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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
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Efficient U.S. Total Surplus Efficient Domestic Employer Surplus
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Efficient Domestic Worker Surplus
AEWRBAS_
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QEFFICIENT _U

Labor Figure 3: Under the efficient competitive equilibrium with no AEWR, assuming domestic and foreign labor are perfect substitutes and foreign labor is infinitely supplied at wage W FOREIGN, U.S. employers will hire QcE_TOTAL number of workers at the labor market competitive equilibrium wage rate WFOREIGN below the equilibrium wage rate Wus.oNLY ifno foreign workers were allowed. With a large supply of foreign workers willing to work at WFoREIGN, U.S. employers will not need to raise the wage rate any further to attract more workers. The number of U.S. workers willing to work at that wage rate is QcE_us, This results in the Efficient Domestic Worker Surplus, the Efficient Domestic Employer Surplus, and the Efficient U.S. Total Surplus. Because any change in quantity oflabor would decrease total surplus, total surplus is maximized and DWL is zero.

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employer surplus falls. At the higher wage, the number of domestic workers willing and hired to work increases from QEFFICIENT_US to QAEWR_US, increasing domestic worker surplus.
Total surplus falls, generating DWL, because the increase in domestic worker surplus is only a fraction of the decrease in domestic employer surplus. Figure 4
depicts U.S. DWL as the amount that the decrease in domestic employer surplus
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exceeds the increase in domestic worker surplus. Global DWL is smaller than this if we consider the welfare impacts to foreign workers from increasing their wages. Increasing the AEWR under the proposed rule will extend all these impacts; that is, increase DWL, decrease domestic employer surplus, and increase domestic worker surplus.

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Setting an AEWR above the competitive labor market equilibrium wage creates a DWL. Working from the same assumptions as Figure 3, Figure 4
illustrates that setting AEWRBASE above the competitive equilibrium wage WFOREIGN reduces the total number of workers employers are willing to hire from QEFFICIENT_TOTAL to QAEWR_TOTAL.
Because employers now hire fewer workers at a higher wage rate, domestic