Jump-start U.S. growth through immigration

March 12, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. —

When people think of what to do to help the U.S. economic recovery, admitting more immigrants into America isn’t what usually comes to mind. But a new study by Arlene Holen, an economist and senior fellow with the Technology Policy Institute, could contribute to resolving the current economic crisis.

The study finds that letting in more highly-skilled immigrants would generate more tax revenue, and over time raise labor earnings and national income. (Click here for the study in PDF format.)

Coincidentally, this week the Wall Street Journal reported that bankers are quitting due to onerous conditions imposed by the federal government on banks receiving public funds. Yet the new economic stimulus bill specifically makes it harder for banks to hire foreign workers, thereby limiting the flow of talent to a troubled industry.

If Congress had not imposed a tight lid on green cards, according to Ms. Holen, America in 2008 might have had up to 300,000 more highly educated engineers and graduate students performing path breaking research. They would have added about $23 billion to GDP, and the federal government would have gained about $5 billion more in tax revenues.

Based on Congressional Budget Office estimates, Ms. Holen (who used to be associate director at CBO) said that if comprehensive immigration reform had been enacted in 2007 then GDP would have been $180 billion greater over the next decade, and federal revenues would have been higher by $40 billion.

A similar argument was voiced by Representative Zoe Lofgren, a California Democrat and chair of the House Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law in a speech on March 10. She said that “we need to jump start our growth through immigration.”

Ms. Lofgren explained that the billions of dollars allocated to scientific research in the 2009 economic stimulus bill cannot be effectively spent without more H-1B (temporary) visas for foreign scientists, “because all this spending needs people to do research.”

She said that comprehensive immigration reform, which was rejected by Congress in 2007, can pass this year if President Obama supports it.

To invoke a familiar truism, America’s immigration system is broken. Every year, the U.S. Center for Immigration Services issues only 65,000 H-1B temporary visas for skilled workers out of over 600,000 applications from employers.

A similar backlog exists for permanent residence visas sought by individuals both in America and abroad, with applications often close to ten times the number of “green cards” that may by law be issued. In 2006, more than 12,000 newly-arrived workers received green cards to work in the United States, and 53,000 temporary workers already in America were granted green cards.

For fiscal year 2009, the H-1B visa cap of 65,000 was reached in a few days. This is not to say H-1B visas have always fallen short of demand. During the 1990s, Congress temporarily raised the quota to 195,000, a number that did not exceed demand, but the quota reverted to 65,000 in 2004.

This quota represents a small fraction of the U.S. labor force of 154 million. Even if the quota were raised to 150,000 a year, that would still be less than one tenth of 1% of the labor force, hardly a source of the mass depicted by anti-immigration xenophobes.

By limiting visas, America is hurting itself, because the number and percentage of PhDs in science and engineering awarded to Americans and permanent residents have declined dramatically over the past decade. Fifty-eight percent of PhDs in physics are awarded to foreigners in 2007, compared with 48 percent a decade earlier. Foreigners earn 66 percent of PhDs in computer science and 53 percent of PhDs in chemistry.

Columbia University professor Amar Bhidé has shown in his new book “The Venturesome Economy” that it’s efficient for Americans to get advanced degrees in law and business rather than in science and math if they prefer these fields. However, we need to issue more immigrant visas so that we have enough scientists.

Issuing more green cards and H-1B visas can provide effective economic stimulus—and this can happen at little or no cost to Uncle Sam or working Americans.

You can reach Diana Furchtgott-Roth at dfr@hudson.org.

124 comments

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@Anonymous
I totally agree with you on one thing there is a problem with current H1 system. The requirements for the system were written long back and its quite easy for a company to cheat and get faulty candidates. Its not the best in India who get these anymore I know so many deserving friends who dont get chosen in the lottery. Even if a fake guy gets into this country its very tough for him to manage a position for long you need to understand that most H1′s are on very short contracts. The flaws in the Immigration have left the deserving candidates with no advantage at all this has really damaged our reputation here. The first time when i heard that someone got fired cos i started doing a good job as a offshore developer I felt very sad. Its not my decision to fire someone I just did what I was hired for. U were born in a country rich in resources poor in labor and its reverse for me. Its the recession now and we all are feeling the pinch but i still believe there are good opertunities for American programmers with all the bussiness here in US. Peace.

Posted by peaceboy | Report as abusive

@Anonymous
onemore thing 200k for programming is really crazy.
5 times the national average salary is little too much dont you think. Comming to quality I really learnt a lot from good American Architects and Managers they really are top of world cos a US has Computers before I was born and you get a whole generation of Architects. No offshore or Onshore company can make them nervous. Comming to new developers my team is half american and half rest of the world and you get good and bad coding examples from both.
There are flaws in every system and just dont take everything for face value those who cheat will reach there right place.Peace

Posted by peaceboy | Report as abusive

@peaceboy:
Yes, I agree 200k approximation for a developer appears crazy. But, if you talk to a finance person in a big company, they do not think that way. Here is how “The cost of an employee” is calculated for an employee in big companies (I mean top 100).

- When an employee is paid 100K (for example) for an experienced IT guy, the company calculates the total expense for the employee as 200K based on his 401K, training, sickdays, vacation, pension (if exists), liability coverages such as medical insurance, accidental coverage, disability, etc.

The rule of thumb in most cases to calculate employee expense is (till 125k), twice the salary as total expense. remember, the scale is not linear for all salary ranges, and definitely not for CEO salaries ;-).

Another rule of thumb to rememer (if you ever start a staffing firm, it is very important ;-) ) is, your hourly rate multiplied by 2, is the approximate yearly salary in K). For example, your hourly rate is $50/hour then, you are making approximately 100K/year as salary.

Then a contracting house, convinces the hiring manager that, they can supply a contractor for just $75-$80/hour
for most decent developers. $75-$80/hour translates approximately to $150K-$160/year, which is cheaper than $100/hour ($200K/year) the company is paying the present employee.

Now, the H1/L1 company (contracting house) takes the $75/hour, gives the H1B candidate 65k-70k/year (minimum salary for H1 as per labor department in most states, which comes to about $35/hour), a medical insurance worth $10/hour (remember candidates are young and group insurance for a company, is much less than what you think), and pockets the rest (about 20-35$/hour), which amounts to anywhere from 30k to 60k.

Believe me, I am not exaggerating. My figures may be off by about 10% and not more that. These are the figures given by a very close friend who runs a consultancy company and he feels sad he is doing this unethical business ;-).

These figures are per candidate. This explains, why these guys (staffing firms) have the money to lobby the congress ;-)

Posted by Anonymous | Report as abusive

I’ve worked in biotech for the past 15 years and it’s become obvious to me that the reason foreign workers are encouraged to come here is that they **they’ll do the job at a cut rate**, and there’s a plentiful supply of them. There’s nothing more to it. They’re not the brilliant scientists and engineers that the Furchgott-Roth types would have you believe. In fact, the best scientists I’ve worked with over my career have been almost exclusively American-born, despite that these people have been a numerical minority in the labs I’ve worked in.

The effects of the policies which Furchgott-Roth wants to have continued and expanded have been A) lowering of wages in science and engineering fields, and B) driving out of the native-born from them. It’s pretty funny how she points out that fewer Americans are getting PhDs, but doesn’t admit that the main reason for that is saturation of the fields with foreign labor. Another example of George Bush’s “jobs Americans won’t do.”

Posted by Peter | Report as abusive