but visa restrictions result in as many as 50% of farm workers being illegal. A study of New York state farms concluded that over 800 farms would be at risk of closing if access to immigrant labor were severely restricted. Under current visa rules, farm employers are severely constrained in hiring legal immigrant workers. The largest legal guest worker program is operated by the North Carolina Growers’ Association. (News and Observer) The Deputy Director of the Association described the program as “cumbersome and expensive” and he recommends using it only as a last resort. The program uses the H-2A visa that allows employment of temporary workers for up to 10 months per year, and it brought in 8,700 workers in 2012. Legal H-2A workers are more expensive than illegal workers, and the higher costs cannot be ignored by all employers. The Growers’ Association charges individual farms $1000 per worker per year. The services rendered. Include paperwork, transportation from Latin America, and mandatory training. The Association advises farmers to apply jointly to allow workers to rotate among farms. The mismatch between demand for agricultural workers and supply of legal workers is not temporary and it is not an illusion or a “zombie”.
CONCLUSION
Skill mismatch exists at both ends of the education spectrum. Highly skilled immigrants and their prospective employers face binding quotas for H-1B visas. Agricultural employers cannot hire enough American works under current working conditions and compensation levels. They could hire willing immigrant workers, but visa rules do not allow them to import enough legal immigrants to complete their planting and harvesting. Skill gaps at both ends of the educational spectrum are large and persistent. Facts contradict the claim that skill mismatches are non-existent, illusory, or “zombies”. Skill mismatches could be reduced by prudent immigration reform, but that would require compromise by a Congress that has repeatedly demonstrated its unwillingness to compromise on a long list of other issues.
REFERENCES
Krugman, Paul. 2014. “Jobs and Skills and Zombies”. http://www.nytimes.com/2014/03/31/opinion/krugman-jobs-and-skills-and-zombies.html?_r=0
News and Observer. 2014. “NC Farmers Look to Visas” April 14.
Slaughter, Matthew. 2014. “How America Loses a Job Every 43 Seconds”. Wall Street Journal. March 25.
West, Darrell, 2014. “H-1B Visa Cap Applications Show Need for Immigration Reform”.
http://www.brookings.edu/blogs/techtank/posts/2014/04/16-h1b-visa-immigration-reform-west