1. 1 Do Interest Groups affect U.S. Immigration Policy? by Giovanni Facchini, Anna Maria Mayda and Prachi Mishra Giovanni Facchini University of Essex, University of Milan CEPR and CES-Ifo

2. 2 The questions we ask What determines US immigration policy today? Are political-economy factors important in shaping immigration to the United States? Do these drivers work along sector (industry) lines, that is do sector-specific factors with greater political influence succeed in changing migration policy towards their benefit? In other words, what is the role played by industry- specific interest groups?

3. 3 Motivations So far, in analyzing the determinants of international labor flows, the migration literature in economics has mostly focused on supply factors, i.e. factors which affect the willingness of workers to move across international borders (Clark, Hatton and Williamson, 2007). On the other hand, the analysis of the drivers of the demand side of international migration, the most important being migration policies in developed countries, has not received as much attention. Borjas (1994) “…The literature does not yet provide a systematic analysis of the factors that generate the host country demand for immigrants.” The literature on the political economy of migration policy and outcomes remains, still now, very thin and mainly theoretical.

4. 4 Motivations (cont.) On the other hand, a vast theoretical and empirical literature considers the political-economy determinants of trade policy trying to explain the political constraints that work against free trade. This is in spite of the fact that, as trade restrictions have been drastically reduced, the benefits from the elimination of existing trade barriers are much smaller than the gains that could be achieved by freeing international migration (Pritchett 2006, Hamilton and Whalley 1984). The gap in the migration literature is very surprising and can be partly explained by unavailability of data. The purpose of this paper is to offer a contribution towards filling this gap.

5. 5 Motivations (cont.) There exists abundant anecdotal evidence which suggests that political-economy factors and, in particular, interest groups play a key role in shaping U.S. immigration. Unions have been supportive of measures restrictive of migration. Historical examples: Chinese Exclusion Act (1882) Literacy Test Provision (1917) Immigration Control and Reform Act (1986) More recently, during the debate on the nurse shortage, the American Nurses Association has strongly opposed a measure to increase the number of H1-C visas, pointing out that "...the provision would lead to a flood of nurse immigrants and would damage the domestic work force" (New York Times, May 24 2006).

6. 6 Motivations (cont.) Complementarities matter : Goldin (1994), in her study of the introduction of the 1917 Literacy Test Provision, finds that employers have been against the introudction of this provision More recently, just before 2000, Silicon Valley executives “trooped before Congress, warning of a Y2K disaster unless the number of H1-B visas was increased (Goldsborough 2000)

7. 7 Motivations (cont.) Why do we focus on sector-specific aspects of US migration policy? Several work visas are sector/occupation specific: oH2A visas: for temporary agricultural workers; oH1C visas for nurses, introduced as the result of fierce lobbying by hospitals; oR visas for religious professional workers; oP visas for performing artists and outstanding sportsmen; Other sectors have been less successful in obtaining a visa program specifically targeted to their needs (H1B or H2B). Still, the intensive lobbying activity carried out even by firms active in these sectors suggests that the policymaker's final allocation of visas across sectors/firms within the overall quota of the H1B or H2B programs is likely to be influenced by lobbying activities. Finally, the data suggest that lobbying on immigration takes place at the sectoral level, since the top contributors are often associations representing specific industries, for example the American Hospital Association, the American Nursery and Landscape Association, the National Association of Homebuilders and National Association of Computer Consultant Businesses, etc.

8. 8 Motivations (cont.) Why do we focus on sector-specific aspects of US migration policy? (cont.) Besides the quantitative restrictions applied to specific visa types, several regulations substantially affect the number of visas issued and their allocation across sectors. In particular, besides "visible" restrictions, which clearly have a fundamental impact, policy makers can use a number of other instruments to manage access to the labor market in specific sectors. An example of "invisible" barrier that acts as a form of protectionism is the set of rules that regulate the entry of foreign medical doctors in the US healthcare system. Indeed, even foreign doctors trained at top international medical schools will not be allowed to practice the medical profession in the US unless they complete their residency in a US hospital, a requirement that involves spending several years in a low-paying job.

9. 9 What we do In this paper, we address these issues by analyzing the impact of political organization by business lobbies and workers' associations on the allocation of temporary work visas in the U.S. across sectors between 2001 and 2005. This paper represents, to the best of our knowledge, the first study to provide systematic empirical evidence on the political-economy determinants of immigration to the U.S. and, in particular, on the role played by interest groups.

10. 10 What we do (cont.) In particular, we develop a simple theoretical model that motivates our empirical analysis. We consider a multi-sector, small open economy in which migration policy is the result of the interaction between (and the lobbying expenditures of) organized groups with conflicting interests over international labor movements. Next, we evaluate the predictions of the model using a new, U.S. industry-level dataset that we create by combining information on the total number of temporary work visas with data on the political activities of organized groups, both in favor and against an increase in migration.

11. 11 Main results Both pro- and anti-immigration interest groups play a statistically significant and economically relevant role in shaping migration across sectors. Barriers to migration are higher in sectors where (anti-immigration) labor unions are more important, and lower in those sectors in which (pro-immigration) business lobbies are more active. The results are robust to the introduction, in the estimating equation, of a number of industry-level control variables (e.g. output, prices, origin country effects, etc.) and to addressing endogeneity issues with an instrumental-variable estimation strategy.

12. 12 Outline of the presentation Related literature Theoretical model Data Empirical strategy Empirical results Conclusions

13. 13 Literature related to this paper Benhabib (1996), Ortega (2005): median-voter framework Facchini and Willman (2005): interest-group politics. Historical accounts of the political economy of immigration restrictions (Goldin 1994, Timmer and Williamson 1996). Empirical literature on attitudes towards immigrants (Scheve and Slaughter 2001, Mayda 2006, O’Rourke and Sinnott 2006, Hanson, Scheve and Slaughter 2006, Facchini and Mayda 2007, Facchini and Mayda 2008). Hanson and Spilimbergo (2001): effect of output prices on border enforcement in Mexico-US border states. Works on the political economy of protection in international trade, in particular Grossman and Helpman (1994), Goldberg and Maggi (1999), Gawande and Bandyopadhyay (2000).

14. 14

15. 15

16. 16 Protection-for-sale vs. protection-function approach How do interest groups participate in the political process? oquid pro quo channel; oinformational channel. The protection-for-sale approach (Grossman and Helpman 1994) has emphasized the first channel. We want to allow for a more general role of lobbies. The protection function approach incorporates both channels. An important feature of the protection-for-sale model is that “the existence of a lobby matters in equilibrium, and not its actual contribution level…” (Eicher and Osang 2002). We want to characterize the link between equilibrium policy outcomes and the level of contributions, which is possible in the protection function approach.

17. 17

18. 18 Data We use data on temporary work visas by industry from DHS (NAICS classification). We use a newly available dataset from the Center for Responsive Politics (CRP) that allows us to identify lobbying expenditures that are specifically channeled towards shaping immigration policy. The data we use is for the years 2001-2005 at the firm level. We aggregate the data to the industry level using the CRP industry classification. We use data on the number of natives, union membership rates of native workers, etc. from the Current Population Survey (CPS) (March Annual Demographic File and Income Supplement to the CPS) – Census Bureau classification. We use data on output, price, capital, FDI – BEA, ACES – NAICS classification. We create various industry concordances to construct the final industry- level dataset at the Census Bureau classification. We end up with approximately 120 3-digit industries.

19. 19

20. 20

21. 21

22. 22

23. 23

24. 24 Figure 1. Scatter Plots between Lobbying Expenditures and Campaign Contributions from PACs

25. 25 Figure 2: Union membership rates and labor lobbying contributions

26. 26

27. 27

28. 28 Figure 5: Lobbying expenditures for immigration and the number of visas

29. 29 Figure 6: Union membership rates and the number of visas

30. 30 Figure A3: Lobbying expenditures for immigration and the number of H1B visas

31. 31 Figure A4: Union membership rates and the number of H1B visas

32. 32 Empirical specification The empirical specification of the model is: iiiLiKi XUEM ,,. According to the theoretical model, we expect to find: 0 and 0 . We use data which is averaged over the years between 2001 and 2005, i.e. we only exploit the cross-sector variation in the data. Indeed, most of the variation in the data is across sectors, rather than over time. Based on the decomposition of the variance into between and within components, we find that 97.4% of the variation in log(visas) is across industries.

33. 33 Empirical specification (cont.) The two key explanatory variables of our empirical analysis are log(lobbying exp/native workers), which measures the extent of political organization of capital and union membership rate, which measures the extent of political organization of labor. Thus, our measure of lobbying expenditures by workers is only indirect. The rationale behind the indirect measure is that, in sectors where the union membership rate is higher, the free-rider problem associated with lobbying is less pronounced. That is, in those sectors there exist fewer non-union members (free-riders) who benefit from policies brought about by the lobbying activity and, thus, the lobbying expenditures by labor associations tend to be higher.

34. 34

35. 35 Endogeneity & reverse causality concerns Direction of bias – lobbying expenditures oSectors with higher number of immigrants are close to their optimal level, thus have less incentive to invest in lobbying. oSectors with higher number of immigrants need to lobby more – to obtain access of immigrant workers and their children to health, education, etc. Direction of bias – union membership rates oHigher number of immigrants increases threat to native workers and raises their incentive to join unions. oHigher number of immigrants reduces bargaining power of unions and lowers natives’ incentive to join unions.

36. 36 Instrumental variables strategy The first IV for lobbying expenditures on immigration is: the sum in a sector of the lobbying expenditures by firms which do not list immigration as an issue in the lobbying report: o Plausible to assume that these are not directly related to immigration policy (exclusion restriction). o Common industry-level variables driving lobbying expenditures on immigration and on any other issue (first stage).

37. 37 Instrumental variables strategy (cont.) The IV for union membership rates is: union membership rates in the UK: oEvidence that union membership rates across sectors are correlated across countries (first stage) oUnion membership rates in the UK should not be directly related to immigration policy in the US (exclusion restriction).

38. 38 Instrumental variables strategy Since there is no “natural experiment” we can take advantage of, we carry out a series of robustness checks using as additional instruments to exploit plausbily exogenous sources of variations in politics across US states: o lobbying expenditure: senior membership of a state congressman in the House/Senate judiciary subcommittee on immigration, and a measure corruption culture (from Glaeser and Saks 2006) o union membership: strength of party organization at the state level in the 50s and 60s (from Mayhew 1986), union membership by state.

39. 39

40. 40

41. 41

42. 42

43. 43 Conclusions Systematic empirical evidence on the political economy of migration policy is scarce in the economics literature. To the best of our knowledge we are the first to empirically investigate the role played by interest groups politics in shaping migration policy. Main result – barriers to migration are higher in sectors where labor unions are more important, and lower in those sectors in which business lobbies are more active. Results are robust to introducing various industry-level controls and using an IV strategy.