If employers bid for the permits themselves, there'd be a large fixed-cost component to employing an H1B, but then no incentive (indeed, an extra disincentive, since the company had to shell out to get them to the U.S.) to pay them well afterwards. And since H1Bs are sponsored by their employer, they have limited job mobility and can't just go work for a competitor, particularly since the competitor would then have to shell out even more money to win the auction for the visa. That'll put downward pressure on immigrant salaries, which in turn will put downward pressure on American salaries for workers who do the same job, as employers could substitute a one-time fixed cost to "lock in" an H1B rather than paying prevailing market wages.