(What’s Left of) Our Economy: Is More Immigration Really the Key to America’s Tech Future?

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Cato Institute, China, education, entrepreneurs, Germany, H-1B visa, immigrants, Immigration, India, innovation, Israel, Japan, skills, South Korea, start-ups, Taiwan, technology, Washington Post, Worldometers.info, {What's Left of) Our Economy

One of the most compelling – and most often made – arguments in favor of higher U.S. legal immigration levels has to do with innovation. Supposedly, without encouraging ever more foreign workers to move to America, the nation will never be able to maintain its global technology leadership, and ultimately an acceptable, much less improved, degree of prosperity. (See, e.g., here and here.)

Part of the rationale for a welcoming posture, as indicated above, has to do with policies toward highly skilled and educated immigrants in particular (like those admitted under the H-1B program), and the special visa quotas allotted to them. But as the Washington Post editorial board recently made clear, there’s a more general view that immigration is especially good at providing America with “a steady supply of working-age strivers” and that “This nation’s prosperity, pluck, ambition and effervescent character are the products of more than 100 million immigrants who have sought better lives in the United States since its founding.” In other words, immigrants are far more likely than the native-born population to possess the risk-taking and general entrepreneurial traits that lead to so much technological progress.

I’ve already debunked one aspect of these claims here, but because they keep popping up, I keep thinking more about them, and have come across more data that not only casts further doubt on the technology-related need for more immigrants, but that indicate that the immigration cheerleaders are putting the cart before the horse.

For instance, it’s widely agreed that the U.S. tech sector is considerably healthier than Germany’s. In this vein, a widely followed global innovation index issued each year by a United Nations agency ranks the former third in the world and the latter ninth. Ninth isn’t so bad, but it’s at the least curious in this regard that for decades at least, Germany has admitted many more immigrants as a share of total population than has the United States.

Indeed, in 1990 (a good starting point, since current Germany came into being with the reunification that year of the former Federal Republic that comprised the nation’s western part and the former Communist run east), Germany’s immigrant inflow of 1.256 million represented 1.59 percent of the new country’s 79.054 million inhabitants. The 1.536 million green cards awarded by the United States that year accounted for only 0.60 percent of its 252.120 million people. (My official sources for German and U.S. annual immigration totals are here and here, respectively. For population, I used the reliable Worldometers.info website.)

But maybe Germany has made up some ground on the United States during this nearly three-decade period? Not according to this study last year from the Cato Institute – one of America’s foremost supporters of much more lenient U.S. immigration policies. If you look at Figure 2, you see that in 2018, Germany was lagging the United States just about as badly in the number of patents it received in the United States (still the world’s most important market for technology) as it was in 1990.

There doesn’t seem to be much evidence that its relatively large immigration inflows have given Germany much of an edge in entrepreneurship, either. As of 2019, according to this source, Germany’s business start-up rate was less than half that of the United States.

This chart, moreover, makes clear that it’s not just the U.S.-Germany comparison that mucks up the ostensible relationship between tech prowess and entrepreneurship on the one hand, and immigration levels on the other. After all, in 2019, India’s start-up rate was also much higher than Germany’s – even though India is much better known for sending folks abroad than for attracting them. Foreigners aren’t exactly flocking to live in China, either, yet its start-up rate matches Germany’s.

That Cato Institute study provides more complicating international comparisons. That Figure 2 shows that as of 2018, Israel has forged into the lead as the country receiving the largest number of U.S. patents. And its performance started taking off in the mid-1990s. Yet in 1995, when Germany and Israel were roughly on a par in their ability to receive American patents, the 76,361 immigrants Israel admitted in 1995 equalled 1.36 percent of its population of 5.619 million – not far from relatively un-innovative Germany’s figures. By the time it became the international leader, Israel’s immigration rate had fallen to 0.32 percent of its 8.972 million population – much lower than that of Germany, which had become a clear als-ran on the U.S. patent scene – and roughly the same as the recent U.S. rate which has been decried as so woefully inadequate.

And look at the other top performers in Figure 2 other than the United States and Israel. Taiwan hasn’t been anything close to an immigration magnet, either, and ditto for South Korea. As for Japan, it’s long been known as one of the most xenophobic countries in the world (as noted in that Washington Post editorial).

What do the non-U.S. “patent tigers” identified by Cato have in common? As author Jonathan M. Barnett puts it:

“Short on consumers, resources, and labor (and saddled with geographic separation from key consumer markets), the patent tigers (especially Israel and Taiwan) were compelled to specialize in innovation-intensive segments of the global supply chain in which ingenuity, rather than labor or natural resources, conferred a competitive advantage.”

As a result, as widely agreed, they’ve worked hard to create top-notch educational systems for their own populations. German education is highly regarded, too, but it’s often observed that its history and culture in particular have discouraged self-starters.

The lessons for the United States seem pretty clear here.  On the one hand, it’s got lots of the overall population, raw materials and domestic markets that the patent tigers lack.  On the other, unlike Germany, it still enjoys an entrepreneur- and innovation-friendly culture.  If Americans did a much better job of educating their own people, especially in the math, science, and technology fields, they should be able to keep its global technology edge even while controlling immigration more tightly. 

If, however, the nation continues to coddle underperforming school systems, especially at the primary and secondary levels, the argument for relying on immigration to fill the tech gap will look all the stronger.  And in a supreme irony, the ready availability of highly skilled and educated immigrants will keep reducing national incentives to get the national education act together.      

Im-Politic: An Immigration and Racism Link Deserving Much More Attention

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African Americans, Chicago, CNBC, H-1B visa, Hispanics, Im-Politic, Immigration, inequality, Jim Reynolds, minorities, Norman Matloff, race relations, racism, STEM workers, tech jobs, unemployment

“H-1B” and “racial injustice” probably aren’t terms most people would believe have much to do with each other. That’s why a recent CNBC interview with a leading African American financier deserves your attention even if it is two weeks old. Because he shows not only that they’re intimately connected, but that even someone who is focusing on the link needs to think much more about how exactly it works, and what needs to be done about it.

For those who don’t follow immigration issues closely, “H-1B” is the name of the category of visa that the federal government allots business for foreigners they supposedly need to employ because their “specialty” skills can’t be found in the domestic workforce. The skills cover a wide range, but according to this organization (which loves the program) most of the visas requested by U.S. companies are for science and technology occupations, and indeed their prevalence in these fields is responsible for most of the controversy they’ve generated.

For evidence abounds that, contrary to their claims, the tech companies that seek these foreign workers so ardently aren’t using them because they’re geniuses, but because they’re cheap – and because they need to remain tied to the company that sponsored them if they have any hope of getting permanent legal residence in the United States. (My go-to source on this issue is University of California-Davis computer scientist and immigration authority Norman Matloff, whose work can be found at this terrific blog.)

As a result, H-1B opponents argue that their use undercuts American pay levels in science and technology fields, and severely undercuts the argument that gaining these skills is one of the best guarantees available to young Americans of prospering in the turbulent economy of recent decades. But the program damages the economy in a way less often noted by opponents: It guts the incentives American business might develop to invest in American workers’ skills generally, or to press government to get the country’s education act together so as to make sure that the skills they need are available domestically.

And this is where the racial injustice and related economic inequality issues come into play – along with that CNBC interview. The subject, Jim Reynolds, is an inspiring African American success story who’s long been active in civic affairs in a city with one of the nation’s biggest African American populations – his native Chicago. (See this profile.) CNBC brought him on the air on July 2 to talk about racial diversity on Wall Street.

The conversation proceeded along these lines till it was about two thirds of the way through, when Reynolds made this totally unprompted and stunning pivot. Its worth quoting in full, and came in response to a question on whether he thinks Wall Street is genuinely committed to hiring more minorities in the wake of the George Floyd killing and ensuing tsunami of nationwide calls to end racism and related economic injustices.  (I also need to present it because this point didn’t make it into the CNBC news story accompanying the interview video that’s linked above.)   

“You ask if I think this is real…. I was at an Economics Club dinner a couple of years ago…and one of the top CEOs in the city [Chicago], actually, one of the top CEOS in the country – a Fortune 100 company – spoke to the group, and what he said to the group that one of his most frustrating experiences is working with H-1B programs, and why they won’t let his company recruit more of the talent that they need in the tech space….[H]e said that in the middle of downtown Chicago, where we have African American and Hispanic youth in the city, ten minutes from where he was standing, that have…let’s call it 40, 50, 60 percent unemployment, that go to schools that don’t really…teach them this sort of thing, and I wondered why he didn’t even think about this. Sure, you can go to China, and you can go to India, and recruit that talent. And that talent – and I’ve spent a lot of time in China – that talent started getting developed in middle school When they come here, and they go to the quants on Wall Street and the quants in Silicon Valley – and they do dominate that space – they started studying this stuff like when they were eight years old, nine years old. And I’ve started thinking about and talking about and I’m working with our wonderful Mayor Lori Lightfoot about, let’s get these corporations thinking about – and this time is great – investing in these black and Hispanic schools. Now. Let’s grab our young black and Hispanic kids in middle school. Let’s have a Facebook program in the school, Microsoft program, Alphabet program, Apple program in these schools. I think that’s an opportunity.”

I couldn’t have done a better job of making the H-1B-racial injustice connection. But as I suggested above, Reynold is still missing a piece of the puzzle: The CEO he mentions, and others like him, simply aren’t going to make those investments because they don’t have to. And they don’t have to precisely because they have a cheaper alternative – and one that doesn’t require them to deal with the kinds of workforce training challenges they’ve never faced: the H-1B program.

So if Reynolds really wants to expand opportunity for disadvantaged minority youth (and other young Americans) all over the country, he’ll start pressing for the elimination of the H-1B program, and for broader immigration policies that deny businesses in all sectors the easy option of hiring low-cost foreigners – and in the process, creating even more power over workers and thereby intensifying the downward pressure they can keep exerting on their wages and benefits.

Reynolds, moreover, is in a particularly good position to lobby for these changes effectively because, as made clear in the profile linked above, his close friends include a fellow named Barack Obama – who has more than a little influence on the liberals and progressives who have emerged (along with Corporate America) as among the stubbornest opponents of immigration policies that put American workers – including of course minority workers – first.

Im-Politic: Establishment Answers Voter Anger with…Immigration Hikes

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2016 election, Barbara Mikulski, Cheap Labor Lobby, Donald Trump, George W. Bush, H-1B visa, H-2B visa, Im-Politic, immigrants, Immigration, L-1 visa, Obama, OPT, Optional Practical Training, productivity, technology companies, technology workers, Thom Tillis, visas, wages

Several times recently I’ve reminded America’s political establishment (and its journalistic enablers) that if they were really serious about eliminating the Trump-ist threat to their hold on power, they’d respond seriously to the legitimate security and economic grievances animating his growing legions of supporters. And just as often I’ve noted that the establishment keeps ignoring this advice.

This week, the situation changed fundamentally. Republicans and Democrats in Washington have decided to change their approach. Unfortunately, the new strategy apparently is to squeeze the struggling middle class and working class harder by bringing in more job- and wage-killing legal immigrants.

Keep in mind that the moves I’ll be describing have nothing to do with the debate over stronger curbs on illegal immigration, or over the fate of the country’s current illegal immigrant population (currently estimated at roughly 11 or 12 million). Instead, they concern measures to pump up the supply of workers available to domestic employers still higher at a time when wages for the typical household have stagnated for decade, meaning that business still occupies the labor market’s commanding heights. Moreover, the new legal immigrants won’t simply be coming into the worst-paying industries and occupations. A higher labor supply seems in order for “industries of the future” as well.

And also keep in mind: With a single exception I’ve found, none of these decisions appears to have been covered by the Establishment Media.

So I’m sure none of you read that when President Obama just signed Congress’ big omnibus spending bill into law, thereby ensuring no government shutdown for the medium-term future, he enacted into law a potentially huge increase in the numbers of unskilled immigrants sought on a seasonal basis by parts of the economy ranging from manufacturing to tourism. Visas for these foreign workers (called H-2Bs) had been capped at 66,000 annually, but evidently the Cheap Labor Lobby convinced legislators from both major parties that they faced crippling shortages of such employees, and persuaded (outgoing) Democratic Senator Barbara Mikulski of Maryland and a Republican counterpart, Thom Tillis of North Carolina, to introduce a measure that felt their pain, and that was stuck into the spending bill at the last minute. According to their Alabama Republican colleague Jeff Sessions, the Senate’s leading immigration policy critic, and the AFL-CIO, the changes could triple or quadruple admissions.

As I’ve explained before, the labor shortage claim is patent nonsense, if only because the kinds of wage increases basic that economic tells us result from real labor shortages are nowhere in sight. Moreover, it seems that no one else on Capitol Hill or in the Obama administration thought to suggest to these employers that often in American history, business has responded to labor shortages perceived and real by improving their management acts to boost efficiency or to develop or invest in new machinery and technologies that could substitute for increasingly expensive labor. The latter approach, incidentally, was so common that it largely explains why the United States so quickly grew into a global science, technology, and manufacturing leader. Further, the productivity improvements that resulted keyed the nation’s longstanding world-beating performance on this score.

Nor did the Cheap Labor Lobby hear the equally obvious counter-argument that an industry or company that can’t raise productivity enough to offset higher wages simply doesn’t have a viable business model, and doesn’t deserve an immigration subsidy from Washington.

Another provision in the spending bill seems to limit the use of cheap immigrant labor by high tech companies by doubling the fees charged for using one category of foreign workers with supposedly special skills (the H-1B category), and more than doubling it for another category (L-1s). But there’s much less to these requirements than meets the eye, mainly because firms don’t have to pay the fees if they have fewer than 50 employees, or if they’re larger but fewer than half their workers already hold these visas. As a result, the fees will be highly concentrated in Indian-owned tech firms who make unusually heavy use of H-1Bs and L-1s. But their big American-owned counterparts, like Intel and Google and Microsoft, which also employ many of these foreign workers, will continue getting off scott-free.

In addition, the Obama administration has in the works a stealth increase in the supply of foreign tech workers. The Optional Practical Training (OPT) program has long permitted foreign students to work in the United States for twelve months after graduation. Since employers who use them don’t have to pay payroll taxes on them and since the program includes no minimum wage requirements, many technology firms have found these employees cheaper and therefore more attractive than American workers. At least as important, OPT workers can substitute for H-1Bs, whose use is capped at 65,000 annually.

In 2008, President George W. Bush extended the time-frame to 17 months for graduates with science and technology degrees (Congress’ approval wasn’t needed), but last year, a federal court overturned this policy on the grounds that the Bush decision taken without adequate public notice and comment. Nonetheless, the court also gave the government itself a six-month extension for the 17-month policy, and the same amount of time (until February) to seek the longer OPT period the right way. The Obama administration has not only decided to do so, but has submitted a draft proposal to extend the total time-frame to three years.

Some members of Congress have pushed back, but given the views not only of Trump supporters, but the public at large, it’s amazing (or not?) that such steps are even being contemplated. After all, polls consistently show that when it comes to levels of immigration (again, this has nothing to do with illegal immigration), Americans want them stabilized, or lowered – not increased.

So expect the current Election 2016 dynamic to continue. Growing numbers of voters will become angrier and angrier about their diminished economic prospects and threatened security, establishment politicians in both parties will ignore or actively reject the messages they’re sending, and both they and the equally establishment-oriented media will even more self-righteously condemn the rise of demagoguery in America.

Im-Politic: Angry Voters May Not Know the Half of It on High Tech Immigration

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Center for Immigration Studies, Center for Investigative Journalism, Donald Trump, federal contracting, H-1B visa, Im-Politic, Immigration, Jobs, John Miano, KeepAmericaatWork.org, labor shortages, Mainstream Media, Norman Matloff, Obama, skills gap, technology, Virgil Bierschwale, wages

It’s now become commonplace for establishment politicians and their Mainstream Media enablers to acknowledge that so-called “insurgent” presidential candidates – especially Republican Donald Trump – have “tapped into” public anger against their performance. Far less common are signs that the establishment is prepared to take even the most obvious steps to respond constructively to this anger, and Virgil Bierschwale’s excellent “Keep America at Work” blog has just turned up a great and oh-so-revealing example.

As Virgil and many others (including me) have noted, the H-1B program under which the U.S. government hands out temporary work visas to foreigners supposedly with special skills has long been abused by employers, especially in the technology sector. Claiming that they can’t find the talented workers they need in the American workforce, tech companies have frequently hired H-1Bs – and continually lobbied for more – simply in order to drive down wages and therefore boost their profits.

And in the first sentence of this paragraph, I used the word “noted,” very deliberately. For even though expanding the H-1B program enjoys strong bipartisan support among the many American political leaders who receive handsome campaign contributions from the technology industry, the U.S. government itself over the years has charged numerous tech firms with violations of the central H-1B requirement that they pay these workers prevailing wages.

So you’d think that this same federal government would at least refrain from rewarding these crooked companies by denying them federal contracts. As Virgil has just shown, however, you’d be wrong. His August 20 post reported on a study by the Center for Investigative Journalism that found:

“The federal government has awarded contracts and other benefits worth nearly half a billion dollars since 2000 to tech labor brokers cited for violating laws related to the temporary visa program known as H-1B.

“Since 2000, nearly 20 percent of the technology labor brokers and tech firms cited for violating the H-1B visa program have received federal contracts, payments and other government support.

“The Department of Homeland Security and Department of Labor are among the agencies that have looked past H-1B violations or failed to check the record.

“Even labor brokers facing the ultimate penalty for H-1B labor violations – debarment from the temporary visa program – found ways back in.”

And what about President Obama, the self-styled champion of the American worker? This summer, he signed an executive order requiring anyone seeking significant federal contracts to notify Washington if they’ve recently broken labor laws. “Our tax dollars shouldn’t go to companies that violate workplace laws. They shouldn’t go to companies that violate worker rights,” Mr. Obama said.

But H-1B violators have nothing to fear. They’ve been expressly exempted from the new order.

So although I usually shy away from predictions, I feel pretty confident in believing that, throughout this presidential campaign and beyond, establishment politicians in both parties and their media enablers will continue to bemoan the troubles of the American workforce and hail technology industries as a big part of the solution. Federal contracting practices like those described by Virgil will continue to be a big part of the problem (along with other job- and wage-killing measures like amnesty-friendly overall immigration policies and offshoring-friendly trade agreements). And establishment politicians – along with the Mainstream Media which missed this H-1B scandal and keeps ignoring it – will keep pretending that they get it on voter anger.  

FYI, for other terrific sources of information, analysis, and coverage re H-1B and many other immigration issues, check out Norman Matloff’s “Upon Closer Inspection” and the work of the Center for Immigration Studies, notably John Miano’s blog.