Competing for people

Getting the U.S. off the bench and in the game

The United States has been coasting on its reputation as an excellent destination for too long. While countries like Australia and Canada have been making themselves more attractive to talented immigrants, the U.S. has walled itself off. H-1B visa requests, visas that go to high-skilled immigrants, have been denied more often in recent years. And while the total number of international students hit an all-time high in 2019, fewer new international students have been enrolling in the U.S. each year since 2016, citing visa difficulties and the political climate.

On top of this, the 2020 Census results reveal that the U.S. population is growing at slow rates not seen since 1940. As the working-age population shrinks and people retire from working, businesses struggle to find employees. That makes basic business operations difficult but also fundamentally undermines the provision of public services. You need people to pay into those systems more than is being taken out. With a large elderly population and a small working-age population, governments face tough questions between cutting services or raising taxes.

Source: Calculations from the Census.

Even as more foreign talent is either turned away or decides to never come to the U.S., countries like Canada are poaching the talent that is already here. In July of 2020, a report from Georgetown University showed a 75 percent increase in the number of non-citizen U.S. residents entering Canada’s merit-based immigration system between 2017 and 2019.

Our restrictive immigration policies mean the U.S. is losing out on high-skilled workers who are sorely needed here. Congress needs to make it easier to come and stay in the United States by expanding merit-based immigration.

There are two big policy ideas that the U.S. should implement on this front. First, a college degree should be a pathway to permanent residency. Second, we should double the H-1B cap, which hasn’t kept pace with the U.S. economy’s growth. Both of these measures will make it easier for immigrants to find work in the country. They’ll stay to help reverse the declining population and boost economic growth through invention and entrepreneurship. All of these benefits will keep the U.S. an enviable world power economically and usher in new waves of economic growth that will benefit the entire country.

If you peer into the dusty tomes of research that come out of academic journals, one of the most common findings is the value of foreign students to U.S. industry and economy. Charles Jones, an economist studying economic growth, attributes half of the increase in the U.S. economy’s productivity between 1950 and 1993 to the growing ranks of scientists and engineers. Four out of five of those engineers and scientists, or about 80 percent, were immigrants.

It’s not difficult to find out why immigrants might drive greater economic growth. Economists Jennifer Hunt and Marjolaine Gauthier-Loiselle showed that U.S. immigrants with a four-year degree were twice as likely to hold a patent than similar natives. They conclude that a one percentage point increase in immigrant college graduates’ population increases patents per capita by between nine and 18 percent.

Another study published in May of 2017 looks at the history of innovation in different industries. It shows that fields with more foreign born experts working in them between 1880 and 1940 had more patents and citations in the following 60 years from 1940 to 2000. To put that in simple terms, immigration today seeds future growth.

Immigrants also seem to be more productive than natives when you look over their careers. One paper shows that immigrants produce more patents and those patents are more valuable than those held by natives.

Just because immigrants are more productive than natives doesn’t imply that immigrants are harming natives. Often the same research documenting how immigrants are more productive shows that innovation on the part of immigrants spills over and also spurs innovation by native researchers. That is, immigration makes natives more productive as well. We’re better together than apart.

This finding that natives become more productive because of immigration turns out to be a somewhat common result in immigration research. Another research project looks at the effects of Jewish immigrants from Nazi Germany and finds that the Jewish emigrants increased innovation among natives as well. Rather than put natives out of a job, immigrant workers expand the entire pie.

Adding more foreign talent to the country is also good for America’s place in the world. For example, foreign policy experts worry that China will surpass America in its Artificial Intelligence (AI) capabilities. Following a two-year investigation, the National Security Commission on Artificial Intelligence report concludes, “China possesses the might, talent, and ambition to surpass the United States as the world’s leader in AI in the next decade if current trends do not change.”

It’s clear from the report that foreign AI experts should be fast-tracked into the country to accelerate the United States’ AI programs. In recommending more skilled immigration as a solution, the Commission joined a chorus of immigration researchers who have proposed giving expedited processing of one kind or another to immigrants who have a specialty in AI.

For example, outside of the Commission, immigration wonks Lindsay Milliken and Doug Rand point to the increasing rate of H-1B visa denials as a contributor to our stagnating AI field. Their proposal is to offer a national security waiver and make AI experience evidence of extraordinary ability so that researchers with AI experience can apply for a wider variety of visas. These are good ideas that the U.S. should pursue. But we should do even more to open up to the global pools of talent.

Creating pathways for foreign talent should happen on at least two fronts. First, the U.S. needs to make it easier for U.S.-trained immigrants to remain in the country once they complete their college education. Second, the U.S. needs to make it easier for its own companies to hire foreign talent so that they can hire the best people for the job.

College degrees should be visas

A college education from a U.S.-based college should be a permanent visa. At very least this should be true for graduate degree programs. And certainly for PhDs! Yet the U.S. has historically struggled to find a way to keep U.S.-trained talent in the country.

Consider the Stopping Trained in America PhDs From Leaving the Economy (STAPLE) Act from 2011. The bill would have given all PhD students a ticket to stay in the country. At the time, it was a bipartisan effort. The bill was proposed by Arizona’s Republican Representative Jeff Flake and President Obama mentioned it favorably in a State of the Union address. But it never moved far.

From an economic point of view, giving PhD graduates an easy road to staying in the U.S. is a promising policy. They are likely to start new businesses, or bring new ideas to existing U.S. businesses. In fact, a 2019 survey of both native and foreign STEM PhD students revealed that many foreign students are nervous about working for startups because of visa concerns. The rules might actually be preventing some would-be entrepreneurs from creating their own businesses.

The Pfizer vaccine for COVID-19, for example, was built from the lifetime work of the Hungarian immigrant Katalin Karikó. She ultimately came to the University of Pennsylvania to teach and research. Then she joined the vaccine industry in 2014. With the help of Karikó, Pfizer built, tested, and released the COVID-19 vaccine in only a few months.

So the question is, how many other ideas like mRNA vaccines are either lost or developed outside of the country because visas are easier to receive outside of the country? Pause for a second and imagine that the mRNA research had even been a few years delayed from where it was at the onset of COVID-19. Would vaccines be ready in that world? The research on how innovative foreign students are makes it likely that the U.S. is losing many opportunities for similar breakthroughs or at least delaying them.

The STAPLE Act is a good step to let immigrant students and their ideas take root in the U.S. rather than outside of it. We should consider how to take it one step further. One option is creating a pathway for all foreign students on F-1 visas who successfully complete a college degree in the U.S. to stay in the country. The visa could be conditioned on the student either starting their own company or working for existing U.S. companies. The fiscal costs of expanding immigration might concern some people. If there are serious concerns, then a simple solution is that immigrant students working in the U.S. could be barred from public programs for five or ten years while they get established in the country. Though research shows that college-educated immigrants tend to pay much more into public funds than they take out.

In the current system it’s common for foreign students to run into problems getting a job after college because of the bureaucracy involved. They sometimes receive job offers that are later rescinded because they will require some kind of employer sponsorship in the future. That is, a company will choose a person as the best fit, but be unable to hire them. Our current immigration system is not a promising way to keep U.S. companies competitive against their international peers.

Policies that expand the number of highly trained immigrants in the U.S., whether a limited version like the STAPLE Act or a more expansive version like creating an easy pathway from F-1 to permanent residency, lay the groundwork for the future success of the American economy. U.S. universities are the envy of the world. Giving them more foreign talent to educate and prepare for work in U.S. industry will power economic growth for decades to come.

If this casts too wide of a net, then adjustments are relatively simple. For one, policymakers could create a pathway to permanent residency for select groups of foreign students. Those with graduate degrees, as reflected in the STAPLE Act, are an obvious group to invite into the country. Or the policy could offer legal residency after completing a degree within targeted fields of study, like STEM fields.

We should also consider broadly increasing our country’s openness to those who complete college in whatever form it ultimately takes. For one, four years at a U.S. university (or more in the case of graduate programs), is a fast-track to integrating into American culture. Second, research makes clear that foreign-educated college workers aren’t displacing natives. They command a sizable wage premium against their native counterparts. On average foreign-born college graduates are paid around 29 percent more than natives. That premium is in addition to the research showing that immigrants often expand the abilities of natives. If, as research shows, skilled immigration makes natives more productive, then we can expect higher wages for natives with increased skilled immigration.

If there are still concerns that immigrants displace natives, reforms could be accompanied by programs to protect natives from any potential negative labor market effects. But two factors make it unlikely that such programs will be necessary at all. First, fields that require a college degree are much more likely to exhibit complementarities between skilled workers such that two workers cooperating are more productive than either alone. Second, since foreign students already pay much more in tuition than natives, effectively subsidizing the education of native students, more foreign students are likely to help natives once again. The nature of the university system makes letting more educated immigrants into the country a winning bet. Of course, just because there aren’t immigration-related reasons to expand access to higher education or specialized training doesn’t mean that policymakers shouldn’t be pursuing those options anyways.

Giving college-educated immigrants a new pathway into the U.S. workforce makes it easy to keep what we already have. But what about attracting new talent trained abroad? Or those who, like several tech giants, drop out of college to pursue their business ideas? The best pathway for pulling these skilled people into the U.S. is by adding more slots to the H-1B visa program. Policymakers should at a minimum double the number of H-1B visas granted.

It’s strange, but the number of H-1B visas available to American businesses has not changed permanently since 1990. In 1990, Congress set the number at 65,000 visas each year. For 1999 through 2003, Congress temporarily added extra visas via legislation because of the dot-com boom. Then in 2004 an additional 20,000 visas were added and available only for those with graduate degrees. So during the three decades when the U.S. economy more than tripled, the number of H-1B visas stagnated. The 20,000 additional visas added in 2004 are only a drop in the bucket in comparison to the growth of the U.S. economy’s size.

Source: The World Bank and Cato.

A related way to solve this problem is to index it to the size of the U.S. economy so that the visa program naturally grows as the economy and country grow. For example, economist Daniel Griswold proposed connecting the number of H-1B visas and green cards to the growth of sectors that use them. This could ensure that the number of available visas expands as the industries that use it expand.

The 30 years since 1990 have brought a variety of changes in more than just size. As Griswold quips in his proposal, “When Congress set the still‐​binding caps almost three decades ago, there was no World Wide Web available to the general public. Smartphones, social media, video and music streaming, and online gaming didn’t exist. Nor did Google, Facebook, Amazon, Netflix, eBay, Uber, Lyft, and Twitter.”

The world has moved on from 1990, and it’s time that U.S. immigration policy caught up. Doubling the number of visas available, from 85,000 to 170,000 is one solution. Given that the economy has tripled in size, however, doubling the current cap may be the lower end of what is necessary to give U.S. companies access to global talent that keeps them at the top of the food chain.

Each new person is a wealth of ideas and represents the potential of the future. In a phrase, people bring prosperity. That’s certainly true for the highly educated and skilled professionals that expanding merit-based immigration can bring to America. These are the students who will build the next wave of innovative companies and power the U.S. economy. That might be starting a human outpost on Mars, the next medical innovation like mRNA vaccines, or the next technology company like Google. Or it could be something completely different.

The U.S. that creates new ways for immigrant students to stay in the country will be significantly wealthier and more powerful than the U.S. that chooses not to. Both the flagging population growth in the U.S. and the drop in new international students enrollments signals that the U.S. is a few steps down the wrong path.

What the U.S. immigration system desperately needs is reform that opens the country to promising people. As other countries wake up to the fact that the real challenge of today is competing for people, we will fall behind if it doesn’t start today. Failing to reform our immigration system opens opportunities for countries like China to dethrone the U.S. as the central hub of innovation and take the crown for themselves. In other words, the time is up on our system’s complacency and stagnation.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.

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