Study: American economy hampered by limits on skilled immigrant workers

Rigid policies restricting skilled immigration are hurting U.S. job growth while costing domestic companies thousands of dollars per worker, a new report from a Dartmouth College professor shows.

Matthew Slaughter, dean of Dartmouth's Tuck School of Business and a former member of the Council of Economic Advisers under President George W. Bush, on Wednesday will unveil the findings of his new report at the National Press Club in Washington. The white paper, provided to U.S. News ahead of the event, suggests existing H-1B visa regulations are limiting productivity growth in the U.S. and costing American firms a fortune.

"People have concerns about jobs and wages for themselves and their children, and that's not unfounded. It's sobering how poor income growth in particular has been for so many families and workers in the U.S. for so many years at this point," Slaughter says. "The paradox I come back to is that there's a preponderance of evidence that high-skill immigration is a dynamic force that can help the U.S. create not just jobs, but good jobs."

The Department of Homeland Security caps the number of skilled immigrants allowed into the U.S. each year through the H-1B visa program at 65,000 annually, though there are some exceptions related to education. But the demand among prospective immigrants to work in the U.S. – and the demand among domestic firms to fill vacancies requiring a high level of skill – far exceeds that cap. Tens of thousands of foreign workers who would like to emigrate to the U.S. are blocked from doing so each year, with U.S. Citizenship and Immigration Services estimating it received nearly 233,000 H-1B visa applications for fiscal 2016 alone.

Critics of the H-1B system contend it allows domestic firms to import foreign workers who can be paid cheaper wages, so it makes sense that government officials would limit how many skilled foreign workers enter the U.S. labor market each year.

Slaughter's paper, however, notes that recent evidence suggests H-1B visa holders typically make as much as – or more than – their American-born counterparts. He cites a Brookings Institution study that said H-1B holders earned an average of $76,356 in 2010, compared with the $67,301 average paid to native-born Americans with a bachelor's degree.

Meanwhile, prospective immigrants can't even obtain an H-1B visa unless they find a company willing to sponsor them – a process that costs U.S. firms thousands of dollars.

An American Competitiveness Alliance poll tied to Slaughter's report found that 82 percent of U.S. companies that responded to the survey said their costs associated with hiring a foreign worker are equal to or greater than the costs of hiring a domestic worker. About three-quarters of respondents described the costs of H-1B compliance as "too high."

"We're not making it easier. If anything, I think it's accurate to say we're making it more difficult for companies in America to hire talented foreign nationals," Slaughter says, noting that the prohibitive costs disproportionately hurt small businesses. "Smaller, younger firms may not have the history or the resources in terms of legal counsel and human resources to bear these costs."

The natural follow-up questions, of course, are: Why not just hire U.S. workers? As an employer, why go through the H-1B process in the first place?

Simply put, it's because most unemployed Americans don't have the high level of skill many employers are seeking.

"America has long needed skilled workers – be they skilled immigrants or native-born Americans – to drive the innovation at the foundation of growth in output, jobs, incomes and opportunity," Slaughter's report says. "In recent years many companies, scholars and policymakers have voiced growing concern that America increasingly faces an insufficient supply of talented workers necessary to create and drive the new possibilities of information technology and other frontiers."

H-1B visa holders are typically required to work in positions that would require at least a bachelor's degree or its equivalent at minimum. That means many are college-educated, either through U.S. or international universities.

And considering less than 32 percent of America's civilian noninstitutional population – meaning those not currently imprisoned, institutionalized or serving active military duty – held at least a bachelor's degree in 2014, according to the Census Bureau, it's not terribly surprising that employers would have a hard time finding the skills and qualifications they need among domestic workers.

"Pretty much across all industries – but particularly in IT and tech industries that rely on STEM workers – talent is a big challenge for companies," Slaughter says. "And for these particular parts of the labor market, where it's at least bachelor's degrees or advanced degrees that are required under the H-1B visa program, the demand is pretty acute."

Immigration policy in general has historically been a deeply partisan issue, and H-1Bs are no different. In the current U.S. presidential race, Democratic front-runner Hillary Clinton has voiced support for a higher H-1B cap that would allow more workers into the U.S.

On the other hand, Republican presidential candidate Sen. Ted Cruz has vowed to temporarily suspend the H-1B system and completely revamp it "to ensure that it protects American workers." And while GOP front-runner Donald Trump has flip-flopped on the issue, his website says he wants to introduce a requirement that would force domestic firms to "hire American workers first."

But Slaughter says the problem with the Cruz-Trump line of thinking is that many companies, particularly in tech-intensive industries, simply aren't going to find qualified workers among America's current pool of the unemployed. And the longer these positions remain unfilled, the greater the hit the country's productivity will take.

"One of the big problems we have in our economy is that there's a very clear skills gap in America," says former New Mexico Gov. Bill Richardson, a Democrat who has previously advocated for an increased H-1B visa cap. "Our economy desperately needs skilled professionals, and that fact is far outpacing the supply of professionals with experience and capability needed to advance and grow."

The ACAlliance study found that 77 percent of companies said their operations were hurt if skilled positions were left unfilled for more than 30 days. And 71 percent said they'd consider relocating to another country if it became too difficult or expensive to hire workers in the U.S.

"It's not just that we want the talent. It's that these individuals create new businesses that we're losing. Those are jobs," Richardson says.

Another recent study published by the National Foundation for American Policy found that more than half of America's billion-dollar startups have been founded by immigrants, many of whom first came to the U.S. on an H-1B visa. The 44 immigrant-founded companies profiled in the report held a collective market value of $168 billion and employed an average of 760 people per company.

"The key thing to understand about high-skill immigration is that they make the economic pie bigger because of the talents that they bring. It's not a matter of adding people to a fixed supply of jobs," Slaughter says. "Whether they're U.S.-born or foreign-born, innovative workers drive productivity growth and grow the economy."

It's worth noting that H-1B holders themselves can't start new companies in the U.S., though some go on to create new startups or work in high-profile U.S. companies, employing thousands of domestic workers and other H-1B holders once they become naturalized. Google CEO Sundar Pichai and Microsoft CEO Satya Nadella are both former visa holders, for example.

On the other hand, Kunal Bahl, who ended up founding Snapdeal – India's Amazon.com e-commerce equivalent, which now stands as one of the country's most valuable companies – graduated with a master's degree in business administration from the University of Pennsylvania's Wharton School in 2007 and wanted to obtain a visa to stay in the U.S. He couldn't and was forced to go back to India, where he later founded a company that is now flourishing.

Slaughter's paper ultimately suggests a more open H-1B system – or at least a higher visa cap – would help the U.S. economy generate new opportunities for domestic workers while avoiding the loss of billion-dollar companies like Snapdeal. Future legislation should aim to "reduce, not increase, the cost to companies in America of hiring skilled immigrant workers," he says.

"Whether you're a Republican, independent, Democrat – what people across all parts of the political spectrum are worried about is whether we're creating enough good jobs and good wages in the U.S.," Slaughter says. "And skilled foreign nationals have long made outsized contributions to the growth of new ideas and new companies and new industries in the U.S."