Recently, the Trump Administration announced that H-1B applications would face a new $100,000 fee (in addition to the already existing fees, not to mention legal fees). The H-1B visa allows firms to hire foreign individuals with a college degree for their positions. Firms enter a lottery, and if they win the lottery, they can hire a foreign professional. The H-1B can eventually be converted into a green card. Since universities are exempt from the lottery, it is a way for foreign students to try to stay in the US after their degree. Much of this policy change is up in the air, so this post isn’t about the change per se, but rather the change prompted some thoughts.
The Trump administration argues that this fee is necessary to prevent American firms from hiring foreign workers cheaply, at the expense of American workers. Given the way it is structured, it is unlikely the H-1B visa has that effect. But, for the sake of this post, we’ll take the argument as given.
Will the fee lead to more hiring of American workers? It’s tempting to think so. After all, if the price of foreign workers rises, then fewer foreign workers will be hired. That is just the law of demand at work: as price goes up, quantity demanded goes down.
But there is an implicit assumption in the Trump administration’s argument: that domestic workers are the next-best option for firms compared to foreign workers. That is not necessarily the case. The law of demand tells us that firms will adjust their hiring, but it does not tell us along what margins firms will adjust. Perhaps they will fill their roles with American workers; after all, the cost of domestic workers is now relatively lower compared to foreign workers. But the firm could also opt to change its operations, or even relocate outside the country.
The law of demand tells us that as the price of something goes up, quantity demanded falls (all else held equal). Economic theory tells us that as relative prices change, people will adjust their behavior. But theory does not, indeed, it cannot tell us how they will adjust. That will depend on the relevant alternatives they face at the juncture of choice. What the relevant alternatives are depends on the particular circumstances of time and place they find themselves in and the goals of firms and individuals.
READER COMMENTS
TMC
Oct 8 2025 at 1:31pm
The H-1B visa has definitely morphed into a program for cheaper labor rather than just finding hard to find talent. It’s been that way for a while.
You are correct though. Part of the effect will be for employers to hire talent located outside of the US.
David Seltzer
Oct 8 2025 at 3:21pm
Jon: Good stuff. One can only infer marginal utility from prices. Inferences are weak because all we see are individuals choices. What does that individual’s indifference curve look like at a point in time? What are the alternatives? I think that’s why “prices” are so important. It makes more sense to speak of “known” trade-offs in terms of opportunity costs. Again, opportunity costs are only known to the individual making choices. If the alternatives change for better or worse, the individual will select the lowest opportunity cost, assuming individuals make decisions that maximize their benefit. We can only infer that firms paying the H-B1 fee of $100k, plus other costs, are choosing their lowest opportunity cost.
David Seltzer
Oct 8 2025 at 3:23pm
Should have said marginal benefit.
john hare
Oct 8 2025 at 6:00pm
I don’t run in the H-1B circles. My wife and most of the people I work around now are immigrants without college degrees. The majority of them would consider it a bargain for $10,000.00 to cut the red tape. $100.000.00 is too steep in that market though. There are several I know of with iffy paperwork that pay taxes on a six figure income though.
Jon Murphy
Oct 9 2025 at 8:07am
Whether 10 or 100k, it’s not cutting red tape. It’s in addition to the red tape.
john hare
Oct 9 2025 at 5:28pm
That is worse. My metric has shifted to if people are good for the country or not. I shocked a lady the other day when I said that without immigrants I wouldn’t have help. She asked if they were legal and I replied that I didn’t care anymore. Actually I do care, but if I have reasonable cover to operate legally I don’t.
Komori
Oct 9 2025 at 12:33pm
As someone who works in an H1-B heavy industry, I can say that how it was structured and presented to the people before it was implemented, and how it actually functions have almost no similarity. It was supposed to be for hard-to-find high-level skills. It’s actually used to fill low-level, common skill positions with cheaper foreign labor (that also gets tied to the company due to how hard it is to shift employers on an H1-B visa). Just search for stories like <a href=”https://labor411.org/411-blog/disney-fired-employees-after-making-them-train-their-h1-b-replacements/”>Disney Fired Employees After Making Them Train Their H1-B Replacements</a>.
Granted, a better solution, which has been proposed many times before, is to auction off the H1-B slots. Of course, that would require they actually apply the cap; there are numerous exceptions and exemptions that mean there are far more H1-B visas in the US that just looking at the yearly amounts accounts for.
Thomas L Hutcheson
Oct 11 2025 at 10:11am
Better still would be to issue enough that the is no excess demand. We can also make it easier for students to stay after graduation.
Manfred
Oct 9 2025 at 3:34pm
One thing to keep in mind is that H-1B visas are employer specific. Once you are hired by a company (or university) under an H-1B, you are not allowed to change employers that easily.
If another employer wants you, this employer must apply for a new H-1B, with the caveat that the time you already spent with the first employer counts toward the H-1B clock (6 years total, 3 years and one renewal).
This is why foreigners coming with an H-1B try to do the green card first. Some private employers (not all) frown upon that, or delay green card sponsorship, because they know they may lose the employee. Some employers do not sponsor you at all for green card, so that when you run out the H-1B clock, you must leave the country.
My suggestion was always: eliminate the employer specific attribute of the H-1B. Let the foreigner change jobs. Let employers compete for human capital, foreign, native, whatever. And do away with the employer sponsorship for green card. Then, employers cannot hold foreign H-1B workers hostage, and demand for foreign workers will level out.
john hare
Oct 9 2025 at 5:30pm
Eliminate the employer specific on the agg workers and I’ll hire them in construction at better wages. I don’t need cheap people, I need good people.
Dylan
Oct 11 2025 at 8:04am
I can tell you that this change has already cost a few American jobs. Shortly before this announcement I was approached by a couple of groups interested in bringing international startup founders to the U.S. and pair them with American business students to grow the companies. They had a few million in funding earmarked to the program to hire people and run the program and more to invest in the businesses. The H-1B change spooked them and they decided to move the program to Canada instead.
Thomas L Hutcheson
Oct 11 2025 at 10:06am
All this is good, but as a partial equilibrium analysis it overlooks that in the aggregate foreign workers may be complements, not substitutes for domestic workers (or other inputs), making other factors more productive.
How many workers did Elon Musk displace?
Jon Murphy
Oct 12 2025 at 7:23am
Your point is correct (the literature on immigration finds immigrants are complements and the move will likely decrease productivity, and thus wages, for Americans).
I was considering the argument from the Administration’s POV and took their claim that immigrants are substitutes as given.
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