Study: H1B Restrictions Hamper Economic Growth

Though the politics of immigration reform remain fraught with controversy, the economic reasons for pressing forward are as compelling as ever. As a recent study from the American Competitiveness Alliance (ACA) makes clear, immigration, innovation, and entrepreneurship are closely intertwined: “Immigration can contribute to economic growth by increasing productivity through innovation.” [See Analysis of the Economic Effects of Immigration Reform, by Kevin A. Hassett, American Competitiveness Alliance, Jul.2013.]

How? As the ACA study points out, foreign students earn about half of the STEM-related advanced degrees awarded by American universities, and roughly a third of U.S. patents are awarded to foreign-born innovators, despite the fact that they comprise only 13 percent of the U.S. population. The economic impact of these contributions is undeniably positive, but the ACA study argues that the impact should be – and would be – far greater, if only our immigration system permitted more of the world’s best and brightest to work here, without restriction.

The study examines three immigration-reform scenarios that would improve on the current situation by expanding high-skilled migration to the United States:

  • Option 1 – Boost U.S. immigration to match average immigration levels within other industrialized OECD countries. Currently, the U.S. immigrant-to-population ratio is .4 percent, and .7 percent on average in OECD countries. The ACA study argues that “the United States is lagging behind as other countries engage in a competition for top talent that will enable the most successful nation to prosper economically,” and that U.S. GDP would increase by $2.1 billion over ten years if we increased our immigrant labor supply to OECD average levels.
  • Option 2 – Take the Senate approach to immigration reform, as enshrined in the measure it passed last June. Although the Senate bill increases the H1B cap, it also tightens salary and reporting requirements, the ACA study notes, and imposes extremely onerous restrictions on so-called H1B-dependent employers, making it harder for U.S. Fortune 500 companies to get the high-tech help they need to continue growing. By comparison to the first option, the Senate’s approach would generate relatively modest economic benefits, increasing GDP by about $200 billion over ten years, the study finds.
  • Option 3 – Modify the Senate bill to remove its restrictions on H1B-dependent employers. This would boost GDP by nearly half a billion dollars ($473 billion) over ten years, and increase the size of the U.S. labor force by 2.7 million workers. It also would generate nearly $90 billion in additional federal revenues, according to the ACA study.

Appealing as the first option may be, chances are slim to none that such a free-market approach would ever pass in Congress, now or in the foreseeable future. What’s intriguing about the third option is that it just might be within reach, if enough House members insisted on dropping the H1B-dependent employer provision – perhaps as a condition for supporting immigration reform. It’s something for House members to consider, if they ever get a chance to vote on immigration reform this year.


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