Effects of skilled immigration on U.S. employment

 
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Leaders in the U.S. House of Representatives are considering limited immigration reform, raising the possibility that 2014 will break the deadlock on immigration in Congress. Skilled immigration is one of the issues on the table. In June 2013 the Senate passed bill S.744 with a bipartisan supermajority, raising the cap on skilled immigrants, especially in STEM areas, and introducing a new visa category for entrepreneurs. In the same month, the House Judiciary Committee approved the SKILLS Visa Act, which would also raise the skilled immigration cap.

According to a 2013 study by William Kerr of Harvard Business School, skilled immigration has been essential for U.S. global leadership in innovation and entrepreneurship. A 2008 study from Harvard University, Duke University and the University of California at Berkeley also found that firms founded by skilled immigrants contribute significantly to both wealth and job creation. The demand for skilled immigration from businesses is high, with employer-sponsored H1-B visas for skilled immigrants repeatedly reaching the quota in the first few months of the year. A survey of small businesses by the Washington Post suggests that for them, reform of laws related to skilled immigration is a top priority in 2014.

Research has shown that the U.S. public tends to view increased immigration with concern: A 2013 study by Christopher Muste of the University of Montana found “continuing negativity and ambivalence in immigration attitudes,” with a “high level of job concern.” Much of this concern is related to low-skilled employment: A 2012 study in the Journal of Labor Economics suggests that increased low-skilled employment reduces native youth employment. Further, Norman Matloff of U.C. Davis finds that skilled immigrants in the United States often displace native-born skilled workers — in the technology industry in particular — as they are often used as a source of cheap labor. Unions echo these criticisms and note that immigrants can be used to fill entry-level positions. The liberal Economic Policy Institute finds “consistent and clear trends suggesting that the United States has more than a sufficient supply of workers available to work in STEM occupations.” News media reports have focused on patterns of hiring such workers that, indeed, defy common perceptions. The Brookings Institution’s Jonathan Rothwell and Neil G. Ruiz break down relevant data.

A 2013 study for the National Bureau of Economic Research, “Skilled Immigration and the Employment Structures of U.S. Firms,” looks at this issue in depth, analyzing the effect of skilled immigration on employment at the firm level. The authors — Kerr of Harvard Business School, William F. Lincoln of Johns Hopkins University and Sari Pekkala Kerr of Wellesley College — use new employer-employee data from the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics Database to examine 319 of America’s top-employing and top-patenting firms from 1995 to 2008.

The authors note that “in occupations closely linked to innovation and technology commercialization, the share of immigrants is even higher, at almost 24%. As the U.S. workforce ages and baby boomers retire, the importance of skilled immigration has the potential to increase significantly.” The study is particularly significant, the researchers state, because it takes a more granular look at immigration and labor at the level of specific firms — a unit of analysis seldom explored. Most studies in this area look at aggregate effects on the labor market.

Important findings include:

  • There is a “strong link” between expansion in young, skilled immigrant employment and other skilled employment in the firm. A 10% increase in young, skilled immigrant employment correlates with a 6% increase in the firm’s total skilled employment. (“Young” is defined as under the age of 40.)
  • The increase in skilled employment is largely composed of young native skilled workers and older skilled immigrants, rather than older native workers.
  • Although the share of older skilled native workers tends to decline when firms increase employment of young skilled immigrants, the absolute number of older skilled native workers in a firm shows no evidence of declining as a result of skilled immigration (because the total number of skilled workers hired increases).
  • The displacement of older native workers appears to be greatest in STEM industries, with a “higher departure rate of older workers in STEM occupations with greater young skilled immigration into the firm,” an effect that is especially pronounced for workers earning more than $75,000 a year. This may be because the technical skills of the young immigrants are not complementary to the skills of the older native workers.

“These results provide a multi-faceted view of how young skilled immigration shapes the employment structures of U.S. firms,” the authors note. “Interestingly, these results do not align with any single popular account and suggest that greater caution in public discourse is warranted.”

Related: For a review of the research literature in this area to date, and the methodological challenges and controversies, see “Firms and the Economics of Skilled Immigration,” a 2014 paper for the National Bureau of Economic Research by Sari Pekkala Kerr, William R. Kerr and William F. Lincoln.

Keywords: technology, innovation, H1-B visa, labor, workers

Last updated: April 28, 2014

 

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Citation: Sari Pekkala Kerr; William R. Kerr; William F. Lincoln. “Skilled Immigration and the Employment Structures of U.S. Firms," November 2013, National Bureau of Economic Research, Working Paper 19658.