Buying Lottery Tickets for Foreign Workers: Search Cost Externalities Induced by H-1b Policy

44 Pages Posted: 23 Nov 2020

See all articles by Rishi Sharma

Rishi Sharma

Colgate University - Economics Department

Chad Sparber

Colgate University

Abstract

The H-1B program allows firms in the United States to temporarily hire high-skilled foreign citizens. H-1B workers are highly concentrated among a small number of firms. We develop a theoretical model demonstrating that this phenomenon is an artifact of policy design: When the government restricts foreign labor inflows and allocates H- 1B status by random lottery, it creates a negative externality by incentivizing firms to search for more workers than can actually be hired. Some firms rationally move toward specializing in hiring foreign labor and contracting out those workers' services to third- party sites. This outsourcing behavior further exacerbates total search costs and lottery externalities, resulting in an annual economic loss in the hundreds of millions of dollars.

Keywords: skilled workers, H-1B, outsourcing

JEL Classification: J61, J68, F22

Suggested Citation

Sharma, Rishi and Sparber, Chad, Buying Lottery Tickets for Foreign Workers: Search Cost Externalities Induced by H-1b Policy. IZA Discussion Paper No. 13892, Available at SSRN: https://ssrn.com/abstract=3734760

Rishi Sharma (Contact Author)

Colgate University - Economics Department ( email )

13 Oak Drive
Hamilton, NY 13346
United States

Chad Sparber

Colgate University ( email )

13 Oak Drive
Hamilton NY 13346, NY 13346
United States

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