THE CONTRIBUTIONS
TO AMERICA
OF SKILLED
IMMIGRANT
WORKERS
PROFESSOR MATTHEW J. SLAUGHTER
OCTOBER 2016
ABOUT THE
AUTHOR
PROFESSOR MATTHEW J. SLAUGHTER
Head, ACAlliance Academic Advisory Board
Matthew J. Slaughter is the Paul Danos Dean of the Tuck School and the Earl C. Daum 1924 Professor
of International Business. He is also the founding Faculty Director of the Center for Global Business
and Government. In addition, he is currently a Research Associate at the National Bureau of Economic
Research; an adjunct Senior Fellow at the Council on Foreign Relations; a member of the advisory
committee of the Export-Import Bank of the United States, a member of the academic advisory board of
the International Tax Policy Forum; and an academic advisor to the McKinsey Global Institute.
From 2005 to 2007, Dean Slaughter served as a Member on the Council of Economic Advisers in the
Executive Office of the President. In this Senate-confirmed position he held the international portfolio,
advising the President, the Cabinet, and many others on issues including international trade and
investment, currency and energy markets, and the competitiveness of the U.S. economy. He has also
been affiliated with organizations including the Federal Reserve Board, the International Monetary Fund,
the World Bank, the Congressional Budget Office, and the National Academy of Sciences.
SUPPORT FOR THIS RESEARCH WAS PROVIDED BY THE ACALLIANCE. THE VIEWS EXPRESSED IN THIS REPORT ARE THOSE OF THE AUTHOR.
© 2016 MATTHEW J. SLAUGHTER
EXECUTIVE
SUMMARY
THIS WHITE PAPER EXAMINES THE ECONOMIC PRINCIPLES,
EMPIRICAL EVIDENCE, AND PUBLIC POLICIES REGARDING THE
BENEFITS TO THE U.S. ECONOMY GENERATED BY SKILLED
IMMIGRANT WORKERS.
The key message is that skilled immigrants have long made substantial contributions to the American
economy—most notably through innovation and productivity growth, both at the highest levels and
throughout the economy at all stages of discovering and developing new ideas—that creates new ideas,
new companies, new jobs, and higher wages throughout the U.S. economy. The innovation and dynamism
that high-skilled immigrations bring fuel business success in America. Skilled immigrants contribute to new
jobs and rising wages in America by contributing to American innovation.
America has long needed skilled workers—be they skilled immigrants or native-born Americans—to drive
the innovation at the foundation of growth in output, jobs, incomes, and opportunity. In recent years many
companies, scholars, and policy makers have voiced growing concern that America increasingly faces an
insufficient supply of talented workers necessary to create and drive the new possibilities of information
technology (IT) and other frontiers.1
Skilled immigrants create new jobs for native-born Americans: through the companies they create, in
the companies that hire them, and more broadly throughout America. For example, companies that hire
more skilled immigrants tend to hire more native-born workers, too. Skilled immigrants also tend to boost
the wages of native-born Americans. America overall is today suffering through a dramatic slowdown in
productivity growth that has restrained growth in incomes and thereby clouded America’s economic future.
2015 U.S. real median household income was $56,516. This has grown by an average of only about 0.2% a
year since 1989, and this remained 2.4% below the level first reached 16 years earlier, in 1999.2 Expanding
skilled immigration into America would help brighten the economic future of all American workers and their
families.
SKILLED
IMMIGRANTS
INNOVATION AND PRODUCTIVITY GROWTH DRIVE AMERICA’S
STANDARD OF LIVING
There are two important economic-policy issues on which economists are nearly unanimous. One is that
productivity is the single best indicator of the average standard of living of a country. The other is that
economic openness—to cross-border flows of goods and services, of capital, and of people and ideas—
raises the productivity and thus average living standards of a country.
To gauge the average standard of living of a country’s citizens, the single most important indicator of wellbeing is productivity: the average value of output of goods and services a country produces (standardly
measured as gross domestic product, GDP) per worker.3 The more
and better quality goods and services people produce—that is, the SKILLED IMMIGRANTS CREATE
more productive they are—the more income they receive and the NEW IDEAS, NEW COMPANIES,
higher standard of living they can achieve.
NEW JOBS, AND HIGHER
WAGES THROUGHOUT THE U.S.
Since the founding of the American republic, innovation has played ECONOMY
a central role in driving growth in U.S. productivity, output, jobs, and
income. This central economic force of knowledge discovery and
development has been widely established by academic and policy research in recent decades, and it is
widely recognized by leaders in business, in government, and beyond. For example, here is an opening
statement of a recent White House report on innovation.
The history of the American economy is one of enormous progress associated with remarkable
innovation … Innovation—the process by which individuals and organizations generate new
ideas and put them into practice—is the foundation of American economic growth and national
competitiveness. Economic growth in advanced countries like the United States is driven by the
creation of new and better ways of producing goods and services, a process that triggers new
and productive investments.4
11
Here is a similar statement on the centrality of innovation to America’s economic growth and overall success
from a recent landmark study by the U.S. Department of Commerce that focused on a subset of innovation:
patents, copyrights, and trademarks, or “intellectual property.”
Innovation, the process through which new ideas are generated and put into commercial
practice, is a key force behind U.S. economic growth and national competitiveness … Innovation
protected by intellectual property rights is key to creating new jobs and new exports. Innovation
has a positive pervasive effect on the entire economy, and its benefits flow both upstream and
downstream to every sector of the U.S. economy. Intellectual property is not just the final product
of workers and companies—every job in some way, produces, supplies, consumes, or relies on
innovation, creativity, and commercial distinctiveness.5
And America’s recognition of the vitality of innovation has spanned many years and all political persuasions.
Here is the opening of a 2004 White House report on emerging technologies.
America’s economy leads the world because our system of private enterprise rewards innovation.
Entrepreneurs, scientists, and skilled workers create and apply the technologies that are changing
our world … government must work to help create a new generation of American innovation and
an atmosphere where innovation thrives.6
A large body of academic and policy research has found that the overwhelming majority of America’s
growth in productivity and living standards over the 20th century was driven by innovation and the resulting
technological advances of new products and processes.
Robert Solow, in seminal work that ended up being a major reason for him winning the Nobel Prize in
economics, calculated that the very large majority of U.S. growth during the first half of the 20th century was
driven by innovation and technological progress. Of the rise in real GDP per person-hour in the United States
from 1909 to 1949, he concluded that “It is possible to argue that about one-eighth of the total increase
is traceable to increased capital per man hour, and the remaining seven-eighths to technical change.”7
Looking at the second half of the 20th century, an authoritative study found that for growth in U.S. per capita
GDP from 1950 to 1993, 80% was accounted for by greater discovery and development of innovative ideas
fostered by the combination of rising educational attainment and rising research and development (R&D)
effort.8
22
Globalization and economic openness support innovation and productivity in a number of important ways.
With globalization, savings by the world’s households, firms, and governments can be deployed to productive
investment opportunities literally around the globe, not just at home. With globalization, ideas that improve
technology can move across borders through many different channels to yield greater returns. And with
globalization, a country can concentrate people and capital in certain activities to which it is well suited
compared to the rest of the world—activities in which a country holds a comparative-advantage, in the
lexicon of economics—in exchange for imports of different bundles of goods and services.
The many synergies between global engagement and productivity are manifest at the level of individual
companies and industries at the heart of market economies. There is now a large body of evidence for
many countries documenting a robust correlation at the company level between productivity and global
engagement: firms that export or, even more so, are part of a multinational enterprise tend to perform better
than their purely domestic counterparts.9
Substantial research has found that innovation matters because the social benefits of knowledge often
exceed its private benefits; in the jargon of economics, discovery of ideas generates “positive externalities”
through several channels (such as worker mobility, and the more-general property that ideas, different from
other goods and services, are easily shared). A number of studies have found that the social return to R&D
exceeds the private return by at least double.10
The central message here is that growth in American jobs, incomes, and opportunity ultimately springs from
innovation and productivity. In turn, companies tend to be more productive when they are globally engaged
through the dynamism of international trade, investment, and high-skilled immigration.
Yet attentive leaders in government and business continue to fret over BOOSTING PRODUCTIVITY
what is probably America’s biggest policy challenge today: sluggish SHOULD BE AMONG THE
productivity growth. At the time of writing in early fall 2016, labor HIGHEST POLICY GOALS FOR
productivity in the U.S. non-farm business sector has actually fallen for AMERICA TODAY
three straight quarters, the longest such slide since the 1970s. From
2011 through 2015 it grew at an annual average of only about 0.6%—the worst such five-year stretch since
at least 1947, when these data were first collected. At that meager rate, average U.S. living standards would
take 116 years to double. Boosting productivity should be among the highest policy goals for America today.
33
SKILLED IMMIGRANTS HAVE LONG HELPED DRIVE U.S.
INNOVATION AND PRODUCTIVITY
What factors account for America’s long-standing innovation strength? Many scholars and leaders have
identified a constellation of factors working together across a number of areas including laws and regulations,
capital markets, and labor markets.11
Perhaps most fundamental for innovation success, however, is MOST FUNDAMENTAL FOR
the supply of talent: the highly skilled knowledge workers who INNOVATION SUCCESS IS THE
discover and develop the new ideas at the heart of innovation. And SUPPLY OF TALENT
among these talented workers, most critical for many innovations
are workers in science, technology, engineering, and mathematics (STEM). One reason for this is that
STEM workers conduct the basic research that inspires applied product and process innovations. In many
parts of the U.S. economy, innovations that ultimately end up in goods and services begin in the STEM
research laboratory. Research on innovation consistently shows this integral role for STEM. Relative to
college graduates in other fields, STEM graduates are twice as likely to produce a patent and more likely still
to have produced a patent that is licensed or commercialized. They are also more likely to launch startup
enterprises in technology fields.12
How does the U.S. economy create talent? A vital way that it does so is through education. But another
vital way it has long done so is through immigration. The contribution of immigrants to American talent
and creativity has perhaps been most visible at the pinnacles of success. Among the truly outstanding in
a number of fields such as academics, the arts, and athletics, immigrants are significantly overrepresented
when compared to their presence in the overall U.S. population or labor force. Today, immigrants account
for about 13% of U.S. residents and 17% of total U.S. employment. Yet, immigrants account for higher—
often much higher—shares of America’s most accomplished individuals. Consider their presence among
America’s highest achievers as reported in a recent 2013 study.13
• Nobel Laureates: “Since 1901, the Nobel Prize has been awarded to men and women from all corners
of the globe for outstanding achievements in physics, chemistry, physiology or medicine, literature, and
for work in peace.”14 Since 1980, immigrants have been 27% of U.S.-resident Nobel Prize winners in
chemistry, medicine, and physics.
• Members of the U.S. National Academy of Sciences: “Members are elected to the National Academy
of Sciences in recognition of their distinguished and continuing achievements in original research.
Membership is a widely accepted mark of excellence in science and is considered one of the highest
honors that a scientist can receive.”15 U.S. immigrants constitute 29% of current NAS members in
applied mathematics, 21% in biochemistry, 37% in engineering sciences, and 36% in mathematics.
44
• Top-Ranked STEM Departments in U.S. Universities: In nearly all STEM fields, the three top-ranked
departments (in terms of quality of faculty and overall research impact) are consistently the Massachusetts
Institute of Technology, Stanford University, and the University of California, Berkeley. Across these three
universities, foreign-born academics account for 24% of the faculty in mathematics, 30% of the faculty
in computer science, 39% of the faculty in physics, and 44% of the faculty in electrical engineering.
• Gold Medals from the American Academy of Arts and Letters: Each year since 1950, this Academy
awards two gold medals “for distinguished achievement in several different categories of the arts” in
rotating categories that include “Belles Lettres and Criticism, and Painting; Biography and Music; Fiction
and Sculpture; History and Architecture, including Landscape Architecture; Poetry and Music; and
Drama and Graphic Art.”16 Since 1950, foreign-born artists have won 21% of these gold medals.
• MacArthur Genius Awards: “The MacArthur Fellows Program awards unrestricted fellowships to talented
individuals who have shown extraordinary originality and dedication in their creative pursuits and a marked
capacity for self-direction.”17 Since 2000, 25% of MacArthur Fellows have been U.S. immigrants.
• Professional Sports: In recent decades, most premier professional sport leagues in America have become
far more global in terms of hiring top athletes from around the world. In Major League Baseball, 28% of
players during the 2012 season were foreign born. In the National Basketball Association, a sport long
dominated by athletes born in America, 19% of all players in the 2012-2013 season were immigrants. On
the PGA Tour, among top-ranked golfers in 2013 who reside in the United States, 27% were immigrants.
And in the National Hockey League, 34% of all players in the 2012-2013 season were born outside
Canada or the United States.18
These highly talented immigrants have benefitted all of America in many important ways. Their discoveries and
inventions have saved lives. Their teaching has broadened and inspired minds. Their artistic performances
have touched hearts. Their on-the-field feats have thrilled families. And, through many channels discussed
below, their world-class talents have created new industries, new companies, new jobs, and new opportunities.
Equally significant for the U.S. economy are the less-visible contributions of talented immigrant workers all
along the innovation production chain. Throughout America’s innovation ecosystem, immigrants have long
contributed to the discovery and development of new ideas. Research spanning many generations and
many empirical approaches has repeatedly documented this broader contribution of immigrants along a
number of dimensions of innovation.
In business, immigrants tend to be more innovative than U.S.-born Americans on indicators such as launching
new companies—especially in high-innovation industries—and patenting.
55
One recent study found that 25% of all U.S. high-technology firms IMMIGRANTS OR THEIR
established between 1995 and 2005 had at least one foreign-born CHILDREN FOUNDED 40% OF
founder. In 2005, these new companies employed 450,000 people FORTUNE 500 COMPANIES,
and generated more than $50 billion in sales.19 A more-recent INCLUDING SEVEN OF THE 10
study found that immigrants again accounted for 25% of all new MOST VALUABLE BRANDS IN THE
high-technology companies over the period 2006 through 2012, WORLD
accounting for $63 billion in sales.20 Looking over a longer horizon,
immigrants or their children founded 40% of Fortune 500 companies, including firms behind seven of the
10 most valuable brands in the world.21 And looking at all new businesses across all industries, one recent
study found immigrants are 30% more likely to form new businesses than are U.S.-born citizens.22 All
these statistics can be seen in companies that touch almost all Americans every day: Indra Nooyi (India)
of PepsiCo, Sergey Brin (Russia) of Google/Alphabet, Satya Nadella (India) of Microsoft, Pierre Omidyar
(France) of eBay, Mike Krieger (Brazil) of Instagram, and so on.23
What about creating new ideas, products, and processes—in new and old businesses alike? Immigrants
with advanced degrees are three times more likely to be awarded patents than are U.S.-born citizens—
nearly 0.12 for each such immigrant, versus less than 0.04 for each such citizen.24 Another recent study
calculated that although immigrants account for only about 13% of U.S. citizens, they account for about
one-third of all patented innovations in America.25
U.S. regions that attract larger numbers of talented immigrants are more successful at innovation. One
study of U.S. states from 1940 to 2000 found that those that attracted more college-educated immigrants
created more patents than other states. A rising share of state population made up by college-educated
immigrants was associated with an increase in patents produced at the state level (in per capita terms) by
approximately 13%. Similar innovation results hold for U.S. cities. In the 1990s and 2000s, U.S. metro areas
that were more attractive to skilled-immigrant workers (largely because of the companies that populate the IT
sectors in these cities) saw larger increases in the production of patents during time periods when the supply
of immigrant visas was expanding.26
Other research finds that having access to foreign-born talent enhances the productivity of U.S. workers. In an
analysis of the changing composition of U.S. graduate programs, one recent study finds that U.S. graduateschool departments in STEM that have a higher share of Ph.D. students who are foreign born generate both
more publications in top peer-reviewed academic journals and more citations on these publications (where
citations are a standard metric of the importance of a journal article). This positive association between the
presence of immigrant graduate students and academic innovation—more and higher-quality publications—
may reflect benefits of intellectual diversity and breadth that high-talent immigrants tend to bring to U.S.
research environments.27 Given the connection between STEM research and new-business creation, these
foreign graduate students have likely contributed to private sector growth, as well.28
6
America’s innovation success has long depended on talented immigrants at all levels; on the superstars,
and also on the many less-decorated but nevertheless highly skilled professionals who are indispensable
in making breakthroughs possible and in bringing these breakthroughs to market. For every Nobel laureate
scientist there are scores of talented colleagues who helped transmit Nobel-worthy insights throughout
science and to broader society.
The body of research discussed above documented immigrants’ THE NUMBER OF U.S. CITIZENS
contributions to American innovation. Over the past generation, AND PERMANENT RESIDENTS
the magnitude of these immigrant contributions has been growing OBTAINING STEM GRADUATE
because immigrants’ share of America’s STEM labor force has been DEGREES HAS BEEN FALLING,
growing. In recent decades, adding highly educated immigrants to NOT RISING
the U.S. economy has contributed to expanding the STEM labor
force. Of course, having more native-born Americans pursue education that prepares them for STEM jobs
should remain a national priority. But in recent years the number of U.S. citizens and permanent residents
obtaining graduate degrees in sciences and engineering has been falling, not rising.29
One recent study calculated that immigrants’ share of U.S. employment rose from about 11% in 1993
to over 17% in 2011. The rising importance of immigrants to U.S. employment is especially pronounced
among the highest-educated: immigrants’ share of advanced-degree workers has long been higher. This
share rose from 12% in 1993 to over 18% in 2011.
As important as immigrants have become to the overall U.S. labor force, their contribution to the STEM
labor force is even more pronounced. That same study found that for workers in STEM occupations with
a bachelor’s degree, the immigrant share rose from 12% in 1993 to 20% in 2011. For workers in STEM
occupations with an advanced degree, the immigrant share rose from 27% in 1993 to a remarkable 40% in
2011.30 Another study looking at all education levels found that fully two-thirds of America’s total increase
in STEM workers from 1995 through 2008 was accounted for by immigrants.31
Within many key STEM occupations, for workers with an advanced degree the immigrant share is even
higher than 40%. For master’s degree holders, the foreign-born employment share is 45% for network
administrators, 50% for electrical and electronic engineers, 51% for computer scientists, 63% for software
engineers, and 65% for programmers and software developers. Immigrant presence rises further still when
we examine doctoral-degree holders. Data from the National Science Foundation shows that the foreign
born now account for an incredible 55% of those receiving PhDs in STEM fields from U.S. universities.32
7
SKILLED IMMIGRANTS BOOST EMPLOYMENT AND WAGES
All the innovation—new companies, new ideas, new patents—of skilled immigrants boost the productivity of
companies and of America overall. These gains manifest in new jobs and rising incomes—in the companies
hiring skilled immigrants and in the economy overall.
Start with jobs. One of the most ambitious studies linked employee COMPANIES THAT HIRE MORE
records to their companies for all private-sector firms in 29 states; SKILLED IMMIGRANTS TEND
from that starting point, it tracked 319 of the largest, most innovative TO HIRE MORE NATIVE-BORN
companies in America from 1995 through 2008 (these 319 accounted WORKERS AS WELL
for 34% of all U.S. patenting during this period). Able to track the
hiring of immigrants versus natives, this study estimated that a 10% increase in the firm’s employment of
skilled immigrants correlated with a 6% increase in the total skilled workforce of the firm---with expansion
“evident and mostly balanced for older and younger native skilled workers.” 33 Robust to a number of
statistical approaches, this study is among the most carefully exhaustive to show a critical finding: Skilled
immigrants tend to complement, not substitute for, native-born workers in U.S. companies. Companies that
hire more skilled immigrants tend to hire more native-born workers as well.
Studies of employment at broader levels similarly find complementarity between employment of U.S.-born
and immigrant workers. One such recent study examining the U.S. economy overall concluded that “when
we look at employment levels, we find that … easier immigration has a positive and mildly significant impact
on natives. This is consistent with the existence of positive productivity effects due to immigration.”34 Other
research has found a similar positive association between immigration and employment growth across U.S.
regional economies.35
Not only do the productivity gains of more immigration show up in greater employment, they also show up
in higher wages—for not just immigrants themselves but native-born workers as well.
A recent study of 219 U.S. metropolitan areas from 1990 to 2010 found that growth of immigrant STEM
workers by one percentage point of a metro area’s total employment boosted the wages of its native-born
college graduates by 7 to 8 percentage points—and of its native-born non-college-educated workers by 3
to 4 percentage points. More skilled immigrants tend to boost wages of all native-born Americans.36
The main channel by which talented immigrants boost American wages is innovation and productivity growth.
Indeed, this recent study estimated that U.S. inflows of skilled immigrants accounted for somewhere between
30% and fully 50% of U.S.-wide growth in productivity over this 1990-2010 period. 37 And it is important to
here note that STEM-educated workers have long strengthened America in all occupations, not just STEM
occupations. They drive performance in many key sectors such as medicine and infrastructure.
8
Many worry that rather than raising wages of Americans, high-skilled immigrants actually pull them down. Is
that possible? Neither economic theory, nor current U.S. policy, nor—most importantly—empirical evidence
supports this concern.
Why does economic theory find that immigrant and native workers earn about the same amount in the
United States? In a narrow sense, it is because the U.S. labor market efficiently allows similarly talented
workers to command similar incomes. In a broader sense, comparable U.S.-born and immigrant earnings
in the same occupations reflect the global competitive intensity that today faces U.S. companies.
Under current law, a company hiring a skilled foreign national through an H-1B visa (described in more
detail below) must pay him or her the higher of two possible wages: (1) the actual market wage paid to
“all other individuals with similar experience and qualifications for the specific employment in question,” as
determined by private surveys; or (2) the so-called “prevailing” wage, determined administratively by the U.S.
government.38
Several studies of existing U.S. law and practice have concluded that H-1B professionals are paid at least
the same, if not more, than their native-born U.S. counterparts with observationally similar characteristics
such as experience. For example, a 2011 study by the U.S. Government Accountability Office documented
several cases across America of approximately equal median annual salaries between H-1B workers and their
U.S.-born counterparts.39 Multiple recent studies found that H-1B visa holders earn more than comparable
native-born workers even when controlling for factors such as educational attainment, occupation, industry,
and work experience. One such study found that in 2010, H-1B workers earned an annual average of
$76,356—13.4% more than the $67,301 average of their native-born counterparts.40 Another study
surveyed more than 50,000 IT professionals over the period 2000-2005 and found that foreign workers on
an H-1B or other visa earned a salary premium of several percent.41
More generally, looking at all of the approximately five million A RECENT STUDY FOUND NO
people working in STEM occupations in the United States today, EVIDENCE THAT IMMIGRANTS
another recent study found no evidence that immigrants are paid ARE PAID LESS THAN U.S.-BORN
less than U.S.-born citizens. Using the most comprehensive data CITIZENS
available and a number of alternative approaches to controlling for
the differences in earnings across workers (such as age, gender, education, industry of employment, and
specialized occupation), no consistent statistical difference was found between the earnings of U.S.-born
workers and immigrant workers.42
9
Talented immigrant workers do not crowd out American talent. Rather, they keep America’s innovation
outlook from sagging even more than it already is. And, in so doing, they help boost the incomes of all
workers in America. This boost comes not just from creating ideas and output in the companies at which
they work. Immigrants support communities and the overall economy in many other ways: paying income
and Social Security taxes; buying and renting homes, cars, and other goods and services; eating out at
restaurants; and so on and so forth.
Do immigrants sometimes compete with natives for the high-quality, high-opportunity jobs in America? Yes.
But that competition is part of what helps spur innovation, in large part because talented workers tend to
complement each other inside and across firms, and thus average incomes are ultimately raised for all.
10
CURRENT U.S. IMMIGRATION POLICY LIMITS GROWTH OF
PRODUCTIVITY, JOBS, AND INCOME
The main program by which companies in America hire talented immigrants is the H-1B visa program. Each
H-1B visa allows a company to create a new job for a highly educated foreigner in the United States for at
least three years. The H-1B program, which accounts for nearly all of America’s skilled immigration, imposes
a cap of 85,000 new visas annually: 65,000 with at least a bachelor’s degree and 20,000 with at least a
master’s degree.
In many years both before the financial crisis and after, company demand has far exceeded this supply.
In 2014 approximately 172,500 applications were received in just four days from the opening of the filing
period, after which no more petitions were accepted—a sudden closing of the visa window as happened in
many earlier years. In 2015 even greater visa demand arose: within five business days of the filing-period
opening nearly 233,000 applications were filed, again forcing the
COMPANIES THAT CANNOT HIRE
U.S. government to close the visa window. And in 2016? About
TALENTED IMMIGRANTS OFTEN
240,000.
DON’T HIRE, OR HIRE OUTSIDE
AMERICA, BECAUSE THEY
Indeed, from fiscal year 1997 through fiscal year 2017, companies in
CANNOT HIRE ENOUGH TALENT
America exhausted the supply of H-1B visas every year save two. In
IN AMERICA ALONE
all such excess-demand years visas are allocated via random lottery,
a process that forces companies to scramble to make alternative plans when the vagaries of chance deny
them desired visas. It was reported that in 2013, there were 10,000 open STEM positions in America across
the four companies of IBM, Intel, Microsoft, and Oracle.43
Companies that cannot hire talented immigrants in America often don’t hire anyone at all. Or, these companies
do hire-but outside America, because they cannot hire enough talent in America alone.
In July 2007, Microsoft announced the creation of a new software-development center near Vancouver,
Canada—in part to allow “the company to recruit and retain highly skilled people affected by immigration
issues in the U.S.” Microsoft executive S. Somasegar described the company’s thinking thus: “Microsoft is a
global company, and our greatest asset is smart, talented, highly skilled people. Our goal as a company is
to attract the next generation of leading software developers from all parts of the world, and this center will
be a beacon for some of that talent.” 44
There is a real, tangible cost to the U.S. economy of allocating fewer
skilled-immigrant visas than companies need. Most immediately, the
cost is foregone jobs created in the companies and beyond. More
broadly, the cost is foregone ideas, innovation and connections to
the world—all of which drive overall U.S. economic performance.
THERE IS A REAL, TANGIBLE
COST TO THE U.S. ECONOMY OF
ALLOCATING FEWER SKILLEDIMMIGRANT VISAS THAN
COMPANIES NEED
11
Times of strong U.S. economic performance coincided with times of relatively open high-skilled immigration
policy. Perhaps the most vivid example was the IT boom of the 1990s. For the decade starting with 1995,
U.S. productivity growth unexpectedly accelerated—to an average annual rate of 3.0%. This surge was
widely visible in accelerated growth in U.S. GDP, jobs, and worker earnings. At one point in 2000, U.S.
unemployment dipped to just 3.9%, and for several years during this period real earnings rose briskly for
all U.S. workers—even less-skilled workers including high-school dropouts. These large economic gains
spread even to the U.S. government, for which unexpected surges in personal and business tax receipts
led to federal-budget surpluses in the four years 1998 through 2001, the first such surpluses in generations.
It is very notable that this boom in U.S. productivity and jobs coincided with Congress raising the annual
supply of H-1B visas: to 115,000 in 1998, up from 65,000, and further still to 195,000 in 2001. Indeed,
research has found that U.S. metropolitan areas that historically employed more H-1B workers experienced
outsized increases in patenting during this period of expanded H-1B visa supply.45 And since then? Morerestrictive U.S. immigration policy has coincided with America’s productivity slowdown. In 2004, Congress
reduced the supply of H-1B visas back to its original annual level of 65,000. Since that time, studies have
shown that there has been virtually no net growth of the foreign-born share of STEM employment. And
since that time America’s productivity growth has slowed dramatically, as discussed earlier, and the unmet
demand for H-1B visas from companies in America has grown all the more acute, as discussed just above.
Could America’s recent economic performance have been stronger if more skilled immigrants had been
admitted to the United States? Recent studies have found the answer to be a resounding yes.
One recent study examined the foregone jobs and income from the rejected H-1B visa applications in 2007
and 2008. About 178,000 applications were rejected those two years; this translated into an estimated
231,000 foregone tech jobs to U.S.-born workers in the subsequent two years. One such lost-employment
example: in computer-related industries, total employment of U.S.-born workers would have grown more
than 50% faster between 2005-2006 and 2009-2010. Wage growth was similarly slower than it otherwise
could have been. Over that same period, actual wages for these U.S.-born workers in computer-related
industries grew by 1.7%. Had all those rejected H-1B applications been approved, these wages would have
risen by an estimated 4.9%.46
Another recent study has examined the lost creation of U.S. jobs and wages because of how few foreignborn graduates of U.S. colleges and universities can gain employment in America after completing their
studies. This study found that aggregated across the 10 U.S. states that educate the most foreign-born
students under the F-1 visa (which is the primary student visa), the inability of nearly all these F-1 graduates
to work in America costs $8.3 billion a year in wages and $283 million in state taxes.47
12
And as costly America’s current policies are towards high-skilled immigration when seen in isolation, they
look even more costly when seen relative to other countries. The world’s talented people do not consider
just their birth country or America when contemplating home. The
U.S. POLICY SHOULD BE
entire world beckons, and so many other countries welcome talent
BASED ON EMPIRICAL FACTS
far more sensibly and aggressively than does the United States.
AND PATTERNS, NOT ANXIETY,
ANECDOTES, OR WISTFULNESS
A recent report from the Business Roundtable summarized America’s
FOR HOW THINGS USED TO BE
lagging policies thus: “Based on a comprehensive examination of 10
advanced economies to identify and evaluate the best immigration policies to promote economic growth, the
United States ranked 9th out of 10 competitor countries, ahead of only Japan, a country historically closed
to outsiders. This analysis found that America’s near-bottom ranking among major advanced economies is
due to U.S. laws and regulations that impose unrealistic numerical limits and excessive bureaucratic rules on
hiring workers that the country’s economy needs.”48
Canada offers a vivid contrast of the world in which America finds CANADA OFFERS A VIVID
itself. Its overall immigration policy weighs skills relative to family CONTRAST
reunification much more than America: in recent years about twothirds of Canadian immigrants were selected for economic reasons, versus less than a fifth in America.49
For skilled workers, Canada’s points system weighs multiple dimensions of talent—unlike U.S. policy that
randomly selects applicants in recent years. And foreign-born college graduates in Canada are granted the
right to work in Canada for up to three years.50
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CONCLUSIONS
For generations, highly talented immigrants in science and engineering have been a catalyst for innovation,
job creation, and rising standards of living in America. Immigration has played a vital role in helping American
companies—young and old, small and large, U.S. based and foreign-based alike—meet their growing
demand for talent to help America expand jobs and incomes for its workers and their families.
Despite the preponderance of evidence of the many net benefits highly skilled immigrants have generated
for America, today’s policy conversations voice unease about these immigrants. This is most unfortunate,
because past need not be prologue for America’s innovation success. The world’s innovative activities are
now both more competitive and more mobile. The notion that the United States has a perpetual lock on
high-opportunity, ever-expanding innovation is gone. The heart of innovation is talent. America has long
created talent through education, in particular through one of the world’s strongest university systems. But
America has also long discovered talent through immigration that welcomes skilled individuals from around
the world.
There is a real, tangible cost to the U.S. economy of allocating fewer skilled-immigrant visas than companies
need. Most immediately, the cost is foregone jobs created in these companies and in the overall U.S.
economy. More broadly, the cost is foregone ideas, investments, and connections to the world that are
what ultimately drive growth in jobs, incomes, and opportunity for all. Companies that cannot hire talented
immigrants in America often don’t hire anyone at all. Or these companies do hire— outside America,
because they cannot hire enough talent in America alone.
American workers and their families are today enduring a
dramatic slowdown in productivity growth that has restrained THE U.S. RANKED 9TH OUT OF 10
growth in incomes and thereby clouded America’s economic COMPETITOR COUNTRIES BASED
future. An optimistic future is very possible. But creating that ON BEST IMMIGRATION POLICIES
future will require new U.S. policies based on empirical facts and TO PROMOTE ECONOMIC
patterns like those of this report—not based on anxiety, or on GROWTH
anecdotes, or on wistfulness for how things used to be. To help
build that brighter future, America should become more welcoming to the immigrant talent that has long and
increasingly helped drive innovation and the resulting growth of companies, jobs, incomes, and opportunity.
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ENDNOTES
1. For example, here is what McKinsey Global Institute concluded about the threat that too little IT talent presents to realizing the
gains from big data. “Companies and other organizations and policy makers need to address considerable challenges if they
are to capture the full potential of big data. A shortage of the analytical and managerial talent necessary to make the most of
big data is a significant and pressing challenge and one that companies and policy makers can begin to address in the near
term. The United States alone faces a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million
managers and analysts to analyze big data and make decisions.” This conclusion is stark: at a time when IT services may be
on the cusp of ushering in much needed productivity gains for American workers and their families, America may fail to fully
realize these gains because of too few knowledge workers. See McKinsey Global Institute, Disruptive Technologies: Advances
that Will Transform Life, Business, and the Global Economy, 2013 white paper.
2. These income data come from the U.S. Census Bureau and its latest annual report, Income and Poverty in the United States:
2015. The report is available at: http://www.census.gov.
3. It is important to stress that this report defines productivity as the productivity of labor. Economists use other productivity
measures as well. For example, capital productivity is a measure of the average value of output produced per unit of capital.
“Total factor” productivity is a measure of the average value of output produced per bundle of inputs such as labor and capital.
4. The White House. 2011. A Strategy for American Innovation: Securing Our Economic Growth and Prosperity. February:
National Economic Council, Council of Economic Advisers, and Office of Science and Technology Policy, p. 7.
5. United States Department of Commerce. 2012. Intellectual Property and the U.S. Economy: Industries in Focus. Washington,
DC: Economics and Statistics Administration and the United States Patent and Trademark Office, p. 1.
6. The White House. 2004. A New Generation of American Innovation, p. 1.
7. Solow, Robert M. 1957. “Technical Change and the Aggregate Production Function,” The Review of Economics and Statistics,
39(3), p. 316. See also the close work in Solow, Robert M. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly
Journal of Economics, 70(1).
8. Jones, Charles I. 2002. “Sources of U.S. Economic Growth in a World of Ideas.” American Economic Review, 92(1).
9. Some of the most comprehensive research on this issue has been conducted by the McKinsey Global Institute (MGI), which has
examined hundreds of firms and industries in dozens of countries. A repeated finding is that exposure to “global best-practice
firms” enhances company performance. A clear statement of this globalization-to-productivity link appears in work by Nobel
laureate Robert Solow and former chairman of the Council of Economic Advisers Martin Baily in “International Productivity
Comparisons Built from the Firm Level.” Journal of Economic Perspectives, 2001, 15(3). “A main conclusion of the studies …
has been that when an industry is exposed to the world’s best practice, it is forced to increase its own productivity … the more
a given industry is exposed to the world’s best practice high productivity industry, the higher is its relative productivity (the closer
it is to the leader). Competition with the productivity leader encourages higher productivity.”
10. Jones, Charles I., and John C. Williams. 1998. “Measuring the Social Returns to R&D.” Quarterly Journal of Economics, 113(4),
p. 1121, states the following. “The social return [to R&D] of 30% and a private rate of return of 7 to 14%: optimal R&D spending
as a share of GDP is more than two to four times larger than actual spending.” A similar finding is in Bloom, Nicholas, Mark
Schankerman, and John Van Reenen. 2012. “Identifying Technology Spillovers and Product-Market Rivalry.” Manuscript. “We
find that technology spillovers dominate, so that the gross social returns to R&D are at least twice as high as the private returns
… We estimate that the (gross) social return to R&D exceeds the private return, which in our baseline specification are calculated
at 55% and 21%, respectively. At the aggregate level, this implies under-investment in R&D, with the socially optimal level being
over twice as high as the level of observed R&D.”
11. Here is the assessment from a report of the prestigious National Research Council of the National Academies, 2012, Rising
to the Challenge: U.S. Innovation Policy for the Global Economy. Washington, DC, The National Academies Press. “The U.S.
innovation system still enjoys many advantages: the world’s largest research infrastructure, a number of the world’s greatest
universities, the deepest capital markets, and a highly dynamic ecosystem for knowing how to turn inventions into products and
businesses … The United States still offers one of the world’s best environments for commercializing products and launching
companies, including strong protection of intellectual property rights, temperate bankruptcy laws, well-developed capital
markets, and extensive worker mobility.”
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12. Hunt, Jennifer, and Marjolaine Gauthier-Loiselle. 2010. “How Much Does Immigration Boost Innovation?” American Economic
Journal: Macroeconomics, 2(2), pp. 31-56. Also Zucker, Lynne G., and Michael R. Darby. 2009. “Star Scientists, Innovation and
Regional and National Immigration.” National Bureau of Economic Research Working Paper #13547.
13. Talent, Immigration, and U.S. Economic Competitiveness, by Gordon H. Hanson and Matthew J. Slaughter, 2013 white paper.
14. See: http://www.nobelprize.org/nobel_prizes/lists/.
15. See: http://www.nasonline.org/about-nas/membership/.
16. See http://www.artsandletters.org/awards2_all.php.
17. See: http://www.macfound.org/programs/fellows/strategy/.
18. These percentages were calculated from data located at the following sites:
19. http://espn.go.com/mlb, www.pgatour.com
20. www.nba.com/2012/news/10/30/international-players-on-opening-night-rosters/index.html
21. www.quanthockey.com/nhl/nationality-totals/nhl-players-career-stats.html
22. Wadhwa, Vivek, AnnaLee Saxenian, Ben A. Rissing, and Gary Gereffi. 2007. America’s New Immigrant Entrepreneurs. Duke
Science, Technology, and Innovation Paper #27.
23. Vivek Wadhwa, AnnaLee Saxenian, and F. Daniel Siciliano, Then and Now: America’s New Immigrant Entrepreneurs, Kauffman
Foundation Working Paper, 2012.
24. Partnership for a New American Economy, 2011.
25. Michael Greenstone and Adam Looney, Ten Economic Facts about Immigration, The Hamilton Project, Brookings Institution,
2010.
26. For a several additional case-study examples of foreign-born executives of U.S. companies, see Contributing to American
Growth: The Economic Case for Immigration Reform, Business Roundtable white paper, 2014.
27. Michael Greenstone and Adam Looney, Ten Economic Facts about Immigration, The Hamilton Project, Brookings Institution,
2010.
28. Kerr, William R., and William F. Lincoln. 2010. “The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention.”
Journal of Labor Economics, 28(3), pp. 473-508.
29. These findings come from three different studies. First is Hunt, Jennifer, and Marjolaine Gauthier-Loiselle, 2010, “How Much
Does Immigration Boost Innovation?” American Economic Journal: Macroeconomics, 2(2), pp. 31-56. Second is Peri, Giovanni,
2012, “The Effect of Immigration on Productivity: Evidence from U.S. States,” Review of Economics and Statistics, 94(1), pp.
348-358. Third is Kerr, William R., and William F. Lincoln, 2010, “The Supply Side of Innovation: H-1B Visa Reforms and U.S.
Ethnic Invention.” Journal of Labor Economics, 28(3), pp. 473-508.
30. This study is Stuen, Eric T., Ahmed Mushq Mobarak, and Keith E. Maskus, 2012, “Skilled Immigration and Innovation: Evidence
from Enrollment Fluctuations in U.S. Doctoral Programs,” The Economic Journal, 122(565), pp. 1143-1176.
31. Zucker, Lynne G., and Michael R. Darby. 2009. “Star Scientists, Innovation and Regional and National Immigration.” National
Bureau of Economic Research Working Paper #13547.
32. The number of U.S. citizens and permanent residents earning graduate degrees in science and engineering in 2014 was about
5% below the peak number reached in 2008. See, for example, http://www.usnews.com/news/articles/2016-05-17/morestem-degrees-going-to-foreign-students.
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33. Talent, Immigration, and U.S. Economic Competitiveness, by Gordon H. Hanson and Matthew J. Slaughter, 2013 white
paper. The definition of STEM occupations includes engineers, computer scientists, operations and systems researchers,
mathematicians/statisticians, chemists, physicists, atmospheric scientists, geologists, agricultural and forestry scientists,
biological and medical scientists, cartographers and mapping scientists, computer software developments, and programmers
of numerically controlled machine tools. This definition does not include the low-education occupations of computer support
staff, technicians, or drafters.
34. Kerr, William R., and William F. Lincoln. 2010. “The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention.”
Journal of Labor Economics, 28(3), pp. 473-508.
35. Grogger, Jeffrey, and Gordon H. Hanson. 2013. “Attracting Talent: Location Choices of Foreign-Born PhDs in the U.S.” National
Bureau of Economic Research Working Paper #18780.
36. Sari Pekkala Kerr, William R. Kerr and William F. Lincoln, “Skilled Immigration and the Employment Structures of U.S. Firms,”
Journal of Labor Economics, 2015, 33(S1), Part 2, pp. S147-S186.
37. Gianmarco I.P. Ottaviano, Giovanni Peri, and Greg C. Wright, “Immigration, Offshoring, and American Jobs.” American Economic
Review, 2013, 103(5), pp. 1925-1959.
38. Peri, Giovanni, “The Effect of Immigration on Productivity: Evidence from U.S. States,” Review of Economics and Statistics,
2012, 94(1), pp. 348-358.
39. “STEM Workers, H-1B Visas, and Productivity in U.S. Cities,” by Giovanni Peri, Kevin Shih, and Chad Sparber, Journal of Labor
Economics, (33:3) Part 2, July 2015, Pages S225-S255.
40. Of course, an exact calculation of the contribution of skilled immigrants to aggregate U.S. productivity growth is beyond
the scope of any study given how large is the overall economy and how many and complex are the various determinants of
productivity performance.
41. The Immigration and Nationality Act, Section 212(n)(1).
42. H-1B Visa Program: Reforms Are Needed to Minimize the Risks and Costs of Current Program, January 2011, U.S. Government
Accountability Office. For example, in 2008 the median earnings of all H-1B professionals aged 20-29 was $60,000—versus
$58,000 for U.S.-born professionals in the same age range.
43. H-1B Visas and the STEM Shortage, by Jonathan Rothwell and Neil G. Ruiz, May 2013, Brookings Institution white paper.
44. “Are Foreign IT Workers Cheaper? U.S. Visa Policies and Compensation of Information Technology Professionals,” by S. Mithas
and H.C. Lucas, 2010, Management Science (56:5).
45. Talent, Immigration, and U.S. Economic Competitiveness, by Gordon H. Hanson and Matthew J. Slaughter, 2013 white paper.
46. Silicon Valley Leadership Group press release, “Over 1000 Leading Tech Executives Urge President Obama and Congress to
Enact High-Skilled Immigration Reform.” March 14, 2013.
47. https://news.microsoft.com/2007/07/05/microsoft-expanding-canadian-operations-in-greater-vancouver-area/#sm.000221lp
p1d3nfn2vdf2js41t77ld.
48. Kerr, William R., and William F. Lincoln. 2010. “The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention.”
Journal of Labor Economics, 28(3), pp. 473-508.
49. Closing Economic Windows: How H-1B Visa Denials Cost U.S.-Born Tech Workers Jobs and Wages During the Great
Recession, Partnership for a New American Economy white paper, 2014.
50. Giovanni Peri and Gaetano Basso. Opportunity Lost: The Economic Benefit of Retaining Foreign-Born Students in Local
Economies. Chicago Council on Global Affairs, 2016.
51. State of Immigration: How the United States Stacks Up in the Global Talent Competition. Business Roundtable white paper,
2015. The report can be found here: http://businessroundtable.org/media/news-releases/competitor-nations-welcome-talentus-h-1b-system-shuts-out.
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52. http://www.cicnews.com/2015/08/canadian-immigration-policies-comparison-085861.html.
53. Research contrasting Canada’s more-open attitude to immigration than America can be found here: http://www.economist.com/
blogs/democracyinamerica/2011/05/immigration. And, more generally, Canada pursues an aggressive economic-development
program on other dimensions such as attracting foreign direct investment. For evidence on this, see, for example: http://www.
areadevelopment.com/Canada-Investment-Guide/Location-Canada-2016/Canada-leader-FDI-attractiveness-452211.shtml.
54. For example, in the United States and many other countries there is often a wish that manufacturing become a much larger
share of employment and overall economic activity. But largely because of productivity growth in manufacturing that has far
exceeded demand growth in that industry (much like what happened with manufacturing over the past century or two), such
a resurgence looks very unlikely. See http://www.nytimes.com/2016/04/27/business/economy/the-mirage-of-a-return-tomanufacturing-greatness.html?_r=0.
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