April 23, 2009

The Economics of Mandating Benefits for H-2B Workers

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In testimony before the Domestic Policy Subcommittee of the U.S. House Oversight and Government Reform Committee, Dr. McLaughlin stated that mandating benefits for H-2B guest workers, while well-intended, may have unintended consequences. If the goal of policymakers is to help H-2B workers avoid exploitation, then they should explore the option of adopting a "free agent" model for H-2B workers - that is, allow H-2B workers to change employers. 

A mandate that employers pay benefits for employees would mean that each employee becomes more expensive to employ, which may lead employers to find substitutes or to simply cut back on operations. In effect, mandating benefits for H-2B workers would lead to decreased demand for their services and increased demand for the services of substitutes. As a group, H-2B workers may not be better off because there would be less H-2B workers employed. Also, those H-2B workers who manage to get jobs with mandated benefits may be better off only if their employers do not pass the costs of the mandated benefits along to the workers in the form of lower wages. Most importantly, mandating benefits does not necessarily fix the fundamental problem, which is that an employee still cannot quit his job and find a new one if the employee dislikes the working conditions or if the employer violates the terms of the contract.

Adopting a "free agent" model, on the other hand, directly addresses this problem while avoiding some of the unintended consequences. If H-2B workers are free to switch employers, then employers would have incentive not only to honor the terms of contracts but also to offer better wages and benefits in order to attract the best workers. This would empower H-2B workers with the freedom to move to the job where he is most valuable to the economy and also where he is best paid.