Reality Check: Scarce Talent

Jonathan Ortmans, President, Public Forum Institute

The $787 billion economic stimulus package includes large investments in innovation in areas such as energy, health IT, and broadband. Developing these new technologies will be scientists and engineers, but here’s a reality check: we don’t have enough of them. Although increasing the number of U.S. scientists and engineers is a must, in the shorter term, we need a quicker fix: more high-skilled immigration.

The U.S. has been depending on foreign graduates from our universities for much of the innovative and entrepreneurial activities in our economy (think, for example, Google, Intel, eBay, Yahoo and Sun Microsystems which we profile this week). The contribution of high-skill immigrants to the economy has been studied in detail. For example, a recent Harvard analysis of the 2000 Census shows that immigrants represent only 12 percent of the total workforce, but 47 percent of all scientists and engineers with doctorates. This last proportion is likely to rise since 67 percent of all those who entered the fields of science and engineering between 1995 and 2006 were immigrants. The Small Business Administration recently revealed that immigrants are disproportionately prone to entrepreneurship: they represent 12.5 percent of all business owners and are 30 percent more likely to start a business than native citizens are. Moreover, they generate 11.6 percent of all business income in the U.S. and own 11.2 percent of businesses with at least $100,000 in sales.

Vivek Wadwha from Duke and Harvard has been pointing to these and other important trends. His research has shown that immigrants founded 25 percent of all U.S. engineering and technology companies started between 1995 and 2005, including half of those in Silicon Valley. In 2005 alone, immigrants' businesses generated $52 billion in sales and employed 450,000 workers. Furthermore, almost a quarter of all international patent applications filed from the U.S. in 2006 named foreign nationals as inventors. Scholars Jennifer Hunt and Marjolaine Gauthier-Loiselle even argue that that a 1% point increase in immigrant college graduates should lead to an increase in patents per capita of 9%-18%.

Despite the strong evidence in favor of more highly-educated immigrants, our policies have been sending the opposite signal.  Currently, only 85,000 visas a year are allocated to the sort of skilled workers the economy needs. If these high skilled immigrants want to stay permanently, they have to apply for permanent residency status. This can take years and cost thousands of dollars to obtain. One study found that hundreds of thousands of foreign graduates with technical majors constrained by green card and H-1B constraints might have added almost $14 billion to the nation’s GDP in 2008 and some $3 billion to the federal treasury. Unfortunately, the final stimulus bill that emerged on Capitol Hill contained a worrisome provision on immigration that would restrict financial institutions that receive federal bailout funds from applying for H-1B visas to hire high-skilled immigrants. This sends a bad signal to other sectors of our economy and could hinder economic recovery.

Not surprisingly, high skilled immigrants and students are looking for opportunities elsewhere. A recent survey of 1,224 foreign nationals who are currently studying in institutions of higher learning in the U.S. or who had graduated by the end of the 2008 academic year revealed that very few would like to stay in the U.S. permanently: only 6% of Indian, 10% of Chinese, and 15% of Europeans. The U.S. faces increasing competition in the global labor market from other OECD countries, and, more significantly, from the growing economic opportunities available to university-degreed professionals in their home countries.

It is unfortunate that the debate on immigration has so far focused primarily on low-skill immigration. The evidence above shows what is at stake. We hope to alert policymakers about this pressing issue on April 6th when we hold our next Policy Dialogue on Entrepreneurship briefing. Vivek Wadhwa, Tim Kane from the Kauffman Foundation and Amir Hudda, a technology entrepreneur, will discuss how friendlier immigration policies today can help heal our economy (more details on registering for this event at www.publicforuminstitute.org/pde).

Job generation and innovation are in everybody’s interest. Companies cannot wait for changes in our education system to yield results. Firms having difficulties hiring a talented workforce might decide to relocate. While we need improvements in our education system, in the short term we should welcome foreigners who look to the U.S. as a place to learn and apply their skills.

 

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