Immigrants and US Innovation

William Kerr, William Lincoln

15 July 2010

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International migration is a mighty force globally. Over 175 million people, accounting for 3% of the world’s population, live permanently outside their countries of birth (UN 2002). Moreover, interest in the economic effects of immigration on host countries now extends well beyond traditional destination countries like the US. Most of the recent population growth in Europe, for example, resulted from migration.

Over the past few decades, economists have exerted substantial effort to understand immigration’s impact on host country labour markets and public finances. Recent work has further considered the effect on price levels, housing markets, crime, and similar topics. Yet, until recently there has been little empirical evidence on the relationship between high-skilled immigration and host-country innovation (Freeman 2006).

This limited attention is particularly surprising given how important immigrants are to US technology development and commercialisation. According to the 2000 census, immigrants accounted for 24% and 47% of US scientists and engineers with bachelor and doctorate qualifications. They further accounted for more than half of the net increase in the number of US scientists and engineers since 1995. Understanding these relationships is of first-order importance given the connection between innovation and growth.

In recent research (Kerr and Lincoln 2010), we examine how large changes in H-1B admissions levels affected technology formation in the US. We find evidence that increased admissions increased total invention. This growth was primarily through the contributions of immigrants themselves, with limited effects for natives. Higher admission levels also had geographic effects by increasing the rate of innovation in cities dependent on the H-1B visa relative to other cities. These concentrated impacts relate to the increasing clustering and agglomeration of US innovation (Kerr 2010).

The H-1B visa

The H-1B is the visa predominantly used by temporary immigrants for employment in science and engineering in the US, especially in computer-related occupations. The programme draws primarily from India and China. There is a limit on the number of visas that can be issued in a single year, and this cap has changed significantly over time. Figure 1 shows the evolution of this cap and an estimate of the H-1B population (Lowell 2000, with updates). With renewal, H-1B holders are allowed to remain in the US for six years unless permanent residency status is obtained.

The merits of these higher admissions levels have been strongly debated. Indeed, there have been more than 3000 news articles since 1995 about the visa. Executives of high-tech firms often argue that higher H-1B admissions are necessary to keep US businesses competitive, to spur innovation and growth, and to keep firms from shifting their operations abroad. Detractors, on the other hand, argue that the programme displaces American workers, lowers wages, and discourages on-the-job training (Matloff 2003).

Figure 1. H1-B visas and population estimates

Effects of higher admissions levels on innovation

We estimate the impact of higher admissions levels on innovation in a framework closely related to Card (2001). Our main specifications use inventor names to identify probable ethnicities on patent records (Kerr 2008). For example, inventors with the last names Gupta or Desai are more likely to be Indian than they are to be Anglo-Saxon or Vietnamese. As an example, Figure 2 shows the share of domestic US patenting undertaken by Indian ethnicity inventors in six broad technology groups.

We use these micro records and high-frequency variation to test differences across cities and states. We find that increases in H-1B admissions substantially increased rates of Indian and Chinese invention in dependent cities relative to their peers. A 10% growth in the H-1B population corresponded with between 1% and 4% higher growth in Indian and Chinese invention for each standard deviation increase in city dependency. We find very little impact for native inventors as proxied by inventors with Anglo-Saxon names (who account for approximately 70% of all domestic patents). The evidence does not support crowding-out theories, and there is suggestive support for small crowding-in effects. Overall, a 10% growth in the H-1B population corresponded with a 0.3%-0.7% increase in total invention for each standard deviation growth in city dependency.

Figure 2. Indian contributions by technology

These results are confirmed using a number of different estimation approaches. Most importantly, we find similar results for science and engineering employment in the Current Population Survey, where we can directly observe immigration status. Moreover, a comparison of the patenting and Current Population Survey employment elasticities highlights that the positive gains are not due to quality differences among immigrants compared to US natives affected by the caps. Instead, the innovation gains come through greater quantities of science and engineering workers. Hunt (2009) further discusses quality differences across immigrant types and natives.

Finally, our micro-level detail also allows us to analyse situations where no other data exist. We quantify differences across innovative firms (e.g., Intel versus Proctor & Gamble). We also conduct a placebo analysis using patent records from Canada, which provides assurance that our results are not being driven by other secular changes unrelated to the H-1B visa.

Conclusion

Surprisingly, the extent to which high-skilled immigration affects innovation and growth is an empirically open question. We find that foreign born workers play an important role for aggregate US innovation.

The magnitudes of our results fall in between those of the most closely related studies. Peri (2007) and Hunt and Gauthier-Loiselle (2010) explore long-run relationships between immigration and patenting rates using state-decade variation. The latter study finds substantial crowding-in effects for native scientists and engineers. Chellaraj et al. (2008) also find strong crowding-in effects when using time-series variation. In contrast, Borjas (2005, 2006) finds that natives are crowded-out from graduate school enrolments by foreign students, especially in the most elite institutions, and suffer lower wages after graduation due to increased labour supply.

This disagreement in the academic literature is reflected in the public debate over high-skilled immigration and the H-1B visa in particular. We hope that future research further investigates the channels through which high-skilled immigration impacts innovation and economic growth.

References

Borjas, George (2005), "Do Foreign Students Crowd Out Native Students from Graduate Programs?", in Ronald Ehrenberg and Paula Stephan (eds.), Science and the University, University of Wisconsin Press.

Borjas, George (2006), "Immigration in High-Skill Labor Markets: The Impact of Foreign Students on the Earnings of Doctorates", NBER Working Paper 12085.

Card, David (2001), "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration", Journal of Labor Economics 19(1):22-64.

Chellaraj, Gnanaraj, Keith Maskus, and Aaditya Mattoo (2008), "The Contribution of Skilled Immigrations and International Graduate Students to U.S. Innovation", Review of International Economics, 16(3):444-462.

Freeman, Richard (2006), "People Flows in Globalization", Journal of Economic Perspectives, 20(2):145-170.

Hunt, Jennifer (2009), "Which Immigrants are Most Innovative and Entrepreneurial? Distinctions by Entry Visa", NBER Working Paper 14920.

Hunt, Jennifer, and Marjolaine Gauthier-Loiselle (2010), "How Much Does Immigration Boost Innovation?", American Economic Journal: Macroeconomics, 2(2):31-56.

Kerr, William (2008), "Ethnic Scientific Communities and International Technology Diffusion", Review of Economics and Statistics, 90(3):518-537.

Kerr, William (2010), "The Agglomeration of US Ethnic Inventors", in Edward Glaeser (ed.) Agglomeration Economics, University of Chicago Press.

Kerr, William, and William Lincoln (2010), "The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention", Journal of Labor Economics, 28(3):473-508. NBER Working Paper 15768, HBS Working Paper 09-005.

Lowell, B Lindsay (2000), "H-1B Temporary Workers: Estimating the Population", The Center for Comparative Immigration Studies Working Paper 12.

Matloff, Norman (2003), "On the Need for Reform of the H-1B Non-Immigrant Work Visa in Computer-Related Occupations", University of Michigan Journal of Law Reform.

Peri, Giovanni (2007), "Higher Education, Innovation and Growth", in Giorgio Brunello, Pietro Garibaldi, and Etienne Wasmer (eds.) Education and Training in Europe, Oxford University Press.

UN (2002), “International Migration”, United Nations, Department of Economics and Social Affairs, Population Division, New York.

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Topics:  Labour markets Migration Productivity and Innovation

Tags:  productivity and innovation, US, Labour Markets, migration, H1-B visas

Professor at Harvard Business School

Assistant Professor, The Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University

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