High-Skilled Immigration Boosts Native-Born Wages in Cities

Written by on May 9, 2014 in Economics, High Skilled, State by State with 0 Comments

6355811869_baa5c673e3_bDespite the soaring demand there are only 85,000 H-1B visas available each year for high-skilled workers. And as a new report explains, these foreign workers who often work in STEM (science, technology, engineering, and mathematics) fields are helping to boost the wages of native born workers without taking away jobs. In the report published by the National Bureau of Economic Research, economists Giovanni Peri, Kevin Shih, and Chad Sparber examine the effect of foreign STEM workers on the wages and employment of college educated and non-college educated workers across 219 U.S. cities from 1990 to 2010. It is an update to a 2013 paper, which Immigration Impact described last year. In their most recent report, the authors note that STEM workers, who make up the majority of H-1B high-skilled visa holders, “are the main inputs in the creation and adoption of scientific and technological innovation.” That innovation also helps American workers and boosts local economies.

By looking at the impact of foreign STEM workers on native born workers over a longer period of time, their research finds that “there is a positive, large, and significant effect of foreign STEM workers on wages paid to college educated native workers.” The authors examined the distribution of foreign-born STEM workers in 1980 and used the introduction and variation of the H-1B visa program in 1990 that granted entry to new foreign-born college-educated, mostly STEM, workers so that they could study the before-and-after effects of the H-1B program. That is how they found that “H-1B-driven increases in STEM workers in a city were associated with significant increases in wages paid to college educated natives. Wage increases for non-college educated natives are smaller but still significant.” In particular, they note that “a one percentage point increase in the foreign STEM share of a city’s total employment increased wages of native college educated labor by about 7-8 percentage points and the wages of non-college educated natives by 3-4 percentage points.” They also found non-significant effects on the employment of those two groups.

Why is this the case? The authors suggest that “these results indicate that growth in STEM workers spurred technological growth by increasing productivity, especially that of college educated workers.” In an article for Vox,  Peri, a professor of economics at UC-Davis, described the impact on wages is likely a function of increased productivity. As Peri noted, “the largest part of these H1Bs went into information technology. 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.” As Vox points out, “by creating technological innovations and implementing technology, these workers boost the productivity of their fellow STEM and non-STEM workers alike.”

And innovation industry and STEM jobs tend to have higher than average multiplier effects. Such effects allow for greater job creation in metropolitan areas with strong innovation industry economies. For example, an analysis of 320 metro areas in the U.S. shows that each new high-tech job creates five additional long-term local jobs outside of the high-tech sector across the skills spectrum. It’s no wonder, then, that even as prospects dim for federal immigration reform, local and state leaders are talking about the benefits of immigration to local and regional economies and are exploring creative ways in which to welcome new immigrant innovators and entrepreneurs and encourage and support those already there.

Photo by 401(K) 2014.

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