US – Highly educated immigrants raise native wages

mmigrants to the US are drawn from both ends of the education spectrum. This column looks at the effect of highly educated immigrants – in particular, those with degrees in Science, Technology, Engineering, or Mathematics – on total factor productivity growth. The authors find that foreign STEM workers can explain 30% to 60% of US TFP growth between 1990 and 2010.

First, the presence of foreign STEM workers varied substantially across US cities in 1980. Second, the H-1B visa program – which has been the method of entry for highly skilled immigrants in the US since its inception in 1990 – produced national level changes in the number of skilled immigrants in the country that can be seen as exogenous from a city-level perspective. Third, new immigrants are attracted to locations where previous immigrant communities have already been established. By interacting 1980 city-level settlements with subsequent national-level policy, we can predict the number of new foreign STEM workers in each city. This H-1B-driven imputation of future foreign STEM workers is a good predictor of the actual increase in both foreign STEM and overall STEM workers in a city over subsequent decades. However it is not correlated, by construction, with the economic conditions in the city during the subsequent decades. It therefore makes an excellent instrument for the actual growth of foreign STEM workers to obtain causal estimates of the impact of STEM growth on the wages and employment of college and non-college-educated native-born workers.

From the perspective of the canonical supply and demand model, the positive relationship between foreign labour supply and native wages may appear peculiar, but it is reasonable in the context of STEM-driven economic and productivity growth. The analysis in Peri, Shih, and Sparber 2014 uses an aggregate production model at the city level, to derive the productivity effect implied by the estimated wage and employment effects. We find that foreign STEM workers can explain 30% to 60% of US TFP growth between 1990 and 2010 – in line with the simple calculation cited above.

The large and positive wage and productivity effects from foreign-born STEM labour raise two important issues.

Chosen excerpts by Job Market Monitor. Read the whole story at How highly educated immigrants raise native wages | vox.

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