Impact of H-1B Policies on Labor Market Outcomes:
Experimental Evidence

Abstract

An H-1B visa allows U.S. employers to hire workers from other countries. This study investigates how certain H-1B visa policies influence economic outcomes. We look at the effects of visa sponsorship costs and the prevailing wage law on firms’ profits, earnings of employees with and without visas, tenures for employees with and without visas, and total factor productivity. We present a laboratory experiment in which subjects participate in a labor market simulation either as firms, domestic workers, or foreign workers. In the control group, sponsoring a visa is costless. In one treatment group, firms have to pay a fixed visa sponsorship fee to hire foreign workers. In another treatment group, in addition to the visa fee, foreign workers need to be paid a (binding) minimum wage. We find that both of these restrictions are associated with a reduction in earnings of both domestic and foreign employees. Moreover, the prevailing wage law has a negative impact on total factor productivity. We discuss how these results can be used to develop more efficient H-1B visa policies.