Worker Selection and Skilled Immigration Policy

"The U.S. H-1B program helps firms hire high-skilled foreign workers, but increasingly faces a binding annual cap that is allocated through lottery-based rationing. When candidates differ in productivity and firms face imperfect information at hiring, workforce productivity and domestic outcomes become endogenous to policy design. We document higher average wages among foreign-born workers in H-1B intensive occupations, consistent with positive selection among applicants. We rationalize this pattern with a quantitative general equilibrium search and matching model with heterogeneous worker productivity, noisy screening, H-1B filing costs, and an endogenously binding cap. The calibrated model explains half of the wage gap we observe in the data. We use the model to evaluate recent reforms that replace uniform lottery selection with wage-weighted selection. Under the existing cap, wage-weighted reallocation increases average foreign-hire productivity by about 4.7%, raises skilled-sector output by about 0.09%, has limited negative impacts on domestic skilled wages, while slightly increasing domestic skilled employment and unskilled wages. Matching the same foreign productivity gain through higher filing costs or a tighter cap instead reduces vacancy creation and generates negative effects on domestic skilled employment and wages. The gains from reallocation are attenuated when the foreign applicant pool shrinks and when firms can strategically bunch wages at tier cutoffs."