Should countries auction immigrant visas? Updated

How visa auctions would work

Visa auctions would allocate a specified number of visas to the highest bidders. The number of visas could be determined by the government or by an independent commission. Visa auctions could take several different forms. Potential immigrants themselves could bid for visas, or employers could bid for permits that allow them to hire foreign workers, who would then receive visas. Visas and permits could be temporary or permanent; even the right to citizenship could, in theory, be auctioned. Separate auctions could be held for different categories of immigrants, such as for different education or skill groups or for year-round versus seasonal workers [1].

There are multiple ways to conduct an auction. A sealed-bid, single-price format might be the best option for a visa auction. Bidders would submit secret bids, and visas or permits would then be allocated from highest to lowest bid until the quota has been met. Winners would pay the price of the lowest accepted bid. In economics, this type of auction is often called a “Vickrey auction.” This structure would help reduce concerns about the so-called “winner's curse,” or paying too much. It would also make more people or firms willing to participate in the auction and bid their true willingness to pay.

There is considerable precedent in other markets for government auctions. Governments regularly auction bonds to investors in order to fund deficits. The US Treasury uses a sealed-bid, single-price format to sell trillions of dollars of debt. The US government has also auctioned offshore oil leases, the wireless spectrum, and sulfur dioxide allowances, among others. The EU auctions emissions permits as part of the EU Emissions Trading System; Iceland, Liechtenstein, and Norway also auction emissions permits. Many people have experience with auctions thanks to eBay.

Paying for visas and setting up resale markets

One concern about auctioning visas directly to immigrants is their ability to pay. Many potential immigrants whose income gains would be expected to exceed the price of a visa might be unable to pay upfront for a visa, and they might not be able to borrow enough to pay for a visa because of limited credit markets in their home country. Auctioning permits to employers would avoid this concern. Alternatively, the government could offer loans to auction winners, who might be required to make a down payment. Winners would then repay the loans over time, perhaps as part of their income taxes or on an income-contingent basis.

Having a resale market is critical to the success of visa auctions, particularly if permits to hire foreign workers are auctioned to employers. The government could run an electronic resale, or secondary, market where employers who hold valid permits can post them for sale [2]. Tradable permits would make employers more willing to participate in auctions by reducing their risk of holding a permit they no longer want. A resale market would also allow employers to buy a permit later if they did not bid high enough in an auction or did not participate in an auction at all but later want to hire a foreign worker. Small businesses, in particular, might find a resale market more accessible than an auction.

Portability of visas

Visa portability—the ability of foreign workers to switch employers—is also critical to the success of an auction system. Foreign workers who cannot switch employers are more vulnerable to being exploited, and they have limited bargaining power. This, in turn, may put downward pressure on wages and working conditions not only for foreign workers but for competing native-born workers as well. Visa portability also allows foreign workers to move to sectors or areas with stronger demand for labor. Such movement reduces bottlenecks and promotes economic efficiency and growth. New immigrants are an important source of “grease in the wheels of the labor market,” and immigrants’ willingness to go where the jobs are is a key source of the economic gains from immigration [3].

A system that auctions visas directly to immigrants would presumably allow them to choose whether and for whom to work in the destination country [1], while a system that auctions tradable permits to employers should give foreign workers the flexibility to move across permit-holding employers. However, auctioning visas directly to immigrants might not help alleviate labor market shortages since auction winners might not have the skills that labor-seeking employers want. If employers bid for permits that allow them to hire a foreign worker, they presumably would bring in immigrants with skills that are in short supply among the domestic workforce.

Pathway to permanent visas

A government that opts to auction temporary work permits to employers could include a pathway toward permanent visas for immigrants who succeed in the labor market. The government could hold a separate auction that immigrants with a temporary visa could enter after a set number of years, or permanent visas could be automatically offered to temporary visa holders who meet certain conditions, such as being employed on a temporary visa for five or ten years. Immigrants with permanent visas would not be restricted to working for employers who have a permit to hire a foreign worker. Creating a pathway toward permanent residence for immigrants can help avoid creating a persistent underclass of workers who are vulnerable to exploitation by employers who threaten to not renew a worker's temporary visa.

Enforcement

A final key component of a visa auction system is enforcement. If immigrants can easily enter a country or work there without a visa, there is little reason for them to pay for a visa or for their employers to pay for a permit. Effective enforcement might encompass border security and internal enforcement, depending on the country. Worksite enforcement that ensures that workers are eligible to work in a country is one component of internal enforcement. Worksite enforcement tools include audits of employers’ records, electronic verification of workers’ employment eligibility, raids, deportations of unauthorized workers, and punishment of employers who violate the law.

Other considerations

Although visa auctions may seem like a radical departure from current immigration policies in most countries, many immigrants or their employers already pay a fee. For example, as of mid-2022, the fees for an employment-based permanent resident visa in the US charged by the federal government totalled over US$1,700; Canada's Express Entry system for an employment-based permanent visa costs C$1,365; and Australia charges at least A$4,240 for its skilled independent visa class.

Some current immigration systems also involve fees that are not paid to the government. Many immigrants or their employers hire a lawyer or consultant to guide them through complex immigration program requirements. Potential immigrants abroad often pay an agent to help them secure a work-based visa. Visa auctions would capture some of the funds that legal immigrants and their employers currently pay to lawyers, consultants, and agents.

At the same time, many people who are migrating illegally pay large fees to smugglers or bribes to border guards. The government could potentially capture some of these funds and reduce the risks of unauthorized immigration by allowing migrants who pay a fee to migrate legally instead of illegally. Most unauthorized immigrants would probably be willing to pay more in order to migrate legally if they could; illegal immigration is largely a consequence of limits on the number and type of visas available [4]. Since an auction system would still limit the number and type of visas available, it must be combined with enforcement, particularly regarding employing illegal workers, in order to minimize unauthorized immigration [5]. An ancillary benefit of visa auctions combined with tougher enforcement would be a reduction in smuggling activity, which often involves criminal syndicates [6].

Across the globe, the desire to emigrate far outstrips the actual emigration rate—millions of people are willing to pay considerable sums of money in order to move. Even at current fees, there is excess demand for visas to immigrate to certain countries, as evidenced by the millions of people mired in lengthy US immigrant visa backlogs. Under an auction system, there would be no backlogs, or excess demand. The price would adjust to clear the market, moving up automatically when demand for visas rises, and down when demand falls.

Economic advantages of auctions

Auctions offer several advantages over current immigration policies. Most important, auctions have the potential to allocate visas to their highest-valued use [7]. When there is a limit on the number of visas and they are issued on a first-come, first-served basis, visas are awarded to whoever is first in line regardless of whether that person—or the person's employer—values a visa more than other potential immigrants or employers do. Visa auctions, in contrast, use market forces to allocate visas efficiently based on willingness to pay. Employment-based auctions are an “invisible hand” directing the admission of immigrants with the skills valued the most in the labor market—the immigrants with the highest productivity. Auctions to employers are particularly advantageous since employers are in the best position to evaluate potential immigrants’ productivity. Employers typically also have the best information about the relative costs and benefits of, in effect, importing a foreign worker instead of hiring a domestic worker, automating, or offshoring a job [8].

It is difficult for governments to estimate the number of workers needed in specific occupations in the face of changing labor market demand. Auctions of employment-based visas eliminate the need for the government to try to determine which occupations are in highest demand or are experiencing a shortage of workers. Immigrants who work in those occupations or their employers should be willing to pay the most for visas. In addition, auctions would reveal information to policymakers about bottlenecks in the labor market—situations where labor supply does not meet demand. Policymakers could use this information to design education or training programs to alleviate bottlenecks in the long term, while allowing immigration to alleviate them in the short term. Alleviating bottlenecks would boost economic growth.

In theory, the government could simply set a higher price for visas instead of holding an auction and award however many visas are demanded at that price. This could also lead to an efficient allocation of visas. However, the government is unlikely to know the demand for visas, which changes over time, and hence is unlikely to know the optimal price. Auctions would reveal this price and allow it to fluctuate. Further, changes in visa prices, either at auction or in the resale market, would provide a useful market-based signal to the government of changes in the demand for visas. An increase in prices would indicate an increase in demand for visas. The government might then want to increase the number of visas available. Otherwise, it would risk incurring more unauthorized immigration or worker shortages and bottlenecks to economic growth. If the government wants to reduce the number of foreign workers during an economic downturn, it could decrease the number of visas available at auction and even buy back visas in the resale market. However, a government that tries to manipulate the number of visas in response to the business cycle must do so nimbly and adeptly. Otherwise, changes in the number of visas may kick in just as the business cycle enters another phase.

Auctions have the potential to generate considerably more revenue than governments currently receive for visas. The gains to immigration are substantial, suggesting that many immigrants or their employers would be willing to pay large sums for visas or permits. Low-skilled workers can earn ten times as much in the US as in Egypt, Haiti, Nigeria, or Yemen; workers from Mexico can earn at least 2.5 times as much [9]. In 2000, low-skilled Mexican men earned an average of US$10,000 more annually in the US than in Mexico [10]. In 2009, Indian computer programmers working in the US on temporary visas earned about US$58,000 more annually than they would have earned at the same job in India [11]. Visa auctions would transfer some of these gains from immigrants (and their employers) to the government.

The revenue raised by visa auctions can alleviate some of the concerns of opponents of immigration. The funds could be used to pay for training classes for native-born workers who work in immigrant-intensive sectors or areas. They could also be used to offset costs incurred in areas that receive large numbers of immigrants, such as the costs of educating their children or providing publicly funded health care or other services to immigrants. Alternatively, the government could cut taxes commensurate with the increase in revenue from visa auctions.

Visa auctions also help address concerns that immigration drives down wages and employment among native-born workers. By raising the price of hiring foreign-born workers, auctions increase employers’ incentive to hire native-born workers.

Concerns about visa auctions

Although auctions should admit immigrants with the greatest willingness to pay for a visa, auctions do not guarantee that the number of immigrants admitted will be optimal. Auctions should result in the efficient allocation of a given number of visas, but the government still must set the number of visas. However, current immigration policies also require the government to set the number of visas. One benefit of an auction system over current policies is that the government can use visa prices as a signal of when it should change the number of visas.

Auctions of employment-based visas should admit the workers who are the most highly valued in the labor market at the time of the auction, but those workers may not be the most highly valued in the future. For example, computer programmers or their employers might be willing to pay the most for visas during an information technology boom, but those workers might become unemployed during an information technology bust. Governments might want to auction only temporary visas, not permanent ones. However, the same concern applies to other schemes used to admit immigrants; the skills in demand today may not be in demand in the future.

Of even greater concern is the fact that an auction system does not necessarily admit the immigrants who contribute the most to long-term economic growth. For example, an auction system might result in lots of investment bankers, but long-term economic growth might be higher if the country instead admitted lots of scientists and engineers. Relatedly, a market-based system like visa auctions ignores any positive—or negative—externalities associated with immigrants. For example, discoveries made by immigrant scientists might boost patent activity in other companies. Employers are willing to pay for visas based on the value of contributions to their own companies, but are unlikely to be willing to pay for the value of positive spillovers to other companies. Alternatively, a system that auctions visas directly to individuals might result in many visas going to wealthy retirees, who do not contribute to the labor force at all but who make considerable demands on publicly funded health care.

An auction system might lead to a decline in the number of workers in relatively low-paying fields. Separate auctions could be created for certain categories of workers to ensure that low-skilled workers are able to immigrate, but the workers with the skills most in demand within those categories would still be the ones with the greatest willingness to pay for a visa. There is no obvious optimal set or number of categories for which to run visa auctions. Indeed, creating categories voids the simplicity and market-based nature of a visa auction scheme.

A deeper objection to visa auctions is that they are unfair—that the right to immigrate should not be decided solely on economic grounds. Immigrants may contribute to a country's diversity and its culture in ways that are not valued by markets. In particular, markets do not value family ties to people already living in a country. Being able to sponsor relatives to immigrate may be important to a country's residents, particularly those who themselves immigrated to the country. Likewise, an auction system does not admit immigrants on the basis of humanitarian considerations. Concerns that an auction system unfairly places economic considerations ahead of family ties or valid asylum claims may make it politically untenable, or at least deeply unpopular. Australia's Productivity Commission floated the idea of auctioning all non-humanitarian visas in 2015 but abandoned the concept because of concerns about possible decreases in migrant skill levels and changes in origin countries, and that it would amount to selling citizenship. The UK's Migration Advisory Committee proposed in 2014 to auction a small number of premium route investor visas each year. The UK instead doubled the minimum fee for investor visas, and later closed that tier.

An immigration scheme that loses popularity might lead to backlash against immigrants or force the government to reduce the number of visas available. It is worth considering, however, that immigration policies that admit people on the basis of family ties or being first in line could also be considered unfair by people without family ties or not near the front of a line.

Finally, visa auctions might adversely affect sending countries if the auctions lead to changes in the composition of immigrants. Visa auctions could lead to more “brain drain” if they result in more high-skilled people leaving a country than current policies do. Visa auctions also could lead to a decrease in a sending country's capital if visas are auctioned directly to immigrants. Potential adverse consequences include higher interest rates, less innovation, lower tax revenues, and slower economic growth. On the other hand, allowing more high-skilled people to immigrate could boost remittances and the transfer of ideas and technology to sending countries. Which effect predominates is not clear a priori.

How other innovative models compare with visa auctions

Although no country has yet auctioned visas, there are several other innovative ways that countries currently allocate visas. These include point systems, visa lotteries, and investor visa programs.

Several countries use point systems to allocate certain classes of visas, particularly for economic immigrants. Applicants earn points based on specified characteristics, such as age, education, occupation, language ability, and having a job offer. Australia, Canada, and New Zealand have had point systems for a long time, while several other countries (including the Czech Republic, Denmark, Japan, Singapore, Sweden, and the UK) have recently experimented with point systems.

An auction system has several advantages over a point system. A point system requires determining the relative importance of potential migrants’ various attributes—policymakers must decide how to award points. But points cannot be awarded for attributes that cannot be observed or quantified. An auction system does not require such decisions; immigrants (or employers) who are willing to pay the most are admitted. A point system does not ensure that immigrants will have the characteristics that are valued most by employers. Denmark repealed its point system after observing that highly educated immigrants fared poorly there. A system that auctions permits to employers can avoid this. A point system that includes a limit on the number of visas available can result in considerable backlogs if the number of people who meet the point threshold exceeds the number of visas available; an auction system clears the market.

A few countries use a lottery to allocate some types of visas. The US currently uses a lottery to allocate up to 55,000 permanent resident visas (“green cards”) per year through its diversity visa program for immigrants from countries that send relatively few immigrants to the US. New Zealand runs a lottery, or ballot, called the Pacific Access Category, that admits a small number of immigrants from several Pacific Island nations. In both the US and New Zealand, immigration authorities use a lottery because the programs are oversubscribed—far more applications are submitted than the number of visas available. The US also uses a lottery to allocate H-1B and H-2B temporary foreign worker visas in years when more applications are received the first week than are available for the entire fiscal year (half-year for H-2B visas). Otherwise, the visas are allocated on a first-come, first-served basis until the cap is reached. Bangladesh has run a lottery to allocate slots for temporary low-skilled jobs on palm oil plantations in Malaysia. Liechtenstein has an annual lottery for residence permits among applicants from the European Economic Area who are employed by a company in Liechtenstein; despite this requirement, the lottery attracts new workers.

Awarding visas via a lottery creates a perception of fairness, but it does not allocate visas to their highest-valued users. In addition, lotteries may encourage people to try to game the system. In the US, for example, some companies submit far more applications for foreign workers than they need, and some workers have multiple H-1B visa applications submitted on their behalf.

Several countries have programs that award visas to people who invest a certain amount in that country. In the US, for example, the EB-5 investor visa program allocates up to about 10,000 permanent resident visas annually to people who invest at least US$1.05 million in the US or invest at least US$800,000 in a targeted high-unemployment or rural area or in an infrastructure project. Portugal and Greece are among the EU countries that offer resident visas in exchange for a specified minimum investment. A few countries, such as the Caribbean nation Saint Kitts and Nevis, even offer citizenship upfront to investors who meet certain requirements. The existence of these programs suggests that some countries might be open to auctioning visas. However, Canada scrapped its federal investor visa program in 2014 despite a considerable backlog of applicants because of its unpopularity with many Canadians, who complained that too many of the immigrants were wealthy Chinese investors who bid up housing prices in big cities. (The Canadian province of Quebec still has its investor visa program.) The UK scrapped its Tier 1 investor visa program, which required investing at least £2 million, in 2022 because of concerns it enabled corrupt elites access to UK visas. Cyprus and Malta have come under EU pressure to end their “golden passport” programs because of similar concerns.

The key advantage of auctions over existing investor visa programs is that investors may be willing to pay more for a visa than governments are currently charging. Well-designed auctions reveal prospective immigrants’ willingness to pay. However, the high prices likely to result from auctions aimed at investors would preclude most people or employers from being able to afford a visa. Another advantage of auctions is that they may avoid concerns about fraud that plague some investor visa programs. However, auctions would still be open to concerns about corrupt elites participating in them. Such concerns could be assuaged by requiring due diligence of people's backgrounds before issuing visas.

Another variant is allowing native-born workers to auction off work permits—their right to work, in effect—to foreign workers [12]. A scheme like that would directly compensate native-born workers, and the least well-off natives should gain the most from it. Another advantage is that market forces would determine both quantity and price. However, natives are unlikely to consider externalities when deciding whether to auction off their own work permit, leading to too few or too many immigrant workers.

In addition to visa auctions, economists have suggested creating tradable immigration quotas for refugees or other groups of migrants [13]. Assigning countries the number of humanitarian immigrants they must accept and at the same time allowing countries to buy or sell those quotas via electronic auctions could increase global welfare. Under such a scheme, higher-income countries with high anti-immigrant sentiment would pay lower-income countries with low anti-immigrant sentiment to accept more immigrants. Such proposals do not include direct auctions of visas to refugees and other humanitarian immigrants; visa auctions would be aimed primarily at employment-based immigrants.