Collaborative Research: The Effect of H-1B Workers on the Innovation and Productivity in US Firms

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Science, Technology, Engineering, and Math (STEM) workers are critical for the innovative activities and technological growth of US firms and local economies. Foreign-born workers are a potential source of STEM labor that might therefore be capable of generating positive dynamic effects on output, wage, and employment growth that could benefit US firms, workers, and investors alike. On the other hand, foreign STEM workers could compete with native-born workers, depress wages, and possibly discourage Americans from pursuing STEM occupations. The net effects of foreign-born STEM labor will depend upon the strength of these two countervailing effects. This project will examine these issues using data variation driven by numerical quotas on H-1B work permits -- the main channel of entry to US labor markets for skilled foreign-born workers -- that affect the distribution of foreign-born STEM workers across firms. This project produces reliable estimates of the impacts of an increase in the number of H-1B workers on US firms' productivity, employment, wages, and growth. This provides a very important policy evaluation tool to assess costs and benefits of changing the H-1B quota as discussed in recent immigration reforms. Using these estimates, we will be able to simulate how changes in the number of H-1B workers can affect firm growth and outcomes for US workers under different policy scenarios.The first phase of the project will merge various datasets. Individual H-1B application records for 2000-2012 -- including information about the employer, location, type of work permit, and year -- were obtained from the US Department of Labor and US Citizenship and Immigration Services. They will be merged with detailed firm-level information -- derived from confidential data in the US Census -- containing all relevant firm outcomes (such as revenues, wages paid, employment, profits and expenses). The resulting database will be used to produce a complete picture of the link between H-1B workers and the performance of firms in the US between 2000 and 2012. This will provide very important information on the nexus between the H-1B program and firm-level innovation and productivity. The second phase of the project will exploit the fact that lotteries were used to allocate H-1B work permits in 2007 and 2008. This random distribution allows credible estimation of the impact of foreign skilled workers on outcomes of US firms. The analysis will quantify the effect of one additional H-1B worker on firm productivity, investment, innovative activity, and profits. It will then estimate the effects of these workers on the employment and wages of native-born STEM workers. Finally, it will assess how long it takes for these effects to appear so that we can characterize the time evolution of these outcomes.