Immigration and economic growth.

• Author: Hanson, Gordon H.
• Position: Report

As the 2012 presidential campaign gets under way, there will be intense public debate about the direction of economic policy. The continuing torpor of the U.S. economy and mounting government debt oblige candidates to detail how they would improve prospects for economic growth and reduce the federal budget deficit. We are sure to hear a great deal about plans to lower taxes, reduce government regulation, improve U.S. education, and rebuild infrastructure. But it is a near certainty that no candidate will make immigration part of his or her vision for achieving higher rates of long-run economic growth. To be sure, stump speeches will contain pat pronouncements about securing American borders, restoring the rule of law, or bringing undocumented immigrants out of the shadows, depending on the candidate's political orientation. Yet, it is a safe bet that after getting through these bullet points candidates will seek to change the subject. Immigration is a divisive issue that most national politicians prefer to avoid. President Obama checked his immigration box by making a halfhearted call for immigration reform in May 2011. That proposal was quickly buried under many more pressing items in his legislative outbox.

Ignoring immigration may make short-run political sense but it is a mistake if the goal is to build a coherent economic strategy. Immigration policy affects the pace of innovation in the U.S. economy, the supply of labor by high-skilled workers, the ability of regional economies to adjust to business cycle fluctuations, and the

integrity of local, state, and federal government finances. While current policies tend to do a poor job on these counts, designing a system that would make immigration good for America is easily within reach.

The Role of Immigration in Innovation

Past improvements in living standards for American households have been largely the consequence of growth in the productivity of capital and labor (Jones 1995). Productivity growth, in turn, is the result of innovations that create new products and production processes. The Windows operating system, the iPhone, Lipitor and other cholesterol-reducing drugs, safe, fuel-efficient automobiles, and improved agricultural varieties are a few among the many new products that have appeared in recent decades and that have raised the level of national welfare. Each was the consequence of intensive research and development that culminated in a blockbuster product based on myriad new patents. A binding constraint in generating innovations is the supply of highly talented scientists, engineers, and other technical personnel. Immigration helps relax this constraint.

Each year, U.S. universities conduct a global talent search for the brightest minds to admit to their graduate programs. Increasingly, foreign students occupy the top spots in the search. Data from the National Science Foundation's Survey of Earned Doctorates show that between 1960 and the late 2000s, the share of PhDs awarded to foreign students rose from one fifth to three fourths in mathematics, computer science, and engineering; from one fifth to three fifths in physical sciences; and from one fifth to one half in life sciences. U.S. university departments that have more foreign graduate students produce more academic publications and have their work cited more frequently (Stuen, Maskus, and Mobarak 2010). Once they graduate, U.S.-educated foreign workers patent at a significantly higher rate than U.S.-born workers (Hunt 2009). As a consequence, U.S. cities that attract these workers produce larger numbers of patents in electronics, machinery, pharmaceuticals, industrial chemicals, and other technology-intensive products (Kerr and Lincoln 2010). Simply put, high-skilled immigration promotes innovation. An additional benefit is that high-skilled immigrants are likely to pay far more in taxes than they use in public services, generating a positive net contribution to government fiscal accounts.

What does the United States do to attract talented foreigners? Foreign students who are admitted to U.S. universities can generally obtain a student visa. While the process of awarding visas was beset by onerous new restrictions after 9/11 (Alden 2009), many of these problems have since been resolved. Today, the difficulty is not in attracting top foreign students to America but in keeping here them after they graduate.

High-skilled immigrants have three primary channels for obtaining permission to work in the United States. The H-1B visa, which targets highly trained professionals, permits holders to work in the United States for a period of three years. It is renewable once, with the annual number of visas capped at 65,000. Employer-sponsored green cards...