Why don’t companies just hire Americans?

New evidence on how immigrants add to the economy

CGO is releasing a new research paper today on why US companies hire immigrants. It’s a unique analysis of why employers turn to H-1B visas. These are commonly called “high-skilled” visas, though they require only a college degree. 

With any immigration program, the question is whether immigrants are taking jobs from natives. The simple logic of supply and demand suggests that we should expect more people to mean more competition for jobs. 

Of course, sometimes it is employees who are scarce, not jobs. That’s particularly likely in technical fields that require years of schooling or advanced degrees. In this case, immigrants are a workforce stabilizer. There are many more jobs than people competing for them. 

This paper looks at exactly this—are employers turning to H-1B visas because they can’t find workers? Or to undercut American workers? The study lands squarely in the camp that there aren’t enough skilled workers for companies looking to hire. And so those companies start using H-1B visas to find rare talent.

In asking this question, Morgan Raux, the study’s author, built a new data set that includes job vacancies along with the H-1B requests and justifications by companies to the federal government. 

The study uses the number of job postings as a clear signal of a labor shortage. Raux shows that as companies post more jobs, they are applying for more visas as well. The technical details grow more complex, but the key point is simple: When labor markets become more competitive, employers increase their demand for H-1B workers. 

Raux’s project establishes that immigrants are supplementing the supply of native workers. Considering the technology industry’s massive growth over the last three decades, it makes sense that the demand for workers outpaces the supply. It takes years to train as a computer scientist. There’s a clear need to train natives for these occupations as well, of course. And immigration visa fees for the H-1B program actually support native education in science and technology fields like these. However, education is necessarily a long-term project. The good news is that today’s immigration supports tomorrow’s crop of homegrown workers.

In addition, what natives want to do matters too. There’s an inherent cap on the native supply of workers in engineering and science fields that stems from natives’ interests. If you’re not an engineer or programmer, think about what it would take to make you switch your degree program to those fields. By not working in those fields, you likely gave up hundreds of thousands of dollars in earnings relative to the path you chose. But you gained the ability to work in an area that you are more interested in.

Using Raux’s research to inform policy

Turning to what this means in practice, the implication is that restrictive immigration policies hinder US employers in recruiting talent from abroad. The US has been a huge beneficiary of what economists call the gift of global talent. From 2000 to 2010, more innovators moved to the US than anywhere else in the world. This results in big benefits for all of us—55% of billion-dollar startups include an immigrant or the child of an immigrant on their founding team. The US should be opening up new ways to bring more of these talented people into the country. Expanding the H-1B visa program is a great option to do exactly this.

The H-1B visa is far from perfect. One notable example of a company using the visa to outsource work happened when Disney fired their own IT workers and outsourced those jobs to H-1B visa holders to save on expensive IT costs.

Additional safeguards could be added to put up firmer guardrails against this practice. For example, Representative Darrell Issa proposed making employers liable if H-1B holders were used to replace Americans. Sarah Pierce, an immigration policy and law expert, argues that such an update would effectively protect natives from these outlying instances of outsourcing.

This concern about outsourcing is an important limitation of the H-1B program. Of course, Raux’s new study and previous research suggest that these are out of the ordinary. Far from replacing native workers, immigrants overwhelmingly provide access to rare talents.

In addition to creating new tools to discipline bad actors, the H-1B program needs a wider update. The program hasn’t been expanded since before the invention of the iPhone. This means that the number of visas available hasn’t kept pace with the US economy’s growth. And it has fallen far behind if you consider that tech companies are major users of the program and that sector’s growth is far faster than the entire economy’s growth. In this light, the H-1B program is much smaller today than it was in the early 2000s when it was last changed. 

What can policymakers do? A reform that addresses concerns and the potential of the H-1B program could be updating rules to prevent the outsourcing model, along with an increase in the number of H-1Bs provided each year. The first strengthens protections for American workers. The second provides access to valuable talent.

Fundamentally, Raux’s new research is another study suggesting that greater immigration will complement our existing workforce, not replace it. That’s a finding in line with many others in the immigration world. This new evidence suggests that policymakers interested in promoting a more prosperous future should see immigration as a powerful tool.