Acting Director of U.S. Citizenship and Immigration Services (USCIS) Ken Cuccinelli at a ceremony on ... [+]
Important new research concludes immigration restrictions that prevent companies from hiring high-skilled foreign nationals in the U.S. represent bad economic policy and are counterproductive. The first-of-its-kind study examining company-level responses to government immigration rules found H-1B visa restrictions carry the unintended consequence of pushing jobs outside the United States and lead to less innovation in America.
The study by Britta Glennon, an assistant professor at the Wharton School of Business at the University of Pennsylvania, used a “unique firm-level panel dataset that links firm-level H-1B visa data and firm-level data on the financial and operating characteristics of U.S. multinational firms and their foreign affiliates.”
The research findings refute the zero-sum assumptions about restricting high-skilled immigration often used by policymakers – the belief that a “fixed” number of jobs exists and any new entrant to the U.S. labor force takes a job from a native-born worker. “This is the first paper to empirically explore how decreased access to visas for skilled workers could lead multinational firms to offshore more jobs,” writes Glennon. “The results have important implications for understanding how multinational firms respond to artificial constraints on resources and how they globally re-distribute those resources.”
Here is the key finding: “Foreign affiliate employment increased as a direct response to increasingly stringent restrictions on H-1B visas. This effect is driven on the extensive and intensive side; firms were more likely to open new foreign affiliates abroad in response, and employment increased at existing foreign affiliates. The effect is strongest among R&D-intensive firms in industries where services could more easily be offshored.”
Which countries are most likely to benefit from H-1B visa restrictions and America First-style immigration policies? China, India and Canada. “The effect was somewhat geographically concentrated: foreign affiliate employment increased both in countries like India and China with large quantities of high-skilled human capital and in countries like Canada with more relaxed high-skilled immigration policies and closer geographic proximity,” writes Glennon. “These empirical results also are supported by interviews with U.S. multinational firms and an immigration lawyer.”
Another important finding is that pushing more high-skilled foreign nationals out of the country reduces innovation inside the United States. “The results also suggest that in addition to affecting the location of skilled employment, restrictive immigration policies affect the location of innovation, and of course the associated positive externalities,” notes Glennon. “Skilled immigrants have been shown to have outsized impacts on innovation in the home country through spillovers.”
The irony is the research shows a true “America First” immigration policy would increase the number of H-1B visas, not make them more difficult to obtain. “While immigration has a positive impact on innovation and growth, its spatial diffusion disappears with distance since innovative spillovers are geographically localized,” explains Glennon. “From a nationalistic perspective, this is problematic; if skilled foreign-born workers are at a U.S. firm’s foreign affiliate instead of in the U.S., the innovative spillovers that they generate will go to another country instead . . . In short, restrictive H-1B policies could not only be exporting more jobs and businesses to countries like Canada, but they also could be making the U.S.’s innovative capacity fall behind.”
Other research has concluded high-skilled foreign nationals on H-1B temporary visas contribute to America’s productivity in important ways. “When we aggregate at the national level, inflows of foreign STEM [science, technology, engineering and math] workers explain between 30% and 50% of the aggregate productivity growth that took place in the United States between 1990 and 2010,” according to economists Giovanni Peri (UC, Davis), Kevin Shih (RPI) and Chad Sparber (Colgate University).
The Trump administration has imposed new restrictions on H-1B visas. As recently reported, new government documents show the administration’s increase in denials and Requests for Evidence for H-1B petitions are a result of U.S. Citizenship and Immigration Services adjudicators being directed to restrict approvals without the legal or regulatory authority to justify those decisions. “Denial rates for H-1B petitions have increased significantly, rising from 6% in FY 2015 to 32% in the first quarter of FY 2019,” according to a National Foundation for American Policy (NFAP) analysis. The Request for Evidence rate on H-1B petitions reached 60% in the first quarter of FY 2019.
Glennon notes there have been concerns about H-1B visa holders and allegations of displacement of natives but adds that research on immigration suggests little impact. Research from Peri, Shih and Sparber concluded, “There is a large, positive, and significant effect of foreign STEM workers on wages paid to college-educated natives. . . . This implies that a rise in foreign STEM growth by 1 percentage point of initial employment increases college-educated native wage growth between 5.6 and 9.3 percentage points.”
Critics of high-skilled immigration, including a number of policymakers, have long acted as if the global economy does not exist. The latest research confirms what should be self-evident. “[A]ny policies that are motivated by concerns about the loss of native jobs should consider that policies aimed at reducing immigration have the unintended consequence of encouraging firms to offshore jobs abroad,” concludes Britta Glennon. Simply put, H-1B visa restrictions push more jobs and innovation outside the United States.
