Immigration Reform: STEM Legislation Would Give US Economy a Much Needed Boost

Shahin Kaveh co-authored this piece.

President Barack Obama has come out in support of comprehensive immigration reform and putting undocumented immigrants on a path to citizenship. His new immigration plan, which in a way resembles the DREAM Act, allows many immigrants brought illegally to the United States as children to be exempted for two years from deportation and granted work permits if they join the military or go to college. Now that he is reelected, his administration faces another hot issue: high-skilled immigration.

High-skilled immigration reform is unfortunately not a “no-brainer” issue for the Congress – as Alex Tabarrok of George Mason University calls it. A variety of proposals (including SAMRT, STAR, STAPLE, STEM, BRAINS, etc.) are on the table and yet no definite solution has been reached as to how the country is going to facilitate issuing working permits and residencies to foreign-born graduates with advanced degrees from American universities. Lack of clarity on the benefits of a system that readily keeps foreign brains in the country may be the reason the debate is still ongoing.

So what is the source of disagreement among policy makers and the public over the reform? The major concern stems from the question of whether high-skilled immigrants are substitutes for their American counterparts when it comes to the job market. There is no short answer to this. However, a recent study by the American Enterprise Institute showed that every 100 H1-B visas issued resulted in 183 jobs created for U.S. natives. This simply means the pie, to be divided between immigrants and natives, is not fixed. According to the study, not only did high-skilled immigrants not take American workers’ job, but also created jobs themselves.

The other concern is that high-skilled immigrants may receive more government transfers in the form of social security and unemployment benefits than they pay in taxes. This is not at all likely either. There are two major considerations at play in the fiscal analysis of the impact of immigration on the economy. The analysis depends on the age and education of the immigrant at the time of arrival as well as the timeframe during which the fiscal effect is studied.

Most immigrants with relatively high skills tend to arrive at the country at younger ages. As the National Research Council in its 1997 study reports, immigrants arriving at ages 10 – 25 produce fiscal benefits for natives. Immigrants who have university degrees from their home countries consume relatively less in services like education and most probably have higher future income and therefore pay more in taxes.

In the long run, immigrant households appear to be more fiscally beneficial than over a single fiscal year. Other researchers have found that selective immigration policies involving increased inflow of working-age high- and medium-skilled immigrants increases tax revenues per capita and reduces government debt and government expenditures per capita and therefore can remove the need for a future fiscal reform. According to the same study, denying a 40 – 44 year-old high-skilled immigrant a visa is estimated to cause a fiscal loss as high as $177,000 for the government.

Other reasons to reform the high-skilled immigration system include added value to the aggregate human capital of the country and the entrepreneurial impacts. In terms of human capital, when college-educated adults move to the U.S., their presence contains the amount of money that was spent on raising them to the age of 18 and then getting them through college. It is as if the host country gets to add some healthy, well-educated adults to its pool of residents without having spent any money on them. This added value can be estimated based on the available data and is expected to be some tens of billions of dollars a year. By the way, this is not only true of the students in Science, Technology, Engineering, and Mathematics, or so called STEM students. Artists, sociologists, and philosophers bring added value to the society as well.

Regarding the entrepreneurial impacts, it might help to mention that more than half of the Silicon Valley startups between 1995 and 2005 were created by an immigrant founder according to a study by the Kauffman Foundation. American companies with an immigrant founder entrepreneur provided more than 400,000 jobs in engineering and technology industries in 2005.

All in all, American policy makers should know that every week of postponing such a lucrative reform that transforms the foreign brain drain into a brain gain will cost millions of dollars for the country. Let’s not be a loser in the global race for talent.