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Eli Kantor is a labor, employment and immigration law attorney. He has been practicing labor, employment and immigration law for more than 36 years. He has been featured in articles about labor, employment and immigration law in the L.A. Times, Business Week.com and Daily Variety. He is a regular columnist for the Daily Journal. Telephone (310)274-8216; eli@elikantorlaw.com. For more information, visit beverlyhillsimmigrationlaw.com and and beverlyhillsemploymentlaw.com

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Monday, November 28, 2022

Would more immigration boost U.S. innovation?

Alec Stapp: What we're really seeing now is an increasing war for talent globally, where countries are trying new, intentional programs that make it very easy for talented people to move there. And I think, in the United States, we have yet to see a comparable effort. Stephanie Kelton: Welcome to the Best New Ideas in Money, a podcast from MarketWatch. I'm Stephanie Kelton. I'm an economist and a professor of economics and public policy at Stony Brook University. Charles Passy: And I'm Charles Passy, a reporter at MarketWatch. Stephanie Kelton: Each week, we explore innovations in economics, finance, technology, and policy that rethink the way we live, work, spend, save, and invest. Charles Passy: Today, we're going to start with a number, 0.1%. That's how much the US population grew last year, a slower rate than any other year since its founding, according to the United States Census Bureau. Stephanie Kelton: Back in July, a report from the Congressional Budget Office found that the US-born population will start falling around 2043, meaning that deaths will start to exceed births. At that point, the report says, population growth will be increasingly driven by one source; immigration. Charles Passy: Immigration is one of the most divisive issues in American politics today. But what sometimes gets lost or misunderstood in that passionate debate is something that we spend a lot of time thinking about on this show; the economic impact. This week, we're bringing you the first part of a two-part episode dive into the issue. Today, we're going to be looking at immigration from more educated, higher-income-earning immigrants. That's typically called high-skilled immigration. Recently, a pair of studies have zoomed in on two areas where high-skilled immigrants often contribute; innovation and entrepreneurship. The first, published in May 2020 and revised in November 2021 by the National Bureau of Economic Research, looked at how immigration impacted innovation in a given area. Tarek Hassan: So we have many canonical economic models that say if you have more people arriving in a place, then it's generally good for that place. Stephanie Kelton: That's Tarek Hassan. He's a professor of economics at Boston University and one of the authors of the paper. Tarek Hassan: Generally, we would expect that if you have more immigrants in a given location, that location would get more innovative, more what we call economically dynamic. And maybe the most straightforward thing is that the prediction of these models is that the wages of the people who are already in that location should increase as the result of more people arriving, at least over the long term. Stephanie Kelton: Economic dynamism refers to the idea that, when there are more people, more firms get created. More firms can also get destroyed, which Hassan says can result in more competition. Charles Passy: One of the things the paper looked at was the idea that immigration is good for economic growth because it can help foster more ideas. Tarek Hassan: One of the things that people, in general, not just migrants, but people, do is they invent new things. And whenever a person invents something new, that might be good for that person's career, but it's also good for everyone around them. So there's this famous idea that, once you generate new ideas or new ways of doing things, other people can use these ideas for free. So if I figure out how to build a car, I'm going to draw a blueprint of a car, and I might start my own car company. But once that blueprint exists, other people can use it, particularly if I take out a patent. That way that we have figured out to build a car then becomes accessible to other people. So as soon as that patent lapses, other people can use that as well. Charles Passy: Hassan and his colleagues look to patents as a measure of innovation. Tarek Hassan: If you have about 12,000 new migrants arriving in a given county in a given five-year period, then the number of patents filed per capita in that location increases by 27%. Charles Passy: But what does that increase of 27% really get us? According to Hassan, it means more innovation. Tarek Hassan: How innovative a place is, is very important for how economically dynamic it is. I live in Boston. Boston is a place that is famous for its economic dynamism in the sense that people invent new stuff in Boston all the time. And if you walk around Boston University or if you cross the river and go to Harvard and MIT, you'll hear lots of students talking about their startups and the new companies that they work at. And there's lots of young companies around. And that's a sign of economic dynamism. Those young companies generate jobs. And because there are so many companies produced there all the time, that's one of the reasons why wages, even if you adjust for how expensive things are, are quite expensive in Boston because it's such an economically dynamic place. Stephanie Kelton: Hassan brings up wages, another subject the study looked at. He says, if a lot of people move to a new county, you might expect that wages would go down. Tarek Hassan: So this is what I teach my students; supply and demand. So if you have more people willing to work in a given place, then, of course, wages should initially go down. But the economy is actually more complicated than that, primarily for the reason that the other thing that people do is they generate ideas. So we have these two forces that are battling against each other. More people or an influx of people, normally, if the number of ideas are fixed, would mean lower wages. But on the other hand, if people are creative and create more ideas, then more people also means more ideas. And ideas have this property that everybody can use it for free. So if you have more people, you're going to have more and more ideas generated. Charles Passy: But that's not the only thing that happens. Tarek Hassan: More natives, more people who are already in that location get hired to be researchers, and they also produce more ideas and more patents. So this creative counterbalance actually leads to, and we see this in the data, that, on average, if you have more people arriving in a given county, wages of the people who are already there actually go up. So we see that, within a five-year interval, if you look only at people who already lived in that county before the migrants arrived, their average wage increases by about 6%. Charles Passy: So it might be tempting to conclude that immigration is like a rising tide that lifts all boats, but Hassan's study also found that a rise in wages didn't apply equally. Tarek Hassan: One very striking finding and a paper that's also very worrying is the effect of immigration on inequality. We see that, across the board, the average wage goes up for people who are already in that location, but that effect is much stronger for people who are highly educated, meaning who have at least a college degree. There is a positive effect, on average, for people with a high school degree as well. But for people who do not have a high school degree, we see, on average, no effect. So it looks like the people, on average, who benefit most from the kind of immigration that we've seen in the US over the last 50 years are people who are highly educated. Stephanie Kelton: And it's also highly educated immigrants who tend to benefit from relocating to the US. Tarek Hassan: The top third of migrants arriving, in terms of the number of years of schooling that they have, have an effect that is approximately eight times larger than the mean migrant arriving. In other words, highly skilled immigrants have much larger positive effects on local innovation and wages. Stephanie Kelton: But innovation isn't the only area where researchers have found immigrants make an impact. Another study published this March in the American Economic Review took a look at one of the centerpieces of the discussion around immigration in the United States. Pierre Azoulay: Lots of debates about the desirability of immigration revolves around the question of whether immigrants crowd out the natives or the US-born in the labor market. Stephanie Kelton: That's Pierre Azoulay. Pierre Azoulay: I'm a professor at the MIT Sloan School of Management and a research associate at the National Bureau of Economic Research. And in addition, I'm an immigrant to the US. I grew up in Paris. And that might be relevant to the conversation we're going to have today. Charles Passy: For Azoulay and his co-authors, the discussion around the impact immigrants have on the labor market, that immigrant workers compete unfairly with Americans, was missing a key point. Pierre Azoulay: The thing that this debate has ignored to date is the possibility that immigrants are not just employees of firms. They can also create firms. And so we wanted to find whether or not immigrant entrepreneurs tend to create more firms and also to characterize those firms. Are those mostly small businesses, medium-sized businesses, tech startups, firms that will grow up to be really large? And so on and so forth. Stephanie Kelton: In the study, Azoulay and his colleagues looked at three sources of data. First, they looked at administrative records for nearly every firm founded in the US between 2005 and 2010. They also looked at the US Census Survey of Business Owners to study a representative sample of all US firms. Finally, they used the Fortune 500 to focus on the largest companies in the United States. Pierre Azoulay: So it's like three different cuts of data that let us, in some sense, count and compare the number of immigrant-founded firms versus the number of firms founded by US-born people. Stephanie Kelton: Azoulay and his colleagues counted the number of firms created by those born in the US and the number created by immigrants. And then they used the data to determine whether immigrants are disproportionately likely to found businesses. Pierre Azoulay: And it's kind of a large effect. So more firms are being created by the US-born because there are more US-born people than immigrant people in the labor market. But if you take the ratio to the underlying populations, immigrants exhibit an 80% higher entrance rate into entrepreneurship. And so that's the top result that people should understand. Stephanie Kelton: According to Azoulay, that result was seen across every size company. He says that's contrary to the common idea that immigrants mostly start small businesses. Pierre Azoulay: A restaurant, a laundromat, a landscaping business. And you might think that, in some sense, this is the hallmark that those small businesses... this subsistence form of entrepreneurship is the hallmark of immigrant entrepreneurship. And we find that that's not true. Stephanie Kelton: For firms of all sizes, the study found that immigrants disproportionately created new businesses and jobs. Charles Passy: Azoulay's research also looked at the impact on wages. The paper found that wages didn't change much if the founder was US-born or an immigrant. Wages of employees in immigrant-founded firms were slightly but not significantly higher at just 0.7%. But the shift to thinking about immigrants not just as employees but also as employers is an important perspective here as well, Azoulay says. Pierre Azoulay: Then it becomes, in our mind, increasingly hard to make a strong case against immigration on the basis of effect on the labor market because it seems not ambiguous that they have this big effect on job creation through the entrepreneurship channel. Charles Passy: Coming up, if you want to increase high-skilled immigration in the US, how might you do it? We take a look at a high-skilled visa program and the challenges facing immigration today. That's after the break. Stephanie Kelton: Welcome back to the Best New Ideas in Money. Before the break, we heard about two recent studies that explore the impact immigrants have on entrepreneurship in the United States. High-skilled immigration has long been seen as a key component of American progress, from Albert Einstein to Google Founder Sergey Brin. Alec Stapp: If you look, historically, immigration to the United States is what ends up revitalizing and renewing the US over time. It is something that is a superpower relative to our peer nations. We seem uniquely capable of attracting the best and brightest from around the world. Stephanie Kelton: That's Alec Stapp. He's the co-founder of the Institute for Progress, a new research and advocacy think tank that focuses on scientific, technological, and industrial progress. The group is funded from individuals and foundations, including Open Philanthropy, the Emergent Ventures program from George Mason University's Mercatus Center, Stripe co-founders Patrick and John Collison, Schmidt Futures, The Future Fund; and Sam Bankman-Fried, who resigned as CEO of the embattled crypto exchange FTX earlier this month. Stapp says that data bears out that America has long been positively impacted by high-skilled immigration. Alec Stapp: Between 2000 and 2010, America received more migrating inventors than every other country combined. And then even though foreign-born immigrants only make up 14% of our population, immigrants are responsible for 30% of US patents and 38% of US Nobel Prizes in science. And so what I really think we see here is that, even though immigrants are only a small fraction of our population, they end up having outsized returns over time and keep America the dynamic, open economy that makes it a world leader. Charles Passy: But that may be beginning to change. A recent survey from the Boston Consulting Group found that, in 2020, for the first time, Canada, and not the US, took the top spot for most desirable location for migrants moving for work. Stephanie Kelton: As we mentioned at the top of the episode, the US population, and especially the US-born population, is in decline. A shrinking population can have an impact on the economy, with implications for education and programs like Social Security and Medicare as the existing population ages. A fall in population can also contribute to declining entrepreneurship and innovation. Some say immigration is one solution to that problem. Alec Stapp: What we're really seeing now is an increasing war for talent globally, where countries like Canada, the UK, Australia, and even China to some extent, are trying new, intentional programs that make it very easy for talented people to move there. They're being proactive about recruiting talent. And I think, in the United States, we have yet to see a comparable effort to adjust our immigration systems. Charles Passy: So how exactly does high-skilled immigration work? Let's take a closer look at one of the most common visa programs for high-skilled immigrants; it's called H-1B. Stephanie Kelton: The H-1B visa allows immigrants to work for sponsored employers in so-called specialty occupations. There's a pretty broad range of what's considered a specialty occupation, but they're highly concentrated in science, technology, engineering, and math; or STEM fields. Charles Passy: Congress determines the annual cap on H-1B visas, which is currently at just 65,000, with an additional 20,000 for those with advanced degrees. In recent years, the number of applications has surged. For the next fiscal year, 483,000 applications were received. Just 26% were selected to be processed. Stephanie Kelton: The fact that few applications are approved, much less processed, isn't the only problem with this type of visa. There are also a number of criticisms of the program itself. For starters, because these visa holders are tied to employment at a specific company, some say the program can put employees at risk of being underpaid. They also may be more vulnerable to exploitation, like retaliation for reporting workplace misconduct. And if an H-1B holder loses their job, they face deportation. So, for critics, it's not just a matter of increasing the cap on H-1B visas and fixing the system, it's also about reforming the visa program itself. We'll talk more about that next week. Another important criticism of the H-1B program is that, unlike other visa programs, it doesn't always have a requirement that employers recruit US workers before hiring under H-1B. Charles Passy: That contributes to the concern we talked about earlier, that immigrants, quote, unquote, "take away jobs." Critics have also pointed out that many of the companies that rely on H-1B are outsourcing firms. Those companies move work abroad and, some critics say, exploit the system to hire workers at a lower cost. In 2020, 17 of the top 30 H-1B employers were outsourcing firms. There's also been a push lately for bringing jobs back to America. We explored that a few weeks ago in our episode on the semiconductor industry. As a quick refresh, back in August, President Biden signed the CHIPS and Science Act into law. That included a new 25% tax credit for investments in chip manufacturing in the United States. But, on the other hand, there's a question of whether the US has the skilled workforce necessary to take those jobs. Here's Alec Stapp again. Alec Stapp: So, for example, TSMC, the world-leading semiconductor firm in Taiwan that is building a chip fab in Phoenix, Arizona, data on their global workforce shows that 4% of their employees have a STEM PhD, but 45% have a STEM master's degree. And so, as you see there, about half of their workforce has an advanced STEM degree. And if we want to be able to build these chip fabs and re-onshore that critical supply chain for the entire technology industry, we need to make it easier for companies like TSMC and Intel and others to hire talent and bring them to the US quickly. Charles Passy: So the labor shortages that the US currently faces remain a problem, one that will only become more serious as the US-born population continues to shrink over time. While immigration remains a polarizing issue, Alec Stapp, the co-founder of the Institute for Progress, says high-skilled immigration is one area where Americans are actually more aligned across the political spectrum. Alec Stapp: And that's really what we see in polling. For example, according to a survey by Pew, we see that 78% of voters support high-skilled immigration, including 63% of those who said the country should allow fewer or no immigrants. So even among people who really subscribe to an immigration restrictionist philosophy, 63% say that they support high-skilled immigration. Charles Passy: Earlier this year, a bill passed in the House of Representatives called the America COMPETES Act. It proposed a green card cap exemption for STEM, PhD, or master's degree holders. It was ultimately blocked in the Senate, but it's possible more immigration reform will be on the horizon. Stephanie Kelton: The need to increase highly skilled immigration to the United States may be the element of immigration reform that sees the most bipartisan agreement, but it's not the only part of the legal immigration system. Far from it. Next week, we'll dive further into that system and hear about some new ideas in immigration reform. That's next time on the Best New Ideas in Money. Thanks for listening to the Best New Ideas in Money. You can subscribe to the show wherever you listen. And if you like what you heard, please leave us a rating or a review. If you have ideas for future episodes, drop us a line at bestnewideasinmoney@marketwatch.com. Thanks to Alec Stapp, Pierre Azoulay, Tarek Hassan, and Brett Arends. I'm Stephanie Kelton. Charles Passy: And I'm Charles Passy. The Best New Ideas in Money is a podcast from MarketWatch. The producers are Michael McDowell, (inaudible), and Katie Ferguson. This episode was mixed by Megan (inaudible). Melissa Haggerty is the executive producer. Jeremy Binckes is our news editor. Mark DeCambre was our newsroom editor on this episode. The Best New Ideas in Money theme was composed by Sam Retzer. Stephanie Kelton is an economist and a professor of economics and public policy at Stony Brook University and not part of the MarketWatch newsroom. We'll be back next week with another new idea. For more information, visit us at http://www.beverlyhillsimmigrationlaw.com/index.html.

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