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The Effect of Foreign Labor on Native Employment: A Job-Specific Approach and Application to North Carolina Farms - Working Paper 326

5/15/13
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One job to a foreign worker means one less job for an American, right? The logic sounds solid, but evidence suggests it’s not necessarily so. Using data collected by the North Carolina Growers’ Association (NCGA), the leading employer of workers with H-2 visas, Michael Clemens shows that foreign workers have almost no direct effect on the employment prospects of US workers in H-2 occupations. Instead, they actually have a large and positive indirect effect on US employment by contributing to North Carolina’s economy.

How do foreign workers affect the employment prospects of Americans? Economists have traditionally approached this question by examining the effects of sudden shocks to the foreign labor supply on native workers within a defined geographical or demographic unit. This paper takes a new approach by examining the native labor supply for a specific occupation instead. It uses data collected by the North Carolina Growers’ Association (NCGA), the leading user of the United States' seasonal agricultural work visa—the H-2 visa. Clemens estimates the number of US workers who want these agricultural jobs and how this number changes during a sharp rise in unemployment.

To employ workers on an H-2 visa, employers have to satisfy requirements that ensure that there are no Americans who can fill these jobs. In other words, employers are legally required to treat native workers as perfect substitutes for US workers. So the number of applicants to these jobs describes the level of the native labor supply. The change in the native labor supply for these jobs in response to the spike in US unemployment during the 2007–8 economic crisis describes the local slope of the labor supply. Clemens finds that there are close to zero Americans who want these jobs, even when unemployment spikes above 12 percent.

This suggests that foreign workers have almost no direct effect on the employment prospects of US workers in these H-2 occupations. Moreover, these foreign workers have a large and positive indirect effect on US employment through their contribution to the output of the North Carolina economy. Since they are taking agricultural jobs that no American wants, they are allowing these farms to operate and picking produce that would not otherwise get picked. This increase in economic output translates to new jobs created throughout the economy, far beyond the farm. Clemens estimates that one new US job across all sectors of the North Carolina economy is created by every 1.5–2.3 foreign manual agricultural worker in the short run. Assuming that in the long run, labor can be partially though not completely substituted by other inputs, like additional tools and machinery, every 3.0–4.6 foreign workers create one new American job.