Immigration economics: impacts and labor market effects

Macroeconomics

Factors that lead to Growth

There are several factors that lead to economic growth. They are physical capital, human capital, natural capital and technological change. Physical capital refers to the infrastructure that a nation has, for example transportation and communication infrastructure, and manufacturing capacity. Human capital refers to the number of people, and their skill level. Natural capital reflects natural resources that can be exploited. Technological change reflects the increases in productivity and opportunity that come from innovation.

In his article, Hanson is focused on human capital and the benefits of technological innovation in particular. The two are closely linked, since nations with better human capital are more likely to be innovation leaders as well. Hanson argues that immigration reform should take into account the role that immigrants play in economic growth. The U.S. has many technology companies, and is a leader in most technology fields. That leadership depends, however, on the ability of American companies to attract the best talent from around the world. The United States is basically competing with the other nations in the world for talent. Good people unable to get into the U.S. long-term because of the country's visa restrictions will either return to their home countries or settle in other major nations -- Canada is known to have developed a competitive program to siphon off talent that was unable to get a long-term visa in the U.S. (Downie, 2010). These immigrants are often leaving with a U.S. degree and experience working for an American company for a year or two, which makes the situation worse because the country has already invested in these workers. Where there is a critical mass of such workers, and their home country provides a reasonable environment in which to build a business, this talent often sets up at home and competes directly against American companies that would otherwise have employed that talent. This is especially the case with Indian and Chinese nationals, who can cluster in their home countries and build companies that compete directly with American firms.

For Hanson, it makes no sense to have these limitations. In general, the workers are question are highly-talented. While this might not have been the case when the H-1B visa was originally developed, it is certainly the case know. Knowledge industries in particular seek out the smartest kids from around the world - they arrive in the U.S. On student visas -- and want to keep them in the country over the long run because they are the best talent available. Hanson argues, quite rightly, that the ability to attract the best talent is desirable for any country. When you have attracted that talent -- as a nation the U.S. has a lot to offer -- the best course of action is to retain that talent to the best of your abilities. Companies always look at human resources as attraction and retention, but the United States, through its immigration policy, does not. It might attract the workers, but then it erects obstacles to retaining that talent. Even when American companies move that talent to subsidiaries in other countries, the workers are paying taxes and spending their money in the foreign country, not in the U.S.

Hanson's most important argument, however, is with respect to innovation. The U.S. gains tremendous benefit from having these talented workers in the country. They are innovators and their innovations strengthen American enterprise. The economic benefits of this technological change are going to be felt strongly in the country where the change originates, and too often that country is not the United States, because of the short-sighted immigration policy. Hanson argues that this costs the United States billions of dollars per year in lost economic opportunity. The surplus from low-skilled immigrants is minor, but from high-skilled immigrants the economic benefits from technological innovation are substantial. Thus, immigration reform is needed in order that the U.S. retains more of this talent for itself, capturing the economic benefits of the world's most talented people, trained in the U.S., instead of watching those economic gains materialize in other countries.

What legislators need to bear in mind is that the competition for talent is global in nature, and the ability of any nation to grow into the 21st century is going to be dependent on that nation's ability to win the competition for talent. That does not occur through restrictive visa regimes -- such policies only serve to turn talent away. America is attracting more talent than it is retaining, which means that there is a policy failure. The country's immigration system is out of equilibrium, due to government intervention. And like any economic inefficiency, these restrictions are costing America money. It is imperative, Hanson argues, that visa restrictions are loosened or done away with altogether in order to foster economic growth and restore the global competition for talent to equilibrium, a position that would fuel far greater economic growth in the U.S. than is occurring right now.

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