Giovanni Peri, May, 8th, 2015

Presentation to the National Conference of State Legislatures

The H1B visa program and innovation, wages and employment of Americans

Key issue

How do highly skilled immigrants (STEM workers) affect the US economy?

The main way for them to enter the US in the last 30 years has been the H-1B Visa program. First temporary, and then, 40-50% of them permanent.

60% computer-related jobs. 85% STEM jobs.

How did they affect innovation, productivity and wages and employment of US States, and metropolitan areas? 1990-2010.

STEM occupations as % of employment

Of the 1990-2010 growth (0.8 percentage points of employment) 2/3 was due to foreign-born

The H1B visa program in the last 15 years

Fiscal Year

Total Number of H1B visas allowed

to firms

H1V visas

unused Days in Filing

Period

Lottery performed? For How many visas?

2000 115,000 0 n.a. No 2001 195,000 31,400 365 No 2002 195,000 115,900 365 No 2003 195,000 117,000 365 No 2004 65,000 0 323 No 2005 65,000 0 184 No

2006 85,000 0

132 Yes, in June 2006

For the last 2,993 visas

2007 85,000 0

56 Yes, in May

For the last 4,250 visas

2008 85,000 0

3 Yes, in April

All 85,000

2009 85,000 0

7 Yes, in April

All 85,000 2010 85,000 0 265 No 2011 85,000 0 301 No 2012 85,000 0 236 No 2013 85,000 0 72 No 2014 85,000 0 7 Yes, in April 2015 85,000 0 7 Yes, in April

Questions Did they help innovation and growth in the US?

Did they help wages and employment?

Did they crowd out American STEM workers (computer scientists)?

Evidence across US states on innovation(Hunt and Gauthier-Loiselle 2010)

US States with large inflow of highly educated foreign-born had faster growth in patenting per person as they are more likely to be in science-engineering

Increase of college educated foreign-born by 1 percentage point of state population increases patent per person by 12-15%.

The probability of patenting for natives also increased and it implies positive spillovers.

Evidence in US Metropolitan Areas(Kerr and Lincoln 2010)

Analyze patenting in 281 cities 1995-2007. Increase in H1B numbers by 10% will increase Indian and Chinese patents by 3% in cities with median dependence but by 10% in cities with high dependence on foreign-STEM.

Patenting of US natives also increases more in cities with high dependence. Native scientists produce 18% more patents in city with the highest share of foreign STEM when H1B grow.

Peri, Shih and Sparber (1995), Journal of Labor Economics An increase in foreign STEM workers by 1% of total

employment produced an increase in wages of college educated by 7-8% and by 3-4% for non college educated

The effects on employment are positive but not significant.

The estimates imply that foreign-STEM might have been responsible for a large fraction of US productivity growth in US cities in the 1990-2010 period.

Correlation, foreign STEM-native weekly wage

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foreign STEM and native college wage growth, 1990-2010

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foreign STEM and native non-college wage growth, 1990-2010

College educatedNon College educated

The Effects of increase in Foreign STEM by 1 percentage of employment on Native Wages and Employment

Explanatory Variable: Growth Rate of Foreign–STEM Instrument: H-1B Imputed Growth of Foreign-STEM

(1) Weekly Wage, Native STEM

(2) Weekly Wage, Native College

Educated

(3) Weekly Wage,

Native Non-College

Educated

(4) Employment, Native STEM

(5) Employment, Native College

Educated

(a) Baseline 2SLS; O*NET 4% Definition

6.65 (4.53)

8.03*** (3.03)

3.78** (1.75)

0.53 (0.56)

2.48 (4.69)

(b) 2SLS; Major-based 4% Definition

6.64 (5.08)

10.95** (4.34)

3.22** (1.67)

0.60 (0.63)

1.05 (3.99)

(c) 2SLS; O*NET 8% Definition

7.23**(3.52)

5.64***(1.95)

2.55** (1.08)

0.53(0.75)

1.85(3.21)

(e) Controlling for Imputed Non-College Immigrants

7.94 (5.38)

7.00** (2.98)

4.95** (2.09)

0.76 (0.61)

3.29 (4.85)

(f) Dropping Small Cities (pop<400,000)

5.70 (3.51)

7.18*** (2.61)

4.28*** (1.45)

0.34 (0.58)

-0.60 (1.51)

(i) Controlling for Imputed College Natives

2.72 (4.68)

7.58** (3.78)

2.39 (2.00)

-0.32 (0.47)

-0.62 (4.19)

Clean experiment: Lotteries(Peri, Shih, Sparber and Zeitlin 2014)

In 2007 and 2008 about 120,000 applications where received in the first week of April for a total of H1B 65,000, visas.

The application process was closed and the H1B were drawn at random.

This created a random variation of supply across firms and metropolitan areas. We exploit it for the computer-related occupations.

Effects of denying H1B visas Use the lottery of 2007 and 2008. Then consider the awarded

H-1B by the lottery relative to the amount requested.

Call “negative rationing” the excess request of H1B, not satisfied

See if negative rationing is associated with: Lower employment of foreign-born Lower employment (or higher employment) of native. Lower wages (or higher wages) of natives.

Effect of H1B visa denied on Computer sector native employment in 238 Metro Areas

Computer-related college employment, natives Computer-related non-college employment, natives

Effect of denying H-1B visas on employment, overall and for some cities, 2007-2008 lotteries

Excess Demand, H1B in

2007, 2008

Predicted Change in

Foreign Employment

Predicted Change in

Native Employment

Foreign jobs per unit of Excess demand

Native jobs per unit of

excess demand

United States (All US Cities) 300,032 -207,627 -63,942 -0.69 -0.21Boston, MA-NH 15,704 -10,746 -4,083 -0.68 -0.26Chicago, IL 17,576 -9,635 -4,151 -0.55 -0.24Dallas-Fort Worth, TX 31,432 -15,202 -6,899 -0.48 -0.22New York-Northeastern NJ 99,931 -87,443 -18,740 -0.88 -0.19San Francisco-Oakland-Vallejo, CA 6,179 -5,739 -1,144 -0.93 -0.19San Jose, CA 14,360 -20,036 -1,959 -1.40 -0.14Seattle-Everett, WA 2,986 -1,877 -688 -0.63 -0.23Washington, DC/MD/VA 31,676 -17,938 -7,927 -0.57 -0.25

Conclusions Existing papers have shown large contribution of foreign

STEM in US innovation (patenting). They have also shown no displacement and potential positive externalities.

Using H-1B variation across US cities, we show a strong positive effect of foreign STEM on wages of college educated.

Positive effects and no crowding out confirmed by lottery data from 2007-2008. For five H1B visas denied one less job for US computer-related worker.

Why? Foreign computer workers perform different tasks and

complement each other (e.g. they are software developers rather than Analysts).

They are high quality and increase productivity and help firms/labs expand with higher demand for natives.

They are needed to take complex jobs that will allow hiring of more natives.

References

Ghosh, Mayda and Ortega, 2014 “The Impact of Skilled Foreign Workers on Firm Growth, Productivity and Innovation: an Investigation of Publicly Traded Firms” manuscript, CUNY, October 2014.

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

Kerr, William and William F. Lincoln. 2010. The supply side of innovation: H-1B visa reforms and U.S. ethnic invention. Journal of Labor Economics 28, no. 3:473-508.

Peri G, K, Shih, C. Sparber and Angela Marek-Zeitlin (2014) “Closing Economic Windows: How H-1B Visa denials cost U.S.-born tech workers Jobs and Wages during the Great Recession” The Partnership for a New American Economy, June 2014.

Peri G, K, Shih and C. Sparber (2015) “STEM workers, H1B visas and productivity in US cities” forthcoming, Journal of Labor Economics.