Immigration Reform: Fuel for an Idle Economy

May 23, 2013

This article first appeared in Business Horizon Quarterly, a publication of the U.S. Chamber of Commerce Foundation.

With the U.S. economy continuing to be stuck in idle and unemployment trapped at alarmingly high levels, it’s a good time to look for game changers—events, policies, and people that might significantly disrupt the status quo and propel the American economy forward.  

To unearth those game changers, it helps to consider some of the nation’s history as a guide. As with earlier disruptive periods in America’s long-unfolding economic story, the game changers often come from beyond our shores. Simply put, we need to bring more of the world’s most talented people to the United States. 

To understand why a new wave of skilled immigration might fundamentally change the game here at home, it’s important to understand what makes the U.S. economy unique. After all, a game changer for America might not work for a country like Japan, Sweden, or India. 

Three things, when combined together, make the United States almost uniquely suited to benefitting from a wave of skilled immigrants. 

The United States is the dominant nation today at the technology frontier. Given its size, the diversity of its work force, and its unrivalled research universities and technical institutes, American innovators are always pushing the technological envelope. This is true in areas as diverse as information systems and communications, biotechnology, manufacturing, energy, pharmaceuticals, and more.

For the United States to continue to grow rapidly, it must advance that frontier. Aspiring nations can grow by copying or adopting the best technologies, as well as methods developed by other nations—practicing what Brink Lindsey calls imitative growth. Often that means imitating what the United States has done in the past. 

By definition, the United States can’t imitate itself. The United States has to keep pushing forward—it must practice what Lindsey calls innovative growth, which comes from developing and deploying ideas in original ways. 

For this reason, talented immigrants—brimming with fresh perspectives and human capital—can play a vital role in helping the American economy push forward through innovative activity. 

It’s difficult to overstate the importance of immigrant-entrepreneurs to American political, economic, and technological success. Think of Alexander Hamilton, the nation’s first Treasury Secretary; or the industrial giant Andrew Carnegie, who came from Scotland and remade American business and philanthropy; or Intel’s Andy Grove, who fled communist oppression and found a safe haven the United States and went on to build what some regard as the most important technology company of the 20th century; or Elon Musk, the serial entrepreneur who is breathing new life into America’s electric car industry and private-sector space enterprise. 

No other nation of comparable size can boast a record of welcoming immigrants and providing an ecosystem within which they could flourish. 

That ecosystem consists of many interconnected and self-reinforcing parts—a system of private property rights; deep and varied capital markets; a tolerance of risk-taking and failure; an openness to new ideas and new business models; a culture of “venturesome consumption” in Amar Bhide’s phrase, that yields a market of buyers willing to try new technologies and models of commerce and enterprise.

It is not as if there aren’t other countries that are technologically sophisticated. Consider Japan, one of the great technological and industrial success stories. Unlike the United States though, Japan does not have a rich tradition of welcoming immigrants and permitting them to reach for the stars. 

One of the many things that attract aspiring entrepreneurs to the United States is the breadth and variety of its marketplace.  

The United States offers a continental economy with a huge, educated, and growing population. This gives aspiring immigrant entrepreneurs a higher degree of confidence, such that their innovative ideas might find that critical initial niche to get off the ground.  

Smaller nations, or countries with a less dynamic and free consumer sector, understandably hold less appeal.  

In addition to being large, the United States economy is quite competitive. Firms large and small compete with one another vigorously for market share. A primary way of innovating is by adopting new technologies to get a leg up on their competitors. This competition dynamic ensures that entrepreneurs will be confident that innovations they develop will at least get a hearing from private firms looking for advantages in the marketplace. 

America clearly offers so much potential to skilled immigrants; what might America receive in return? Fortunately, there is ample research documenting the enormously beneficial effects of skilled immigrants on the American economy and the U.S. labor market. 

Madeline Zavodny of Agnes Scott College and the American Enterprise Institute recently studied the effect of skilled immigrants, such as those with science, technology, engineering, and math (STEM) degrees, on the job market. She found that adding 100 foreign-born workers in STEM fields with advanced degrees from American colleges was associated with more than 250 new jobs for native-born Americans. 

Temporary foreign workers also have a beneficial effect on the job market. For example, for every 100 holders of H1-B visas, Scott found an associated increase of 183 jobs for U.S. citizens.  

Skilled immigrants are more likely to start new businesses, something an economy at the technology frontier needs in order to catapult forward. Skilled immigrants are also disproportionately represented in our high-growth sectors, such as telecommunications, biotech, and health care. They are also more likely than natives to file patents, a sign of their importance in an economy built on human ingenuity, science, and technological advance. 

So what part of the American game needs to change? The United States would benefit from a fundamental rethinking of its approach to immigration. As Pia Orrenius of the Dallas Federal Reserve recently noted:

“The United States issues about 1.1 million green cards a year and allocates roughly 85% to family members of American citizens or legal residents, people seeking humanitarian refuge and ‘diversity immigrants,’ who come from countries with low rates of immigration to the United States. The remaining 15% go to people who are immigrating for work reasons—but half of these are for workers’ spouses and children, leaving a mere 7% for so-called principal workers, most of whom are highly skilled. No other major Western economy gives such a low priority to employment-based immigration, and for good reason: these immigrants are the most skilled and least likely to be a burden on taxpayers.” 

Here’s the kicker. Changing our approach to immigration costs the nation absolutely nothing. As Washington debates various trade-offs between spending cuts and revenue enhancements, changing the game on immigration offers something for everyone. It’s a blessing to those many aspirational immigrants, to be sure. Yet, it also boosts the American economy and boosts job prospects for the native-born. Moreover, it doesn’t require raising taxes or cutting cherished spending programs.

Most game changers in life are hard. This one is easy. There’s no time to waste.



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