Skilled foreigners with H-1B visas take U.S. jobs, but help reduce prices

 
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Highly skilled foreigners are behind some of America’s most celebrated innovations. A new study suggests they drive down native workers’ wages, but benefit consumers overall.

The issue: Google, eBay, Tesla, Yahoo. These and many other quintessentially American tech companies were founded by immigrants. But since President Donald Trump won office on a platform to reduce immigration, programs that bring foreign workers into the United States are under scrutiny.

One of the most competitive programs is the H-1B visa. Applicants must be highly qualified individuals (computer scientists, engineers, medical researchers and fashion models “of distinguished merit or ability”) who are sponsored by an American employer and who do not plan to immigrate permanently to the U.S. The program allows workers to stay up to six years.

According to the most recent data from U.S. Citizenship and Immigration Services, 65 percent of H-1B visas granted in fiscal year 2014 went to workers in computer-related jobs. Over half of those workers had advanced degrees and 72 percent were between the ages of 25 and 34. In recent years, the U.S. government has received well over 300,000 H-1B applications annually; as mandated by Congress, it issues 85,000 a year, often by lottery.

Critics allege the H-1B program allows U.S. firms to hire talent at lower rates, depressing the wages of qualified Americans. The program may even move jobs overseas by training H-1B visa holders who then return home where they are hired by American firms outsourcing jobs.

A new study suggests that the story of immigrants’ impact on American jobs mirrors the broader story of free trade and globalization: For Americans, wages fall because of the increased competition. But Americans also enjoy access to cheaper goods.

An academic study worth reading: “Understanding the Economic Impact of the H-1B Program on the U.S.,” a working paper for the National Bureau of Economic Research, 2017.

Study summary: University of Michigan economist John Bound and his team look at the recruitment of foreign-born computer scientists during the dotcom boom between 1994 and 2001, a period when the share of computer-related H-1B visas grew rapidly, according to government figures. They investigate how this influx affected the market for computer scientists and overall economic productivity.

They develop a general equilibrium model of the U.S. economy during these years “to estimate how the increasing share of foreign high-skill workers affects the welfare of different types of workers, firms and consumers.” By restricting immigration in their model to 1994 levels, they look at how wages, employment and output would have changed over the subsequent seven years without new foreign specialists.

Key takeaways:

  • Without these H-1B visa holders, under the authors’ model, American computer scientists in 2001 would have earned between 2.6 to 5.1 percent more. Plus, between 6.1 and 10.8 percent more Americans would have worked in computer science.
  • The increase in H-1B workers in the 1990s raised profits in the IT sector, under the authors’ model. It increased the output of IT goods between 1.9 and 2.5 percent and decreased prices by 1.9 to 2.4 percent.
  • These profits and increased productivity should have raised wages. But competition from the H-1B foreign experts depressed wage growth.
  • The H-1B program may raise productivity elsewhere in the economy: “The influx of skilled immigrants induces some college graduates to leave CS [computer science] and raises the productivity of non-CS college graduates.”
  • U.S. college graduates may be harmed by the program. “For many college graduates who entered or might have entered the CS field, their options have been curtailed.”
  • If the program were ended, the authors warn, American firms would likely respond by moving such jobs overseas.
  • The authors emphasize that policymakers must find a balance where curtailing immigration does not hurt the U.S.’s position within the global economy.

Helpful resources:

  • U.S. Citizenship and Immigration Services explains the requirements for an H-1B visa on its webpage. It also issues reports on the program each year to Congress, including one on the different petitions it receives for H-1B visas and one on the characteristics of visa recipients.
  • Fortune has listed some of the tech companies founded by immigrants or first-generation Americans.

Other research:

  • A 2015 study in the Journal of Labor Economics estimated that between 30 and 50 percent of U.S. productivity growth between 1990 and 2010 was generated by foreign STEM (science, technology, engineering and mathematics) professionals, many on H-1B visas. One of the authors of that paper wrote in the Wall Street Journal that H-1B engineers and scientists added $615 billion to the economy over those years.
  • The Journal of the American Medical Association published data in 2017 showing where doctors on H-1B visas practice. “North Dakota had the highest percentage of the physician workforce comprised of H-1B applicants,” it reported.
  • This 2015 working paper by a scholar at the University of Notre Dame and colleagues compares firms that win and lose in an H-1B lottery. It found the presence of H-1B visa holders reduces wages and helps a firm profit, but does little to increase a firm’s patent applications.
  • This 2011 paper in Industrial Relations argues that highly skilled foreign- and native-born workers are not perfect substitutes, that the foreigners take more quantitative and analytical jobs, while the native workers specialize in occupations “requiring interactive and communication skills.”
  • In 2006, the Congressional Budget Office examined the evolution of American immigration policy.

Last updated: February 24, 2017

 

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Citation: Bound, John; Khanna, Gaurav; Morales, Nicolas. “Understanding the Economic Impact of the H-1B Program on the U.S.,” National Bureau of Economic Research working paper, 2017. doi: 10.3386/w23153.