Thursday, March 2, 2017

Trump Needs a Friendlier Stance on High-Skilled Immigrant Visas

A couple of days ago, President Trump gave his first speech to Congress. During his speech, Trump made 22 promises, one of them being a more merit-based immigration system. Given Trump's words and actions, I have to wonder what that means. Trump has already signed two immigration-related executive orders of which I disapprove: building a wall on the U.S.-Mexican border and the refugee/travel ban. I know that Trump would like to get around to deporting illegal immigrants/undocumented workers. Trump is well-known for his stance on illegal immigration, but how he would handle legal immigration is less certain.

I am particularly interested in high-skilled immigrant visas here because they should be less politically controversial for two reasons. One is that that these immigrants bring much-needed labor to help the American economy grow, and the other is that visas are not permanent. The most common type of high-skilled immigrant visa is the H1-B visa, which is a temporary, non-citizen visa that allows high-skilled workers in a specialty occupation (mostly for tech firms) to enter the United States and work here for a limited amount of time.

I would like to think that Trump would not be focused on H1-B visas because they are less of a hot-button issue than dealing with undocumented workers. While Trump has bigger fish to fry at the moment, I would not be at all surprised if he eventually went after the H1-B visas. You do not need to look further than his immigration reform brief from the campaign trail if you want to understand his intent. This brief includes how he would like to increase the prevailing wage for H1-B visas so they can compete with their American counterparts, as well as force American workers to be hired before foreign ones. With regards to intent, any time that Trump has expressed a pro-H1-B view, he has retracted the positive view and harps on how H1-B visas take American jobs. Trump's nomination of Attorney General Jeff Sessions also signals how this administration is going to be unlikely to want to let more immigrants into this country. Plus, Congress has already introduced four bills since January addressing H1-B visas. "Merit-based" can either mean more high-skilled immigrants or only less low-skilled immigrants, but based on the evidence in front of us, I surmise that Trump is aiming for less immigrants in general.

Aside from Trump's speech, part of what initiated this blog entry was the University of Chicago's Initiative on Global Markets. This Initiative entails a panel of economic experts that answer questions on various public policy issues. The topic that the economists were asked about last month was high-skilled immigration visas. They were more specifically asked about what would happen if the United States significantly lowered H1-B visas. None of them said it would materially increase tax revenue or employment for American workers.

It should not only be consensus from economists of the effects of lowering H1-B visas that should worry us. Here are a few more reasons to worry about Trump's stance on H1-B visas:
  • Economists from Rutgers and Princeton found that a one percent point increase in college-level immigrants as a share of the population translates into a 9-18 percent increase in patents (Hunt and Gauthier-Loiselle, 2010). 
  • A Harvard study found that a 10 percent boost of H1-B visas for a given city results in an increase of patents in that city by 1 percent (Doran et al., 2015). This same Harvard study also concluded that because the additional output creates such long-term economic growth, it also helps create more jobs for Americans with similar skill sets.
  • As the London School of Economics and Political Science illustrates, from 1990 to 2010, anywhere from 10 to 25 percent of productivity growth is attributable to H1-B visa workers (Peri et al., 2014).
  • In 2013, the Senate was looking to pass some immigration reform (S. 744). Part of that reform was raising the H1-B cap to up too 180,000 (the cap is currently at 85,000 H1-B visas). What would have been the effect? At the time, the Hoover Institution estimated an extra $107 billion of tax revenue and $424 billion in GDP over a ten-year period. 
  • The Right-leaning American Enterprise institute found that between 2001 and 2010, an influx of 100 H1-B visa workers meant an extra 183 jobs for U.S. natives. This influx meant that a 10 percent increase in H1-B visas translated into an increase of native employment by 0.11 percent. 
  • The Right-winged Heritage Foundation, which is notoriously against illegal immigration, published a policy brief in 2008 showing why H1-B visas are a good idea. 
  • More than half of America's start-up companies valued at $1 billion or more have been started by foreign-born workers. 
  • Consulting firm McKinsey finds that increasing the flow of high-skilled immigrants vis-à-vis H1-B visas would boost U.S. innovation and economic growth. The U.S. Chamber of Commerce came to that consensus in its 2011 report, as well as finding that a) STEM fields have low levels of employment for U.S. workers, and b) foreign-based STEM workers don't make much less than their U.S. counterparts. To be fair, some have argued that there is not a shortage of STEM workers, thereby minimizing the need for H1-B visas. 
  • I actually had a friend make a counterargument that we should not have much in way of high-skilled immigrant visas because it could harm developing countries. Two responses to that:
    • If the United States doesn't snatch them up or if the United States creates an anti-immigrant image with its immigration policies, other countries will offer them visas.
    • These immigrants are leaving in part because developed countries offer opportunities, but because their native country cannot. There are many factors that come into play, including economic policy, monetary policy, corruption, infrastructure, literacy rates, and access to health care and birth control. The biggest changes will not come through stifling migration, but if the native country takes on economic policy reform. Look at the World Bank's Ease of Doing Business Index, the Heritage Foundation/Wall Street Journal Index of Economic Freedom, or the Fraser Institute Economic Freedom Index. Developing countries have lousy economic, fiscal, and monetary policy that hinders their growth and ability to attract better capital and labor. A little economic liberalization goes a long way in improving citizens' well-being. 
A liberalized immigration system for high-skilled workers means greater productivity, innovation, and entrepreneurship. While I would call for raising the H1-B visa cap, there are other options that can be pursued: Imbed randomized experiments in our immigrant selection process to get more empirical results. Restructure the prevailing wage scale would be preferable to reducing the number of H1-B visas in computer science and IT, since the latter would likely trigger a WTO dispute and potentially some trade retaliation. Fast-track the STEM green card system to make immigration easier. Create a merit-based system in place of the current lottery system. If President Trump wants to make America great again, he should reform the H1-B to keep sources of innovation coming to this country instead of cutting off a source of economic growth that has been good to the United States in the past.

1-27-2018 Addendum: Here is a policy brief from the National Bureau of Economic Research showing how a reduction in H1-B visas did not translate into more jobs for native workers.

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