Rationalizing U.S. Immigration Policy: Reforms for Simplicity, Fairness, and Economic Growth

Giovanni Peri


This paper proposes market-based reforms to our immigration system to tie employment-based inflows to labor market demand. A goal of the proposal is to create an immigration system that is easier to operate and simpler to navigate for employers, foreignborn workers, and their families, and that increases the economic benefits of employment-based immigration for the U.S. economy. The economic consensus is that, taken as a whole, immigrants raise living standards for American workers by boosting demand and increasing productivity, contributing to innovation, and lowering prices—while also improving their own wellbeing and that of their families. The proposed system uses market-based auctions to allocate employment-based permits to employers and visas to immigrants that have the greatest propensity to contribute to economic activity and thus to generate the largest benefits for the U.S. economy. These auctions would also generate revenue for the federal government; the government could use that revenue to compensate local communities that deliver social services to immigrants, or to invest in the skills of American workers.

The essential features of the proposal would be implemented in a series of incremental phases starting with a pilot program that uses an auction-based system to allocate temporary employment visas. After a successful pilot with the existing classes of temporary employment visas, the second phase would expand the auction to permanent labor-sponsored visas. A final phase would provide a reassessment of the balance between employment-based and family-based visas, as well as a broad simplification of complicated rules in the current system such as country quotas. As under the current system, the worker would have the option to bring her spouse and minor children to this country under her visa. The number of permits would be prescribed by Congress, and the permit fee would subsequently be determined in the auction. Small businesses and family businesses, including those run by immigrants, would also be eligible to purchase permits. Employers would have the ability to resell or trade permits, and foreign-born workers would have the flexibility to move between permit-holding employers. This added flexibility on both sides provides a strong element of protection for the workers via competition. The new system would thus eliminate the cumbersome ex ante labor verification procedures for employers who intend to hire immigrants. This proposal also recommends improvements in immigration enforcement through the use of technology-based enforcement in the workplace and measures to address the current population of undocumented workers.



Giovanni Peri

Professor of Economics, The University of California at Davis