In the Immigration Act of 1990, Congress established the H-1B visa program, intended to allow U.S. firms to hire foreign workers in areas such as the physical sciences, computer programing, and engineering. John Bound and Nicolas Morales of the University of Michigan and Gaurav Khanna of the University of California, San Diego, studied the effects of the H-1B program on the market for computer science (CS) workers in the United States in the years from 1994 to 2001, during which the Internet first became important for the operations of U.S. firms. They found that the visa program may have had effects on labor demand in two ways: (1) if immigrant CS workers were responsible for innovations, such as improving the functioning of Web sites, that required more CS workers to be hired, and (2) if U.S. firms hiring immigrant CS workers reduced the likelihood that the firms would have hired foreign technology firms to carry out CS work. They noted, “If computer scientists are a sufficient spur to innovation, or if domestic employers can readily offshore CS work, any negative effects that an increase in the number of foreign CS workers might have on the domestic high-skill workforce would be offset by increases in the domestic demand for computer scientists.”

a. Draw a demand and supply graph of the market for CS workers in the United States to illustrate the authors’ argument. Be sure to indicate on your graph any effects of the H-1B visa program on the demand and supply curves.

b. The authors estimate that the H-1B visa program resulted in a reduction of about 4 percent in the wages U.S. CS workers would otherwise have received. Does this conclusion allow you to determine whether the program had a greater effect on labor demand or on labor supply? Briefly explain.