Ironically Trump administration’s H-1B visa restrictions and America First-style immigration policies may be actually benefiting countries like India and China, a new study by a Wharton professor has found.
The study by Britta Glennon, an assistant professor at the Wharton School of Business at the University of Pennsylvania, which was published on Knowledge@Wharton on Sept.23, says the administration’s immigration restrictions preventing companies from hiring high-skilled foreign nationals in the U.S., such as H-1B workers, are actually counterproductive,and represents a bad economic policy.
The study examining company-level responses to government immigration rules found H-1B visa restrictions carry the unintended consequence of pushing jobs outside the United States and lead to less innovation in America.
“This is the first paper to empirically explore how decreased access to visas for skilled workers could lead multinational firms to offshore more jobs,” according to Glennon. “The results have important implications for understanding how multinational firms respond to artificial constraints on resources and how they globally re-distribute those resources,” the study, which was also quoted by Stuart Anderson, executive director of National Foundation of American Policy, in an Oct. 2 article in Forbes Magazine, says.
According to the key findings of the study, foreign affiliate employment increased as a direct response to increasingly stringent restrictions on H-1B visas. “This effect is driven on the extensive and intensive side; firms were more likely to open new foreign affiliates abroad in response, and employment increased at existing foreign affiliates. The effect is strongest among R&D-intensive firms in industries where services could more easily be offshored,” the study says.
The first of its kind study refutes the zero-sum assumptions about restricting high-skilled immigration often used by policymakers – the belief that a “fixed” number of jobs exists and any new entrant to the U.S. labor force takes a job from a native-born worker, Anderson noted.
In response to a question by Knowledge@Wharton if there were particular countries that saw the biggest increase in foreign hiring, or was it across the board, Glennon said the three countries where one saw the biggest increases were Canada, India and China.
“Now, there is likely a different mechanism happening there. For example, with India and China, that is where the bulk of H-1B visas go to, so you can view it as (companies) going straight to where the talent is. They are just opening up a foreign affiliate in China or India, hiring local talent there,” Glennon said.
Glennonused a “unique firm-level panel dataset that links firm-level H-1B visa data and firm-level data on the financial and operating characteristics of U.S. multinational firms and their foreign affiliates.”
Anderson said in the Forbes article quoting the study that another important finding is that pushing more high-skilled foreign nationals out of the country reduces innovation inside the United States.
“The results also suggest that in addition to affecting the location of skilled employment, restrictive immigration policies affect the location of innovation, and of course the associated positive externalities,” notes Glennon. “Skilled immigrants have been shown to have outsized impacts on innovation in the home country through spillovers.”
The irony is the research shows a true “America First” immigration policy would increase the number of H-1B visas, not make them more difficult to obtain. “While immigration has a positive impact on innovation and growth, its spatial diffusion disappears with distance since innovative spillovers are geographically localized,” explains Glennon.
“From a nationalistic perspective, this is problematic; if skilled foreign-born workers are at a U.S. firm’s foreign affiliate instead of in the U.S., the innovative spillovers that they generate will go to another country instead . . . In short, restrictive H-1B policies could not only be exporting more jobs and businesses to countries like Canada, but they also could be making the U.S.’s innovative capacity fall behind,”Glennonwas quoted as saying.