Thursday, August 21, 2014

Immigration reform could give you a raise

If immigration reform passes and more H-1B visas are granted, it could affect your pay. Getty Images

H-1B visas are a hot topic in in the employment and immigration debates, and a hot commodity as well. The US only allows a total of 85,000 people per year to enter the country on the visas, which are issued to highly skilled workers. This year it took less than one week for the nation to hit that cap.

And while conventional wisdom might say those workers are taking jobs that native-born Americans might otherwise take, a new study by Giovanni Peri, Kevin Shih, and Chad Sparber finds otherwise. In a National Bureau of Economic Research working paper they find that H-1B immigrants in fact have no effect on employment of native born workers, but do raise their wages.

What they tested

The study aims to measure the specific economic effects of foreign-born STEM workers, a group of workers that makes up the majority of H-1B holders. In an ideal situation, the authors write, they would randomly distribute different levels of STEM workers in different cities, then study wage and employment effects.

Unfortunately, that's not possible. But the H-1B program was started in 1990, which gave the researchers a way to investigate before-and-after effects. The authors create a model that aims to capture not only how many foreign STEM workers showed up across 219 US metro areas from 1990 to 2010 but also to isolate particular ones, in order to gain a true understanding of the growth in the supply of foreign stem workers, independent of economic shocks.

In other words, researchers created a model that allowed them to know how much the supply of foreign workers in a particular city grew, independent of increased demand bringing them there. If (hypothetically) Chicago got 100 more H-1B STEM workers in 1993, 60 may have come because new jobs were created, but 40 would have shown up anyway. Those 40 are what the researchers were trying to isolate.

What they found

The researchers found that for every 1-percentage-point in foreign STEM workers' employment, wages for native college graduates' wages grew by a statistically significant 7 to 8 percent, and wages for native non-grads grew by 3 to 4 percent. So if H-1B workers grew from 4 percent of the workforce to 5 percent in a given year, then a college graduate making $1,000 a week initially would have seen a bump up to nearly $1,080 per week.

While the new foreign STEM workers may have increased competition in the housing market, they didn't have significant effects on employment of native-born workers, either college-educated or not.

What it means

How on earth could an influx of new workers manage to boost native-born American workers' wages without reducing their employment? It's likely a function of productivity, says one of the study's authors.

"The largest part of these H1Bs went into information technology," says Giovanni Peri, professor of economics at UC-Davis. "And what we estimate essentially is that by contributing to innovation and growth in that sector it contributes to the productivity of all workers because in the 1990s and 2000s the large part of college educated workers really used this type of technology."

By creating technological innovations and implementing technology, these workers boost the productivity of their fellow STEM and non-STEM workers alike. But it benefited college grads more than non-grads, he says, because college graduates tend to be more competent with computers.

A worker that's more productive, Peri adds, is a worker who can demand more money.

But it's important to remember here that immigrants aren't what matter in this story; STEM workers are, wherever they come from. By this study's logic, if suddenly US universities started cranking out more STEM graduates tomorrow, those workers could theoretically boost productivity in the same way as foreign STEM graduates.

In addition, not everyone agrees that the US economy needs more foreign STEM workers. The left-leaning Economic Policy Institute found in 2013 that high-skilled foreign workers would be detrimental to other US workers: "Immigration policies that facilitate large flows of guestworkers will supply labor at wages that are too low to induce significant increases in supply from the domestic workforce."

If H-1B visa-holders are indeed boosting native-born Americans' wages, that information could inspire lawmakers to pass immigration reform.

That said, plenty of people, including major tech companies like Facebook, Microsoft, and Google, are already advocating a higher cap on H-1B visas. And either way, there is bipartisan support on raising the cap. But hammering out a broader immigration deal is proving a hurdle to getting that done.

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