PNAE Study Shows Opportunity Costs of H1B Denials

Digital technology permeates every aspect of our lives, from the cars we drive to the cell phones we carry, even to the appliances in our kitchens and laundry rooms. Any company that wants to compete in this IT-intensive world needs to hire the smartest, most tech-savvy people it can find. Increasingly, this means participating in the international market for top talent.

On that score, U.S. companies are at something of a disadvantage vis-à-vis their foreign competitors, due to the annual cap on the number of foreign professionals who can get visas under the H1B program – the principal means for U.S. companies to hire overseas talent, especially in the IT sector. Currently, the annual H1B limits are set at 65,000 professionals – those with at least a bachelor’s degree – and no more than 20,000 additional H1B’s with at least a master’s degree, a supply that’s typically far outstripped by industry demand.

A new study from the Partnership for a New American Economy (PNAE) examines the opportunity costs of this mismatch between the supply of H1B workers and labor-market demand in the United States. Specifically, the PNAE team looked at the number of H1B applications that were turned away in 2007 and 2008, because they exceeded the cap. The researchers determined “how the denial of H1B visas for computer workers in that period impacted job and wage growth for U.S.-born tech workers in the years that followed.” [See Closing Economic Windows: How H1B Visa Denials Cost U.S.-Born Tech Workers Jobs and Wages During the Great Recession, by Giovanni Peri, Kevin Shih, Chad Sparber, and Angie Marek Zeitlin, Partnership for a New American Economy, Jun.2014.

Contrary to the expectations of H1B skeptics, who might have thought that holding back the tide of foreign workers would result in more jobs for U.S. workers, precisely the opposite happened. The PNAE study’s key finding:

“The rejection of 178,000 H1B applications in computer-related fields in the 2007 and 2008 H1B visa lotteries causes U.S. metropolitan areas to miss out on creating as many as 231,224 often highly-sought after tech jobs for U.S.-born workers in the two years that followed. The total number of U.S.-born workers with computer-related jobs would have exceeded 2 million by 2010 with that additional employment.”

Not only that, the study determined that the computer industry would have bounced back more quickly from the effects of the recession – “would have grown at least 55 percent faster between 2005-2006 and 2009-2010” – if not for the H1B applications that were denied in 2007-2008. Wage growth in computer-related industries was also slower due to the H1B denials, the study found: the actual rate of growth was 1.7 percent, compared to a projected growth rate of 4.9 percent, if all of the H1B applications submitted in that period were approved.

The biggest losers in all this, according to the study, were U.S.-born computer workers with less than a college education; of the roughly 231,200 tech jobs that would have been created, had the supply of H1B visas had been equal to demand, PNAE researchers determined that about 189,000 positions would have been created in computer-related fields, for workers without a college degree.

The PNAE study also examined the impact of the 2007-2008 H1B denials on the metropolitan areas that would have been home to these foreign workers, had the applications been approved. In the New York and Northeast New Jersey, the visa denials “caused the local economy to miss out on creating as many as 28,005 jobs for native-born workers” in computer-related fields in 2009-2010 – just when the area was trying to break free of the recession. The numbers are even worse for the Washington, D.C. metro area: as many as 30,222 IT-related jobs were foregone during the same period. One can’t help wondering how many more jobs might have been created in the intervening years, had Congress but taken the necessary action.

The message of the PNAE study is clear: we need an immigration system that can keep up with the needs of our economy – especially in the high-tech sector, which has been an engine of growth for much of the past two decades. Congress knows what it has to do: at this point, it’s a question of political will.

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