Should the H-1B Lottery Give Way to Picking the Highest-Paid Offers First

Imagine a country that needs the world's best engineers, nurses and mathematicians, and decides to choose among them the way a church picks a raffle winner. Not by skill. Not by what an employer will pay. By a computer drawing numbers from a hat.

That is, in outline, how America hands out most of its H-1B work visas when more people apply than the law allows. A serious country with a scarce resource ordinarily asks who values it most. We ask who bought the most tickets.

The terms

The H-1B is a temporary work visa for a "specialty occupation," a job that requires at least a bachelor's degree or its equivalent in a specific field. It comes from section 101(a)(15)(H) of the Immigration and Nationality Act. A worker holds it for an initial three years, renewable to a total of six in most cases, and the employer, not the worker, files the petition.

The cap is set in section 214(g) of the INA. Each fiscal year, 65,000 visas are available in the regular category. A further 20,000 are available to workers who hold a master's or higher degree from a United States university. Universities, affiliated nonprofits and nonprofit research organizations are cap-exempt: they can file at any time without counting against the limit.

Congress has not always held to 65,000. For several years around 2000 it raised the cap, to 115,000 for fiscal years 1999 and 2000 and then to 195,000 for fiscal years 2001 through 2003, under pressure from the technology industry, and then it let the number fall back. The cap number is a political decision made by Congress, not a fact of nature.

Since fiscal year 2021, employers who want to file a cap-subject petition first submit an electronic registration for each worker during a set window. If registrations exceed the available visas, which they have in recent years, the government selects among them at random. Only employers whose registrations are selected may file full petitions. Each registrant has the same odds, and each additional registration is another ticket.

The case for the lottery, in its own words

The lottery has defenders, and they have a case worth stating.

One, random selection is neutral. It does not ask the government to rank one human being's labor above another's. A wage-ranked system would hand the visas to the highest bidders, and there are fields, including teaching, medicine in rural areas, nonprofit work and early-stage research, where the pay is modest and the value to the country is large.

Two, the earlier system, a first-come, first-served rush of paper applications, was worse. When demand exceeded supply, employers had to flood the post office on the first day. The lottery replaced a stampede.

Three, wage is not the same as merit. A prevailing wage depends on geography. A software engineer in San Francisco will out-earn a more gifted one in Omaha. A selection method based on wage would favor the coasts and the largest firms.

Four, the technology sector argues it needs talent that is not available domestically at the scale it requires, and that other countries, including Canada, will take the people America turns away. That is a competitive argument and a serious one.

Why I think the lottery is the wrong tool

Now the answer. I will make it in numbered premises.

One: a lottery does not select for the thing the program says it exists to do. The statute's premise is that these are specialty occupations requiring theoretical and practical application of highly specialized knowledge. If that is the premise, the allocation should reward the employer who thinks the worker is worth the most, and the plainest evidence of an employer's valuation is the wage it is willing to pay. A lottery gives a firm bidding a modest wage for a routine job the same chance as a firm bidding a very high wage for a rare skill.

Two: a lottery rewards volume. Because each registration is an independent ticket, an employer that files hundreds of them has hundreds of chances. The business model of the large outsourcing firms, companies that place workers at client sites, is built around exactly that. They file in bulk, win a corresponding share of the visas, and supply workers to other companies at the going rate for the service. A mid-sized American manufacturer that needs three specific engineers files three tickets. The firm with 3,000 tickets wins roughly a thousand times as often. A system that gives the advantage to the volume filer is a system that advantages the middleman.

Three: the prevailing-wage rules are weaker than the public believes. An employer must file a Labor Condition Application with the Department of Labor, stating the wage it will pay and promising it is at least the prevailing wage for the occupation in the area. The Department of Labor publishes four wage levels, running from entry to fully experienced. Level I is the lowest. It is perfectly legal to bring in a worker at Level I for a job that an experienced American could do, as long as the wage is at least the Level I figure. And the Labor Department does not, in the ordinary course, decide whether an American worker is available. The law has an extra set of attestations for "H-1B dependent" employers, those with a large share of their workforce on the visa, and for willful violators, but for most employers the filter is a paper promise.

Four: the documented cases are not hypothetical. In 2015, reporting widely carried in the national press described employees at the Walt Disney Company's technology group in Florida and at Southern California Edison who were told their jobs were being handed to workers supplied by an outsourcing firm, and that they would be kept on for a period to train their replacements. Some filed complaints and lawsuits. I am not going to say how any case ended, because I am not certain, and the point does not depend on it. The point is that the model, in which an American's job is taken by a contractor's visa holder and the American is asked to train him, was legal in outline and offensive to ordinary fairness. A program meant to fill gaps was being used to swap workers.

Five: the better design asks what the job is worth. If the visas must be rationed, ration them by wage level. Give the highest-wage offers the first chance, within each occupation and area so that the system does not just reward the coasts. A firm that is willing to pay a worker a great deal is saying that the person is scarce and valuable. A firm that offers the minimum is saying the job could go to anyone. The government is entitled to listen.

That is not a fantasy. In January 2021 the Department of Homeland Security issued a rule to replace the random selection with a ranking by wage level, from the highest level to the lowest, when registrations exceed the cap. The rule was delayed, then set aside by a federal court, and DHS withdrew it in December 2021, so it never took effect. Whatever you think of that particular design, it shows that the idea is administrable. The agency can read the wage a registration states, as it already does when it reviews petitions.

The tech sector's argument, answered

The industry's best claim is that America's competitors will take the talent we decline. This is true of some people. It is also true that a wage-ranked system helps the firms with the most to offer, which are very often the technology companies that complain about the cap. If a firm needs a rare machine-learning researcher and will pay him a high salary, the ranking gives it an advantage over the outsourcer that files a thousand low-wage tickets. A wage-ranked cap does not shrink the talent flowing into the firms that most need it. It shrinks the flow into the firms that use the program as a staffing service.

On the claim that wage ranking would hurt teachers, nurses and researchers, the answer is that universities and nonprofit research organizations are already exempt from the cap, and a sensible reform could add other categories, such as physicians in underserved areas, with their own rules. A lottery that handicaps the most valuable workers in order to protect the volume filers does not help those fields either.

On the claim that wage is a poor proxy for merit, I agree that it is imperfect. But an imperfect proxy beats a coin flip. If wage is distorted by geography, adjust it by area, as the Labor Department's levels already do.

The conservative disagreement

I should say plainly that conservatives are not united here, and the disagreement runs deeper than the lottery.

One camp says the H-1B program should shrink or end, because it suppresses wages in the fields it touches and because the guest-worker model gives employers a captive workforce: a worker who loses his job generally has a limited time to find another sponsor or leave the country. That limit makes him cheaper and quieter than a citizen. Those who hold this view point to the program's outsourcing abuses as the proof.

The other camp says that high-skill immigration is among the best things a nation can do for itself, that these workers start companies, hire Americans and pay taxes, and that the right approach is to reform the program but not to cut it. They point to the long record of immigrant founders and to the cost of losing them to rivals.

Where do I come down? I think the evidence supports a middle position that both camps can live with. The economics of immigration and wages is a field with real disagreement among serious scholars, as Two Economists, One Boatlift, and the Fight Over Immigration and Wages shows, and so I would not claim more certainty than the data allow. What I will claim is narrower. If the program exists, it should select the most valuable workers, not the luckiest filers. If an American is displaced, the law should have a remedy. And if the country wants more high-skill immigration, it should say so in the green-card system, where a worker can settle permanently, rather than hold the visa open as a permanent temporary status. For the merit-based alternative on the permanent side, see What an American Points System Would Look Like Written Into Law.

What reform should include

A serious reform would stack four changes on top of the wage-ranked selection:

1. Rank by wage level within occupation and area, so that the highest offers go first and no region is shut out by the pay scales of another.
2. Close the displacement channel. Bar an employer from replacing a qualified American with a visa holder in the same position within a defined window, with real penalties and a private right of action, not just a complaint form.
3. Raise the wage floor. The prevailing-wage levels should be set so that a visa holder's pay reflects the actual market for the skill, which means revisiting Level I and II.
4. Make visa holders portable. Allowing a worker to change employers without losing status removes the captive-labor problem and lets the market, instead of the sponsor, set his value.

Notice that item four is a favorite of the pro-immigration side and item two is a favorite of the restrictionist side. Good reforms tend to look like that. They give each camp something it wants and take away the thing each camp's critics actually object to.

A lottery by any other name

The H-1B is not the only American visa handed out by chance. The diversity visa, which awards green cards by random draw to applicants from countries with low recent immigration to the United States, works on the same principle, and the case against it is the same: a country with a scarce resource should say what it wants. That argument is made at length in Why a Green Card Lottery Makes No Sense for a Serious Country. Canada, which many technology employers cite as a rival for talent, does not draw lots. It scores applicants and invites the highest scorers, and a look at how that works, in Thinking of Moving to Canada? Its Points System Might Not Pick You, shows that a rival country has already answered the question this post asks. If we fear losing talent to Ottawa, we might begin by noticing that Ottawa does not leave the choice to a hat.

The consistent principle is simple. Every legal channel into the country is a decision that the nation has made about its own interest. When the decision is made by chance, the nation has declined to decide. Conservatives who believe in self-government should object to that on principle, quite apart from the wage arguments, because a nation that cannot say what it wants from those who join its workforce is a nation that has handed a public choice to a random number generator.

A note on the Founding

Congress has the power "To establish an uniform Rule of Naturalization" in Article I, section 8, and the power to regulate commerce with foreign nations in the same section. Nothing in the text requires a particular method of choosing among applicants. That is a policy judgment left to Congress, which means the lottery is not a constitutional necessity or a natural law. It is a rule. Congress wrote it, and Congress can write a better one. The Framers, who had read Adam Smith's Wealth of Nations (1776) closely, would have recognized a price signal when they saw one. And they would have asked why a government that is willing to read a wage on a petition in order to approve it is unwilling to read the same wage in order to rank it.

The case in brief

1. The H-1B allows 65,000 regular visas and 20,000 more for holders of U.S. master's degrees or higher, under INA 214(g), with universities and nonprofit research bodies exempt from the cap.
2. When registrations exceed the cap, selection is by random draw, which rewards employers who file the most tickets, including outsourcing firms, over those who value a worker most.
3. The prevailing-wage rules set four levels and permit entry-level pay for specialty jobs, and the 2015 reports of American employees training their replacements show how the model can be abused.
4. Ranking selections by wage level within occupation and area, as DHS tried in a January 2021 rule, would serve the program's stated purpose and favor the firms with the most to offer.
5. Reform should also close the displacement channel, raise the wage floor and let visa holders change employers, and a country that wants more high-skill immigrants should say so through permanent residence.

What you can do: Read section 214(g) of the Immigration and Nationality Act on Congress.gov, then write your House member and ask whether he or she supports selecting H-1B petitions by wage level rather than by lottery.