Ask the Economist: Resorts, Visas and Deadweight Loss

An individual who generally disagrees with the free-market viewpoint of the Mackinac Center shared his letter to members of Congress with the Center recently. In it, he urges halting all H2B visas for "importing workers that the Michigan 'Resorts for the Wealthy' use."

He contends that, "besides being paid sub-standard wages, these import workers do not know their rights and are basically 'indentured servants' for these rich resorts — resorts for the richest of the rich can well afford to pay a living wage and they should."

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I responded as follows:

Dear Sir:

The other side could make a valid case that these H2B visas are good public and economic policy. You argue for the equally valid view that they are not good public policy.

Those in favor of the visas would argue that, economically, eliminating them would impose a "deadweight loss" on the economy — the economic benefits from increased wages that presumably would be required to employ U.S. citizens would be more than canceled by the net reduction of overall economic activity caused by the higher prices resort visitors would have to pay. In advance of actual data, which side is correct is a judgment call.

Visa proponents would correctly observe that when wages drive resort prices higher, the supply/demand equilibrium is found at a lower point on the supply curve. That is, fewer customers would visit the resorts, which means fewer resort jobs, fewer jobs at related attractions, lower returns on investment for the owners of those resorts and attractions and less future investment — a lower level of overall economic activity in general.

You would correctly observe that more money in the pockets of the workers who remain may also add to economic activity. Presumably you would argue that this more than makes up for less business at the resorts, and so there is no "deadweight" economic loss.

One side would be right and the other side wrong, but without "running the experiment" it's not possible to say with certainty which is correct. Even after the "experiment," the results would be ambiguous, because there are so many other variables.

Economic theory and history are on the side of net "deadweight loss," but that can't be predicted with certainly in any particular instance.

Separate from the empirical economic considerations, there are "normative" or value judgments: The rightness or wrongness of foreigners getting these jobs instead of natives; the rightness or wrongness of policies that force business owners to pay wages above the free market equilibrium.

On the latter, I would argue that the presence of a multitude of such policies do impose a deadweight loss on the overall economy, with effects that fall disproportionately on those at the lower end of the economic spectrum. After all, who suffers most from a lousy economy? So the "moral" case for benefitting a few in that lower income group — very likely at the expense of the many — is less a "no brainer" than its proponents would like to believe.

That said, I share your concern that in the present era the relative value of a strong back and willing hands has fallen, and this represents real challenges for a society that doesn't want to be divided by permanent class differences (even if standards of living have risen across the board). Some favor Earned Income Tax Credits as one way to mitigate this. Author Charles Murray has proposed a more radical measure in this article and the short book upon which it is based.


Jack McHugh is senior legislative analyst at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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