Barriers for Highly Skilled Immigrants: Why should American firms care?

Much of the current debate surrounding immigration has centered around how to handle illegal immigration. However, the question of whether to extend H-1B visas, or highly skilled visas, to more immigrants, is also being carefully considered. Opponents believe that skilled immigrants force out highly skilled American workers, whereas proponents of expansion argue that there is a shortage of American workers with specialized skills, particularly in the fields of science, technology, engineering, and mathematics (STEM).

In the October 2012 working paper “Skilled Immigration and the Employment Structures and Innovation Rates of US Firms”, Sari Pekkala Kerr, William P. Kerr, and William F. Lincoln study the impact of skilled immigrants on the employment structures and innovation outcomes of US firms. Historically, immigration literature has focused on shifts in the supply of workers to the labor market. However, since the H1-B visa is a firm-sponsored visa, the firm is the primary actor in the discussion. Therefore the authors choose to focuses on firm-level data from 450 large American firms spanning the years 1995 to 2008. The data was primarily obtained through the Longitudinal Employer-Household Dynamics (LEHD) database, a resource maintained by the US Census Bureau that includes employer-employee records for all private-sector firms covered by state unemployment insurance reporting requirements across 29 states.

To examine the impact of highly skilled immigrants on firm structure, the authors use two different regression techniques and find a strong positive connection between young skilled immigration and expansion of a firm’s skilled workforce. An increase in young skilled immigrants at a given firm was associated with an increase in the overall share of skilled workers (native and immigrant) as well as in the share of the skilled workers that were immigrants. Although increased immigration was associated with relatively higher departure rates for older workers in STEM occupations as compared to occupations in other fields, the authors find no evidence of increased departure rates from the firm overall in response to more highly skilled immigrants. Therefore they do not find any evidence to support the argument that admitting more highly skilled immigrants would displace existing workers.

The paper also investigates the impact of highly skilled immigrants on innovation through matching their firm-level data to patent data obtained through a US Patent Office data set maintained by the National Bureau of Economic Research (NBER). They find that an increase in highly skilled immigrants was associated with greater levels of invention, i.e. that there was an increase in the number of patents applied for by firms. These innovation gains were primarily gains in quantity as opposed to quality; the authors find that the new innovations were comparable in quality to the firm’s previous work. The gains came from increased contributions by immigrants and from collaboration between natives and immigrants, but there is no clear evidence of any increase in native invention.

These results have major implications for American immigration policy. The finding that the entry of more highly skilled immigrants into the workforce increases the share of skilled workers (both native and immigrant) and increases the level of innovation without resulting in increased departure rates largely supports proponents of expanding the H-1B visa program.

Admitting more highly skilled immigrants, according to this study, increases job opportunities for skilled natives and improves innovation levels at the firms that hire them, although the authors offer no theory on why this is apparently the case. One potential concern that the paper highlights is that, for STEM firms in particular, hiring more highly skilled immigrants might displace some older American workers. But overall, the results show a clear advantage to American firms in hiring high skilled immigrants, and suggest that perhaps they should take a larger role in immigration reform going forward.

Feature Photo: cc/WorldBank