Trump's latest visa restrictions could hold back economic recovery, experts say

President Donald Trump recently signed an executive order temporarily freezing all new immigrant visas from being used, including the H-1B, L-1, and most J-1 visas. The White House argued that 525,000 American jobs will be saved or created by the move.

But some experts argue that the move is misguided. And research from 2014 also reveals that the last time the U.S. restricted H1-B visas, the economy paid a price.

“If we’re talking about a visa ban between now and January and then it gets relaxed, it doesn’t have major, long-term effects on the economy,” Wells Fargo Acting Chief Economist Jay Bryson told Yahoo Finance’s The Final Round. “But if we’re having this conversation three or four years from now and we will have a visa ban… that will have some long-term competitiveness negative effects on the U.S. economy.”

President Donald Trump sits during a meeting to sign executive orders in the Hall of Heroes at the Department of Defense on January 27, 2017 in Arlington, Virginia. (Photo: Olivier Douliery-Pool/Getty Images)

2007, 2008 visa denials inflicted ‘huge cost to the economy’

In his executive order, President Trump stated that foreign workers pose an “unusual threat” to American workers during this recession.

“American workers compete against foreign nationals for jobs in every sector of our economy, including against millions of aliens who enter the United States to perform temporary work,” he stated. “Under ordinary circumstances, properly administered temporary worker programs can provide benefits to the economy. But under the extraordinary circumstances of the economic contraction resulting from the COVID-19 outbreak, certain nonimmigrant visa programs authorizing such employment pose an unusual threat to the employment of American workers.”

However, a 2014 study by the New American Economy found that H-1B visa denials in 2007 and 2008, amid the last recession, actually hurt American-born tech workers and levied a “huge cost to our economy.” 

The main reason why H1-B visas support job creation was attributed to the fact that high-skilled engineers and programmers need valuable support services from less-educated tech workers, the authors stated. 

“To grow out of this recession, the U.S. needs to create more jobs, and economists overwhelmingly agree that immigrants —particular those in the innovative-rich, high-skilled professions that H1B holders work in — do just that,” New American Economy Executive Director Jeremy Robbins told Yahoo Finance. “Cutting off access to talented immigrant workers … hurts their American-born coworkers far more than it helps them.”

White House advisor Ivanka Trump and Google CEO Sundar Pichai, who is an immigrant from India, arrive for a roundtable discussion focusing on assisting American workers for the changing economy at El Centro community college on October 3, 2019 in Dallas, Texas. (Photo: Ron Jenkins/Getty Images)

The denial of 178,000 H-1B visa applications in computer-related fields during those two years resulted in an estimated loss of more than 230,000 tech jobs for American-born workers and cost U.S.-born, college-educated workers in computer-related fields as much as $3 billion in aggregate annual earnings.

If these visas were not denied, the authors argued, the U.S tech industry would have recovered and grown “substantially faster.”

Opportunities lost for U.S.-born workers would include work in operations, sales, or support — as managers, human resource professionals, or secretaries.

In particular, "U.S.-born workers without bachelor’s degrees were disproportionately hurt by the H-1B visa lotteries in 2007-2008,” the authors found. “The high number of H-1B visa applications that were eliminated in the 2007-2008 visa lotteries represented a major lost opportunity for U.S.-born workers and the American economy overall.”

Foreign workers stimulate employment, earnings

Other research suggests that the longer-term impact of looser visa restrictions could be beneficial to the economy by improving U.S. employment and wage growth in those occupations.

In a 2020 study by the National Foundation or American Policy (NFAP), the presence of H1-B visa holders is associated with lower unemployment rates and faster earnings growth among college graduates.

A woman leaves the U.S. Citizenship and Immigration Services offices in New York, August 15, 2012. (PHOTO: REUTERS/Keith Bedford)

Using data from U.S. Citizenship and Immigration Services (USCIS) and the American Community Survey 2005 and 2018, author Madeline Zavodny found that a one percentage point increase in the share of workers with a H-1B visa in an occupation reduced the unemployment rate by 0.2 percentage points.

Furthermore, a one percentage point increase in the share of workers with a H-1B visa in an occupation boosted earnings growth rate in that occupation by about 0.1 to 0.26 percentage points.

In the fiscal year 2019, USCIS approved approximately 387,000 H1-B petitions, out of which 34% were for initial employment and 66% were to extend the visa period.

The majority of immigrants applying for a H1-B visa have a master’s degree — around 53%. The median salary of those who had their visa approved earned around $98,000. 

The vast majority of jobs revolved around IT or technology. 

Tech CEOs ‘very much disagree’ with visa move

Tech CEOs took to Twitter to express their reaction to the visa restrictions.

Immigrants in the tech industry, which include Google CEO Sundar Pichai and Microsoft CEO Satya Nadella, who used H-1B visas to build their lives in the U.S., also decried the move.

Elon Musk, an immigrant himself, also tweeted his disagreement with the new policy.

It’s also worth noting that it isn’t just tech companies looking for H-1B visas.

According to NFAP’s research, Deloitte, PwC, as well as Walmart and JPMorgan Chase have also experienced an increase in visa denials. And aside from high-skill tech jobs and other white collar work, other types of workers rely on the H-1B visas.

“Restricting the number of people who can enter the United States to gain work is not going to help the overall economy,” Ric Edelman, founder of Edelman Financial Engines, told Yahoo Finance’s The Ticker recently. 

“Let’s face it: A lot of these jobs are blue-collar jobs,” Edelman added. “They are agricultural jobs, frankly jobs that many of the unemployed don’t want to take,” he said. “I just don’t know how practical this is. … There’s too much ivory towerism going on in Washington [D.C.] and not enough recognition of what’s really happening.” 

Aarthi is a reporter for Yahoo Finance. Follow her on Twitter @aarthiswami.

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