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Economists: H-1B visas suppress wages

The effect of foreign-born STEM (science, technology, engineering, and mathematics) workers on the U.S. economy and labor force has been a major political controversy for years. Proponents of increased high-skilled immigration argue, as in a document used at a Capitol Hill briefing for congressional staff on 24 April, that foreign workers are “good for America’s workforce and economy” because they create “jobs for U.S.-born workers,” increase patenting, and raise wages. Critics, on the other hand, argue that the evidence indicates that the opposite it true. While mostly used in tech companies, H-1B visas are also used to employ other kinds of scientists.

A new study presented that same day at Harvard University provides strong evidence supporting the critics’ view. It finds that adding employees on the H-1B visa, which is among the commonest and arguably most contentious vehicles for admitting highly skilled guest workers to the United States, has “insignificant effect on patenting, … substantially crowd[s] out employment of other workers, [and] leads to lower average employee wages while raising firm profits.”

[W]e robustly find that new H-1Bs cause no significant increase in firm employment.

–Kirk Doran, Alexander Gelber, and Adam Isen

The Effects of High-Skilled Immigration on Firms: Evidence from H-1B Visa Lotteries, by economists Kirk Doran of the University of Notre Dame in Indiana, Alexander Gelber of the University of California, Berkeley, and Adam Isen of the Office of Tax Analysis at the U.S. Department of the Treasury, uses an innovative analytical approach to gauge the effect on companies of adding H-1Bs.

The authors used data from U.S. Citizenship and Immigration Services, the Internal Revenue Service, and the U.S. Patent and Trademark Office to track outcomes for firms that won the lottery and, thus, received new H-1B workers. “Our paper is the first we know to isolate the effect of an additional H-1B visa given to a particular firm on outcomes at that firm,” they write in the paper. “We demonstrate that H-1Bs given to a firm on average do not raise the firm’s patenting and/or other employment, contrary to firms’ frequent claims. Overall our results are more consistent with the second [i.e., the critics’] narrative, in which H-1Bs replace other workers to some extent, are paid less than alternative workers, and increase the firm’s profits (despite little, if any, effect on firm patenting).”

In addition, “we robustly find that new H-1Bs cause no significant increase in firm employment. New H-1Bs substantially and statistically significantly crowd out median employment of other workers,” they continue. This result conflicts with the widely repeated claim that foreign workers create American jobs, which is based, as we have previously reported, partly on the work of economist Madeline Zavodny  of Agnes Scott College in Decatur, Georgia. Furthermore, “[o]ur results are consistent with the possibility that H-1B and non-H-1B workers are perfect substitutes. This is notable in light of frequent claims that H-1Bs have unique skills that cannot easily be obtained elsewhere.”

The authors of this “important” study “have done an exhaustive analysis, given the data available, and they have better data than anyone to date, best I can tell,” says labor force expert Hal Salzman of Rutgers University in New Brunswick, New Jersey, by e-mail. “And their findings are consistent with all the other analyses that were done competently—and consistent with what the companies themselves state is the function of H-1B (to lower wage costs and raise profits).”

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