Skilled Immigration, Innovation, and the Wages of Native‐Born Americans

• Author: Chau Nguyen,Asadul Islam,Faridul Islam
• Published date: 01 July 2017
• Date: 01 July 2017
• DOI: http://doi.org/10.1111/irel.12182

Skilled Immigration, Innovation, and the Wages

of Native-Born Americans

*

ASADUL ISLAM, FARIDUL ISLAM, and CHAU NGUYEN

The paper examines the effects of skilled immigration on wages that can be cred-

ited to immigrants’contribution to innovation. Using both individual and state-

level datasets from the United States, we find a significant and positive effect of

immigration on wages that is attributable to skilled immigrants’contribution to

innovation. Our results confirm previous findings that immigrants contribute sub-

stantially to the host economy’s innovation, which is a major driver of technologi-

cal progress and productivity growth. When we augment the analysis to an

immigration–innovation–wages nexus, the results suggest that as the share of

skilled immigrants in a particular skill group increases, the wages of both natives

and immigrants in that group also get a positive boost. We also identify evidence

in favor of a positive spillover effect of skilled immigrants on a state’s wage level

of all workers, including those who do not directly contribute to innovation.

Introduction

Does innovation boost wages? What impact does immigration have on

native innovation? In this paper, we revisit the immigration–innovation–wages

nexus, providing empirical evidence in support of these questions by extending

the studies of Hunt and Gauthier-Loiselle (2010) and Hunt (2011). Our interest

is in examining the extent to which wage increments in the United States can

be credited to immigrants’contributions to innovation. In other words, we pro-

vide estimates of the contribution to wage increases that can be attributed to

immigrant-led innovation and are measured by patents granted/commercialized

and academic performance. Hunt and Gauthier-Loiselle (2010) examined the

*The authors’affiliations are, respectively, Monash University, Caulfield East, Victoria, Australia. E-mail:

Asadul.Islam@monash.edu; Morgan State University, Baltimore, Maryland. E-mail: faridul.islam@morgan.edu;

and Monash University, Caulfield East, Victoria, Australia. E-mail: chau.ha.nguyen@monash.edu. The authors

thank Paul Frijters, Dipanwita Sarkar, and seminar participants at University of Queensland, Queensland University

of Technology, Curtin University of Technology, Flinders University, and Monash University for helpful com-

ments and suggestions. The usual disclaimer applies. Financial support from the Australian Research Council and

Utah Valley University is acknowledged.

JEL: J15, J31.

INDUSTRIAL RELATIONS, Vol. 56, No. 3 (July 2017). ©2017 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

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contribution of immigration to innovation. In a subsequent paper, Hunt (2011)

investigated the performances of skilled immigrants relative to natives in

boosting U.S. productivity. Our research offers a marked extension of these

earlier studies, which did not consider the impact of immigrant-driven innova-

tion on wages.

Notwithstanding the existence of a sizeable body of empirical literature on

the impact of immigration on wages, the results so far have offered mixed evi-

dence. One line of empirical work that is associated with Borjas and some of

his collaborators (Aydemir and Borjas 2007; Borjas, Grogger, and Hanson

2008, 2009) implicitly suggests that native and immigrant workers are per-

fectly interchangeable. However, a set of recent empirical studies reviewed by

Card (2009) indicates that these two types of workers are far from perfect sub-

stitutes, even within the same skill group. Peri and Sparber (2011) report that

native workers with graduate degrees specialize in occupations that require

highly interactive skills, as well as communication skills, while their immigrant

counterparts possess quantitative and analytical skills. This heterogeneity in

skill levels is more pronounced at the aggregate level of the economy, which

makes it more realistic to assume imperfect substitutability between native and

migrant workers at an economic level. On the other hand, studies that exploit

geographic differences across local labor markets (Altonji and Card 1991;

Card 2001; Pischke and Velling 1997) have been criticized for ignoring the

tendency for economic conditions to converge across markets.

Our empirical strategy relies on the premise that skilled immigrants’

contribution to wages can be attributed to productivity gains from the former’s

innovation, research, and possibly their entrepreneurial skills and other labor-

market effects. A number of papers in the immigration literature have studied

the effect of immigration on innovation (e.g., Hunt and Gauthier-Loiselle

2010; Stuen, Mobarak, and Maskus 2012) while others have explored the

effect of immigration on wages (e.g., Borjas 2003; Card 2001; Carrasco,

Jimeno, and Ortega 2008; De New and Zimmermann 1994; Ottaviano and Peri

2012) or the wage differential between immigrant workers and native workers

(e.g., Skuterud and Su 2012; Smith 2006). In contrast to previous research, we

addressed the immigration–innovation–wages nexus, an area largely neglected

so far, despite its significant policy implications.

The paper contributes to the literature by providing estimates of the natives’

wage increases, which can be ascribed to the innovation of skilled immigrants

in the United States. We accomplish this by examining two channels in which

skilled immigrants could potentially contribute to innovation and wages. First,

we analyze the contribution of skilled immigrants to the innovative capacity of

individual native skilled workers who are in the same skill group that lead to

their wage increments. We carry out this analysis by using individual-level

460 / ASADUL ISLAM,FARIDUL ISLAM,AND CHAU NGUYEN