Analysis: Would the U.S. benefit from a merit-based immigration system?

A woman leaves the U.S. Citizenship and Immigration Services office in New York on Aug. 15, 2012. File photo by Keith Bedford/Reuters

A woman leaves the U.S. Citizenship and Immigration Services office in New York on Aug. 15, 2012. File photo by Keith Bedford/Reuters

Editor’s note: Yesterday, President Donald Trump announced his support for the RAISE Act, a bill that, if passed, would radically change the U.S. immigration system to favor skilled workers over those seeking family reunification. It’s a “points” system of the sort currently used by Canada and Australia. Jennifer Hunt, a professor of economics at Rutgers and former chief economist at the Department of Labor, has studied the U.S. immigration system and its effects on the U.S. economy extensively. We are publishing her memo on a points-based system in collaboration with EconoFact, a nonpartisan economic publication to which she regularly contributes.

— Kristen Doerer, Making Sen$e editor

The issue

President Trump has praised the immigration systems of Australia and Canada, which prioritize skilled immigrants through a system of points, referring to them as “merit”-based systems. According to President Trump, replacing the American system with a points system would increase wages of natives and earlier immigrants and provide great savings to the taxpayer. Proponents of a points system promote it as a technocratic approach to choosing immigrants that enhances a country’s economy in a way that systems with less direct government involvement in the selection of immigrants do not.

Could the U.S. benefit from adopting such a system? And which immigrants benefit the United States?

Graph courtesy EconoFact

The Facts

  • Under the current U.S. immigration system, approximately 1 million foreign-born people are granted legal permanent residence, also known as “green cards,” each year. There are four main avenues for obtaining a green card: family sponsorship, a job offer from a U.S. employer, humanitarian reasons and selection via a green-card lottery (see this report for details). The vast majority of annual green cards are awarded on the basis of family ties with U.S. residents, with only 140,000, about 14 percent, awarded on the basis of employment (that is, a job offer).
  • It is important to consider people who enter the country on temporary visas as well. At any given point, there are many people on temporary visas influencing the economy. About half of new green card recipients are people who are already present in the United States who transition from temporary visas to permanent resident status (see the graph above). This matters because the selection process for temporary visas is different from that of permanent residents. Unlike green cards, few temporary visas go to relatives of U.S. residents. Among temporary visas in 2016, the large categories were for students (513,000 F and M visas); workers with a job offer and their dependents (700,000 H and L visas); and exchange visitors, many of whom work (380,000 J visas). (See here for a complete rundown.) Many of the work-related temporary visas are issued to unskilled workers, such as the 134,000people with agricultural H-2A visas. Temporary visa holders may transition to a family-based green card if they marry a U.S. permanent resident or citizen, which blurs the distinction between foreign-born individuals qualifying to live in the United States on the basis of education, employment or family.
  • The U.S. government influences the skill mix of immigrants through the design of visa categories, but does not choose the individuals entering within those categories. Employers tend to play a more direct role in the selection process for individual applicants. For example, companies submit applications for 85,000 H-1B temporary work visas reserved for workers with at least college degree, and a lottery is used when there are excess applications.
  • The core of a points system is that the government draws up a set of desirable characteristics for immigrants, weights the characteristics by assigning differing numbers of points to each, and chooses a threshold number of total points. It then admits or prioritizes prospective immigrants with points higher than the threshold. (See here for a detailed description of how a points system works in practice). Australia, New Zealand and Canada have long used some form of points system to favor immigrants with more education and experience, while other countries such as the United Kingdom have established one more recently. There is some evidence that skilled immigration is more popular among Americans than unskilled immigration, hence a points system favoring skilled immigration might be viewed more positively in the United States.
  • No country admits immigrants exclusively through the points system. In addition to the economic class of immigrants admitted through the points system, Canada also admits immigrants on the basis of family ties and for humanitarian reasons. The impact of a points system depends on its scope in addition to the criteria used for points. For example, if the United States were to introduce a points system, it would have a much smaller impact if applied only to those green cards and temporary visas that are already employment-based than if the share that are employment-based were also greatly expanded.
  • One advantage of a points system is that it can select immigrants who will earn more and make higher net contributions to the government. Evidence from Canada indeed shows that immigrants arriving through the points system have higher education, employment rates and earnings than immigrants admitted through other channels and are therefore likely to make higher net contributions to the government (though there is no direct evidence linking immigration selection criteria and government contributions).
  • However, there is some evidence that immigrants selected on the points system perform less well in the labor market than one would expect. College-educated immigrants to Canada earn only high-school level wages and do not innovate more than natives, unlike college-educated immigrants to the United States. The reasons why highly educated immigrants perform comparatively less well in Canada than in the United States are not well understood. It is possible that the role that employers play in selecting immigrants to the United States could be a factor. There is some evidence that U.S. employers do a good job in selecting foreign workers. In my research on college graduates, I have found that those entering the United States on temporary work visas earn much more than natives and produce a higher number of patents; they also outperform those who enter on green cards, who are presumably mostly sponsored by relatives. Recognizing that employer involvement may be important for selecting the most productive immigrants, New Zealand, Australia and Canada have amended their points systems to prioritize immigrants who both pass a threshold of points and are selected by employers.
  • Furthermore, the effect of immigration on the host economy is not limited to innovation and the budgetary impact of immigrants. The United States can also benefit from unskilled immigration. The greatest benefits accrue to natives when the immigrants are most different from natives, and the labor market becomes more efficient as workers specialize increasingly in the tasks they do best. Thus, both flows of extremely skilled and extremely unskilled immigrants should benefit the United States.
  • But theory does not predict that everyone in the host economy gains. A consensus report published by the National Academies in 2017 found that while data evidence shows U.S. immigration does not affect average wages of the native-born, it does reduce wages of the shrinking group of native high-school dropouts. While there is no direct evidence on how a points system affects the impact of immigration, if the system favors skilled immigrants, the impact on native high-school dropouts should be reduced, albeit possibly at the cost of reducing the wages of skilled natives.

What this means

There are pros and cons to a points system favoring skilled workers. It is likely that immigrants’ economic contribution to the United States is greater under a system with a major role for employers, and it is not clear on either theoretical or empirical grounds that this is best done through a points system. The U.S. economy will gain most from immigration if low-skilled immigrants continue to be admitted, with or without a points system. However, this has less desirable distributional consequences than a system focusing on skilled immigration, which is less likely to have a negative impact on the wages of less-skilled native workers.