A reduction in the number of skilled immigrant worker visas in the United States has had a detrimental effect on innovation, according to a study co-authored by Rina Ray, PhD, an Assistant Professor of Finance at the CU Denver School of Business.

Ray and her co-author, Rasha Ashraf, PhD, Georgia State University, found that U.S. firms dependent on skilled immigrant workers saw a decline in both patents and citations since 2004. They analyzed the effects of a 2004 cap that limited the number of H-1B visa workers admitted to the United States to 90,000, followed by another reduction to 85,000 visas in 2006. Currently, under the annual cap of 85,000 H-1B visas, the United States allows 65,000 basic skilled immigrants and 20,000 workers who have at least a master’s degree from a U.S. university.

The reductions were significant, given that in 2003 the United States granted 195,000 skilled immigrant worker visas. Congress passed the American Competitiveness and Workforce Improvement Act and the American Competitiveness in the 21st Century Act in 1998 and 2000, respectively, as responses to a severe worker shortage during the technology explosion of the late 1990s.

“By our estimate, the immigration policy change resulted in around 1,500 fewer patents between 2004 and 2009,” Ray said.

Intangible losses

In 2001, firms dependent on skilled immigrant workers had 70 percent to 300 percent better innovation outcome, measured by patents and downstream citations, relative to a sample of control firms not dependent on skilled immigrant workers but that were from the same industries. By 2009, after four years of decline in the supply of immigrant workers, dependent and non-dependent firms had similar innovation outcomes, their study found. The evidence suggests that some innovative U.S. firms had effectively used an alternative to direct investment in the existing human capital in the U.S. by acquiring human capital of skilled immigrant workers.

In addition to the measurable losses, Ray said, innovative companies and the overall economy suffered intangible losses as well. These include reductions in innovation related to downstream innovations or patents that could have originated from these missing patents.

‘Debate not resolved’

Ray said some labor economists have found that skilled immigrant workers encourage the host country’s young workers to go into technology fields, thus fostering even more innovation. Other studies have shown, however, that when skilled immigrants enter the workforce, after a period of a few years, employment opportunities begin to decline for domestic workers, especially older workers.

“The debate has not been resolved,” Ray said. “My sense is that, depending on the data and the methodology used, both sides have been supported by research.”

Tech-industry leaders, including Google, Apple and Microsoft, are petitioning the U.S. government to allow more skilled immigrant worker visas. Under the current H-1B program, applications are due on April 1, and current quotas are exhausted within a week or just a matter of days, beginning the first day of filing, Ray said.

Ray, a native of India, came to CU Denver in 2011 on an H-1B visa. She has also received approval for an EB-1 (Employment-Based Immigration: First Preference) petition that’s available to skilled immigrant professionals, including professors and researchers, who’ve shown outstanding achievements. Ray teaches in the CU Denver Business School’s Professional MBA/MS Program, and among her research interests are human capital and innovation, household finance and credit risk.

Ray and Ashraf’s H-1B study is under peer review at the Journal of Financial and Quantitative Analysis. They are considering a second project that would look into the H-1B visa issue from broader labor market perspectives, including whether the admittance of skilled immigrant workers are depressing wages in the United States.

Ray was invited to speak at last year’s Euro-Asia Economic Forum held in China. “Countries are looking at how human capital, especially skilled labor, can contribute to innovation and entrepreneurship,” she said.

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