America has long benefitted from immigration. The scale and diversity of our economy would be impossible were it not for generations of immigrants. Because of these aggregate benefits, a natural question is: does everyone benefit from immigration? Are there no losers?
A commonly stated reason why there are no losers from immigration is that immigrants increase both the supply of labor and the demand for labor simultaneously; this means that immigration may keep wages constant—or even increase them. But immigrants increase the supply of labor in the small set of industries that they specialize in working in, while they increase the induced demand for labor through purchases made in the broader set of industries that they spend in, including purchases of imports and remittances back home! So this reason isn’t particularly convincing.
A more subtle explanation for why we might expect no losers applies to highly skilled immigrants. The idea is that highly skilled immigrants will provide unique and innovative skills that will help companies and communities to innovate and grow. This innovation and growth could increase labor demand in ways that more than compensate for any extra competition in the labor market.
Since much of this innovation and growth is predicted to take place at the firm level, and since the American H-1B highly skilled immigration program is run at the firm level, a natural place to test these hypotheses is at the firm level. In our recent work, we use a variety of strategies to measure the effects of random and quasi-random variations in the number of highly skilled immigrants on US firms. We use random visa lotteries, discontinuities in which caps on immigration were suddenly and unexpectedly reached, and a number of other sources of variation to measure these effects based on the universe of tax data reported by US firms. Whatever variation we use, we find that highly skilled H-1B immigrants crowd out otherwise available workers at the firms that hire them. Most of our estimates suggest that each H-1B worker crowds out more than one, but less than two other workers. Furthermore, across the different ways of measuring these effects, we consistently find that having more H-1B visa immigrants does not significantly increase the number of patents that a firm receives.
What could explain these results? One possibility is that most H-1B immigrants are doing relatively low-level support tasks, while working longer hours due to their employers’ control of the green-card process. Indeed, we find that payroll per employee probably decreases at firms that win highly skilled immigrants through H1-B lotteries, and that the pay of most of the immigrants themselves most closely matches support occupations.
Highly skilled immigrants are an important component of the American labor force, but it appears that shocks to highly skilled immigration, like most economic shocks, can produce losers as well as winners. Furthermore, the benefits of increasing high-skilled immigration, if they are as large as many people believe, would likely have to occur through effects that happen outside of the firms that directly hire these immigrants.
© Kirk Doran
Kirk Doran is Henkels Family Collegiate Chair and Associate Professor of Economics at the University of Notre Dame, and an IZA Research Fellow
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.