The U.S. Needs More of India’s and China’s Best and Brightest

(Bloomberg Opinion) -- In the tempestuous debates about immigration policy, the humble H-1B temporary visa tends to be overlooked. Streams of desperate Central Americans marching toward the border tend to evoke strong emotions on all sides, while tech professionals from India working in Silicon Valley elicit fewer objections. But H-1B workers are important to national prosperity, and the program is under threat from the Donald Trump administration.

Though these visas normally expire after six years, the H-1B effectively functions as a trial period for high-skilled immigrants. Often, it gives a worker a chance to become established and apply for permanent residence, while it gives their employer the ability to try them out. Without it, fewer skilled immigrants would be able to work in the U.S.

H-1B workers contribute a lot to innovation and economic dynamism. A 2010 study by economists William Kerr and William Lincoln, for example, found that when H-1B admissions were increased in the 1990s, patents attributable to people with Chinese and Indian surnames increased, while patents by people with Anglo-Saxon names didn’t fall. And a recent paper by economists Stephen Dimmock, Jiekun Huang and Scott Weisbenner found that companies that win the H-1B visa lottery — which is held in years when applications exceed the number of visas — tend to receive more venture-capital funding, tend to be more successful and produce more patents.

Furthermore, H-1Bs help native-born workers. Studies by economists Giovanni Peri, Kevin Shih and Chad Sparber, comparing across cities, have found that allowing in more H-1B workers raises wages for native-born high-skilled U.S. workers, and doesn’t hurt their employment levels. 

The reason is what economists call clustering effects. The more H-1B workers move to a city, the more tech companies want to locate their offices, factories and research facilities in that city. When tech companies cluster together in a city, it raises local productivity, and it also prevents high-value jobs from being offshored to India or China. Ironically, even if individual companies want H-1B workers in order to hold down wages, the presence of lots of H-1B workers ends up raising wages overall.

At a time when U.S. productivity growth and new business formation are low, admitting more H-1B workers seems like an obvious move. The number of H-1B workers rose in the first half of the decade, despite the official cap of 85,000 a year. But this is largely because of hiring at institutions that are exempt from the cap, such as universities and nonprofits. Companies, in turn, are being starved of the foreign talent they need to expand and grow. The official cap on H-1B visas, which constrains the number of workers private businesses can hire, was allowed to fall by more than half in 2004, and hasn’t been raised since:

Now, the Trump administration has launched a new attack on H-1B workers. Denial rates for H-1B applications have soared:

U.S. Citizenship and Immigration Services reports show that the reduction is intentional. For now, the effort hasn't done much to lower the number of H-1Bs; many of the denials are overruled and the number of applications hasn’t dropped by much, meaning that the cap is still being hit every year. But Trump and his administration are clearly trying to reduce the inflow of skilled workers.

Why the hostility toward H-1Bs, especially when opinion polls show overwhelming support for skilled immigration? Given Trump’s rhetoric and reputation, race may have something to do with it; about three-quarters of H-1B petitions are for Indian workers, and China and India together represent more than 85% of the total. There’s also a longstanding concern that many of the visas are being taken by outsourcing companies that add little to American innovation and dynamism.

But unfounded worry over wage competition is surely a big reason for antipathy toward H-1Bs. H-1B workers in the technology industry tend to be paid less than their native-born counterparts, suggesting that employers use foreign workers to try and hold down pay. And many H-1B opponents think they know the reason; visa holders, they allege, are tethered to a single employer, unable to change jobs for fear of being forced to leave the country. A worker who can’t switch companies probably will accept less in compensation. For this reason, some commentators have likened the H-1B program to indentured servitude.

This criticism is vastly overblown. A law passed in 2000 made H-1B visas much more portable. An H-1B holder can now switch employers and start working before the paperwork is approved. Even if an H-1B worker is laid off, he or she can stay in the country for 60 days to find a new job.

Although the H-1B program does have its flaws, it’s a good program, and it should be expanded. More skilled foreign workers aren’t going to hurt native-born Americans; they’re here to help.

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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