Bringing More Minds to America

8/3/2019 Bringing More Minds to America

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The human CapiTal imperaTive

Bringing More Minds to AMericA

By nk shulz

shla, naal chamb Fua

dW Walla Fllw, Ama ep iu

2012


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The Human Capital Imperative: Bringing More Minds to America

Nick Schulz

Scholar, National Chamber Foundation

DeWitt Wallace Fellow, American Enterprise Institute

Nick Schulz is the DeWitt Wallace Fellow at the American Enterprise Institute (AEI)where he researches issues o political economy and technology. He is editor-in-chie oAmerican.com, AEIs inuential online journal o ideas ocusing on business, economics,and public aairs, as well as the National Chamber Foundations (NCFs) Scholar. Schulzis also a columnist or Forbes.com. Tere he writes theEconomics 2.0eature in which heexamines technology-led economic growth, politics, and public policy.

Schulz is the co-author with Arnold Kling oFrom Poverty to Prosperity: Intangible Assets,Hidden Liabilities and the Lasting riumph Over Scarcity (Encounter Books, 2009), anacclaimed book on modern economic growth and development. Schulz is requently invited todiscuss the research and ndings in the book at various events in the United States and abroad.

During the mid-2000s, Schulz was the editorial director oechCentralStation, a path-breaking online think tank and magazine. Prior to that role, he was the politics editor o FoxNews online in New York where he coordinated coverage o the 2000 election, post-electiondeadlock, and September 11 attacks. He was also the politics and opinions editor orVoter.com, a start-up political website and portal.

In addition to his work in online media, Schulz was an award-winning television producerwith multiple credits on PBS and elsewhere. He also produced or co-produced severaldocumentaries, including Te Stockholder Society, Te First Measured Century, and Dj vu All

Over Again: Te Life of Yogi Berra.

In the 1990s, Schulz served as a policy analyst and aide to ormer vice presidential candidateJack Kemp and ormer Secretary o Education William J. Bennett. He was also a consultantto Platinum echnology, a major relational database management rm, and a consultant atthe Sotware Publishers Association.

Schulz has been a media ellow at the Hoover Institution at Stanord University andis on the board o advisors o the Ewing Marion Kauman Foundations survey oeconomics bloggers.

Schulz continues to publish widely in many major newspapers and magazines around thecountry, including TeWashington Post, Te Wall Street Journal, the Los Angeles imes,USA

oday, and Slate. He and his wie and three children live in suburban Washington, D.C.


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The Human Capital Imperative:

Bringing More Minds to America

By Nick Schulz

Scholar, National Chamber Foundation

DeWitt Wallace Fellow, American Enterprise Institute

100 Years Standing Up for American Enterprise

U.S. CHAMBER OF COMMERCE


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iNtroductioN

Te United States is in a precarious condition. Te American economy still hasnot ully recovered rom the downturn that began in 2008. A mortgage and bankingcrisis, ollowed by a long recession, has given way to an anemic recovery. Americanshave endured an alarmingly high unemployment rateat times, more than 10% o the

working age population has been eager and willing but unable to nd work.1

For Americans long accustomed to stable growth and low unemployment rates,the past ew years have come as a proound and unsettling shock. As policymakers rattlearound their tool kits looking or ways to help the American economy, now is a good timeto take a new look at immigration, in particular high-skilled immigration.

In this paper, we will examine some o what scholars and the public have learnedover the years about the economic eects o adding new skilled immigrants to the work orce.

Tere is no doubt that immigration is oten a contentious and polarizing politicalissue. Reasonable people o good will can come to dierent conclusions about how muchimmigration the nation should permit, but there are good reasons to separate the issueo high-skilled immigration rom low-skilled immigration. One reason has to do witha gradual evolution in thinking about the nature o modern economies and how theyunction, grow, and thrive over time.

the humaN capital revolutioNOver the past ew decades, economists, social scientists, and other scholars have

begun to realize the importance o human capital to a nations economic success.2When we think o capital, we typically think o hard assets that can produce incomeover time, such as actories, arm equipment, and manuacturing plants. Human capital isanother kind o capital. It is the stock o talent, skill, know-how, intelligence, education,and experience embedded within individuals that helps them to produce income.3

Consider what this means or the American economy as it has changed over time.Te American economy transitioned rom largely agricultural roots in the 18th century toan industrial power in the 19th and 20th centuries to include a large service and advancedtechnology dimension today.4 Over that time, as sophisticated technology has penetratedto the center o economic lie, the role played in the American economy by human capitalhas grown steadily larger.5 Greater amounts o human capital are required to develop andmanipulate the technology that drives the economy. Te American economy has gonerom one that emphasizes brawn to one that relies on brains.

How important is this human capital? According to recent estimates, the stocko human capital is over $750 trillion.6 According to a research report rom JP Morgan


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called U.S. Recession and Repression Are Only inOur Minds, this is much greater than the roughly$70 trillion o physical and nancial assets owned byAmerican households.7

As important as human capital is to economicsuccess, it is not evenly distributed around the world.

Tere is ample human capital already in the UnitedStates, but there are also enormous stocks o humancapitaland potential capitalound overseas.

Tis is a constructive way or policymakers tothink about skilled immigrationit holds the potential

to broaden and deepen the stock o human capital inthe United States.

the ecoNomic effectS of Skilled immigratioN

Te addition o new immigrants to any country will have an eect on its economy, andunderstanding that eect can help us appreciate how we might want to structure immigration policy.

Tere is no doubt that immigrants have a proound impact on the American economy; orexample, the addition o new people into the United States makes the economy larger in size. Justadding more people to enlarge the economy is not what should concern policymakers. Ater all,

China and India have many more people than the United States, but they also have much smallereconomies. Instead, when we think about economic growth and progress, we are interested inproductivity: doing more with less. Productivity growth is the key to long-run economic growthand rising standards o living.8

So do skilled immigrants contribute to productivity growth? Te answer is a clear yes.

New BuSiNeSSeS

For startersand perhaps most important, given the weakness o the American economycoming out o the Great Recessionskilled immigrants start businesses at higher rates than the

native-born.9 Robert Fairlie o the University o Caliornia at Santa Cruz noted in research publishedin 2008 that immigrants are 30% more likely to start a business than those who are native-born.10

New businesses play an important role in pushing productivity-enhancing techniques,technologies, and business models into the broader economy. As research put out in 2010 rom theKauman Foundation shows, new rms are responsible or the vast majority o net new jobs in theUnited States.11

0

100

200

300

400

500

600

700

800

hn c ps c

$738

$45

Source: Michael Christian, Bureau of Economic Analysis

Figure 1: Capital Stock, United States


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Many o us are amiliar with skilled immigrants starting great, transormative Americancompanies. Several generations ago it was visionaries such as Andrew Carnegie who helpedthe United States to industrialize and whose innovations made possible the building o thetranscontinental railroad; or Levi Strauss who orever changed American retail, culture, andashion when he started selling denim jeans. O a more recent vintage, we can think o Yahoo!ounder Jerry Yang or Andy Grove o Intel.

Indeed, skilled immigrants are disproportionately represented at high-growth companies.Researchers rom Duke University examined new science, technology, engineering, andmathematics (SEM)-related companies ounded in the decade between 1995 and 2005,and ound that one-quarter had at least one immigrant ounder.12

Perhaps it should not surprise us much that immigrants would be more likely to start

businesses and become entrepreneurs. Ater all, starting a business is a risky enterprise, and onething we know about immigrants is that they are natural risk takers. Most o them had to risktheir own nancial capital and place great stock in their natural ability to succeed in a oreign land

just to come here.

Arthur Brooks, president o the American Enterprise Institute, discussed the cultural andhistorical roots o American entrepreneurial success in his best-selling bookTe Battle. Speakingo the nations immigration heritage, he noted that Americas vast success might be explained inpart by our genetic predisposition to embrace risks with potentially explosive rewards.13

the Stem dimeNSioN

Skilled immigrants can be ound in every line o work, but many either work orstart businesses in some o Americas key growth sectorsthose industries where scienceand new technology play a signicant role. According to Pia Orrenius o the Federal ReserveBank o Dallas, immigrants accounted or well over 50% o the growth in employment inSEM-related elds between 2003 and 2008.14 Te high-growth elds include computertechnology, telecommunications, deense, and biotechnology. Tese are crucial industries inan advanced modern economy and keep the United States on the rontier o technology.

Skilled immigrants are important or keeping Americas competitive edge. oday, mucho the rest o the world today is playing catch-up growth. Tis means nations such as India,

China, Brazil, and other rapidly growing countries are adopting the technologies and institutionsalready ound in advanced countries such as the United States. For developed and technologicallyadvanced countries such as the United States to continue growing rapidly, they must push thetechnology rontier. In testimony beore the Subcommittee on echnology and Innovation,House Committee on Science, Space, and echnology, Brink Lindsay o the KaumanFoundation explained the challenge this way:

Te available sources o growth, and the policy requirements o growth, change over timewith a countrys advancing economic development. In particular, as countries get richer,


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they become ever more heavily dependent on home-grown innovationas opposedto simply expanding existing activities or borrowing good ideas rom abroadto keepthe growth machine humming. And since new rms play an absolutely vital role in theinnovation process, that means that removing barriers to entrepreneurship becomesincreasingly important to maintaining economic dynamism and prosperity.15

iNNovatioN, iNtellectual property, aNd gloBal orieNtatioN

Competitive growth also means ostering as much innovation as possible on Americansoil. o do so, the United States must attract the best available talent rom abroad to ensure thatestablished companies and new rms can innovate rapidly.

Te Organization or Economic Co-

operation and Development (OECD) looked at therole that immigrants play in promoting innovation and economic growth in advanced countries. Itreported that migrant enterprises are no longer conned to the lower segments o markets, and theyare increasingly ound in high-value activities which characterize advanced urban economies. In theUnited States, skilled migrants outperorm college-educated natives in terms o starting companies,per-capita patenting, commercializing or licensing patents. In particular, or patenting, there isevidence that immigrants success has positive spill-over eects on natives.16

Te presence o these skilled immigrants enhances the international competitiveness o theU.S. economy,17 said Barry Chiswick, the chair o the Department o Economics at Te George

Washington University. Indeed, the presence o so much human capitalgathered rom aroundthe world but residing on American soilhas helped to account or Americas relatively strongcompetitive position in global markets.

Another reason skilled immigrants are valued assets in the American economy, accordingto the OECD report, has to do with the increasing globalization o the economy. Many majorAmerican rms are multinational in their orientation, with growing presences in oreign marketsaround the world. Tink o great companies such as Coca-Cola, Microsot, Intel, Caterpillar, 3M, orIngersoll-Rand. Skilled immigrants possess valuable knowledge o oreign market customs, mores,obstacles, and opportunities. Teir knowledge can oer an additional edge to the companies thatemploy them or the new companies they start. Skilled immigrants also help established companies bytheir interaction with new oreign markets. Te presence o these immigrants working or Americancompanies can help boost trade by lowering trade-transaction costs as a result o migrants knowledge

o markets back home and their contact networks.

Migrant entrepreneurs are in a good position to personally stimulate trade with theircountries o origin, the OECD continued. Moreover, they can serve to show the way or other rmsthat want to engage in trade with their ormer home countries, by strengthening business networksand disseminating knowledge about markets in migrants country o birth.18


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Skilled immigrants help create new intellectual property that can increase economic growthover time. Tey are awarded patents at high rates,19 and the presence o skilled immigrants bolsters therate at which native-born Americans patent as well.

puBlic aNd private iNveStmeNt

Te presence o immigrants also creates positive spillover eects, prompting andsustaining creative activity that adds value to companies and the broader economy.

Chiswick noted, High-skilled immigrants expand the productive potential o theeconomy in which they reside... High-skilled immigration to the United States, thereore,enhances the international competitiveness o the U.S. economy and attracts oreign capital

to the country.20

wo scholars rom the University o Fribourg, Volker Grossman and David Stadelman,recently studied the connections between high-skilled immigration and subsequent publicexpenditures, such as education and key inrastructure.21 Tey ound that raising net high-skilledimmigration has a positive and quantitatively important impact on productive public expenditure.

Despite this additional public expenditure, skilled immigrants have a positive eect on thenations overall scal balance. Chiswick noted that High-skilled immigration adds workers to thelabor orce who tend to pay more in taxes than they receive in public benets As a result, theytend to have a positive net scal balance.

At a September 28, 2011, program hosted at the U.S. Chamber o Commerce,New York City Mayor Michael Bloomberg underscored the net scal benets o admitting morehigh-skilled immigrants. We really need an approach that allows business to grow, that expandsour markets overseas, that spurs innovation, that increases the number o entrepreneurs whostart businesses here, and that creates jobs or Americans on every rung o the economic ladder,he said. Now, what i I were to tell you that theres a way we could do all o those things at nocost to the taxpayers. Not one penny. Well, I think i told you that in the process we could raiserevenue and we could use that revenue either to pay or tax cuts or to pay or essential services likenational deense, I suspect all o you would say, Great, what are we waiting or?

While skilled immigrants make it possible to boost badly needed public investment,

Grossman and Stadelman also ound that an increase in high-skilled immigration raises thereturn to private-capital investment and that changes in the net high-skilled immigration rateover time are positively related to changes in the physical capital stock per capita o a country. Ocourse, the growth o Americas capital stock is critical to expanding the wealth o the nation ando raising living standards or all Americans.

New research is also nding skilled immigrants bring benets in unexpected ways. Fewpeople are surprised to nd talented Indian or Chinese programmers in places like Silicon Valleytoday. Researchers James ed McDonald, Casey Warman, and Christopher Worswick recently


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learned that skilled immigrants have been lling doctor shortages that have plagued ruralAmerica in the recent past.22 Tese physicians and skilled medical workers have stepped in toprovide badly needed primary and specialty care.

comiNg to americafor how loNg?

O course, skilled immigrants have always come to our shores. It is not enough to say thatwe are a nation o immigrants. In many ways, we have long been a nation oskilledimmigrants.

oday, more attention is paid to computer programmers or biomedical engineers, butseveral generations ago America was the home or immigrant artisans, cratsmen, and smiths oall kinds who brought new know-how, technology, ambition, and talents.23 Without doubt, the

nation has benetted rom this inux o talent over the generations.Many things attract skilled immigrants to the United States. At one end o the spectrum,

Americas great universities, colleges, and technical institutes are an enormous draw. Indeed,the portion o immigrant workers with advanced degrees is higher than Americas native-bornpopulation. Almost 2% o immigrants have Ph.D.s, ar larger than the percentage o American-born doctorates.24

Our universities may be a magnet or skilled immigrants, but current policy practicallygoes out o its way to turn away or discourage them. George Mason University economist Alex

abarrok recently put the matter this way: Te U.S. has an immigration policy that treats thesepotential citizens with something between indierence and hostility.25

In the past, this policy did not pose much o a problem, except or the immigrants whohad to endure unpleasant treatment, paperwork, and bureaucratic hassles. Te world has changed,and the United States is no longer the only attractive option to these highly talented, internationalstudents. As abarrok put it, the world is now competing or highly skilled workers.

On some measures, the United States is losing its edge. Research rom Duke UniversitysVivek Wadhwa and others shows that skilled immigrantstired o bureaucratic hassles intheir quests to become permanent residents, coupled with growing opportunities in their nativecountriesare increasingly leaving the United States to work and start businesses elsewhere.26

Tey ound that oreign national students are planning to leave the U.S. ater graduation in

numbers that appear to be higher than the historical norm as measured in SEM disciplines.A signicant percentage o these students also say they intend to open businesses in the uture.Tis expressed intention is prevalent among Indian and Chinese nationals currently studying inthe U.S.27

So while the rest o the world competes to retain or attract human capital, the UnitedStates will need to take steps to make sure it can compete. Despite this concern, and despite theneed or the worlds best minds to power the worlds leading economy, the United States at timesis moving backward. For example, Michael Greenstone and Adam Looney at the Brookings


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Institutions Hamilton Project have reported that the United States is issuing a decreasingnumber o total H1-B visas and employment-based preerence visas (EB-1, EB-2, and EB-3) orhigh-skilled workers.28 A little over 270,000 such visas were available or high-skilled immigrantsin 2009, down sharply rom more than 301,000 visas in 2000.

im Kane and Robert Litan o the Kauman Foundation aptly summarized the situationthat the country aces today when they wrote, Te single most important policy reorm that willboost long-term economic growth in the United States is to reduce the barriers acing highlyskilled and highly educated immigrants. Tey point out that at least 50,000 workers withadvanced degrees are sent out o the United States each year, although they have already passedsecurity tests and become part o the productive abric o the U.S. economy. In a world where theknowledge economy adds more value to national incomes than physical labor, the current U.S.stance o exiling many o the smartest people in the world imposes sel-inicted wounds on ourcurrently troubled economy.29

When any economy aces challenges, the rst thing it should do is determine i it has any

sel-inicted wounds, as those are the easiest to correct. Te evidence is clear that the benets oskilled immigration are high. Te costs o bad immigration are also high. It is past time or thenation to stop shooting itsel in the oot.

Te late economist Julian Simon was one o the nations great growth theorists. He wasond o saying that the ultimate resource is people, especially skilled, spirited, hopeul youngpeople who will exert their will and imagination or their own benet and in doing so, will in-evitably benet the rest o us as well. Te United States is rich in many natural resources, but itneeds more o that ultimate resource to thrive in the 21st century.30

Total H1-B VisasEmployment-Based Preference

Visas + H1-B Visas

Total High Skill Visas

as a % of Recent

College Graduates

High-Skill Immigration

Note: Includes workers seeking legal permanent residence under Employment First (Eb-1), Second (Eb-2), and Third (Eb-3) Preference, new arrivals and adjust-ments, and H-1B Initial and Continuing Applications. College graduates refers to bachelors degrees, and excludes bachelors conferred to nonresident aliens;Source: DHS (20002009), NCES (2009).

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

NumberofHighlySkille

dImmigrants(1,000s)

Percentage

ofRe

centCollegeGraduates

15

20

25

30

35

150

200

250

300

350

400


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1 WolframAlpha. Web. .

2 Becker, Gary S. Human Capital: A Teoretical and Empirical Analy-sis, with Special Reference to Education. New York: National Bureauo Economic Research; distributed by Columbia University Press,1964. Print.

3 Ibid.

4 Gordon, John S.An Empire of Wealth: Te Epic History of AmericanEconomic Power. New York: HarperCollins, 2004. Print.

5 Kling, Arnold S, and Nick Schulz. From Poverty to Prosperity:Intangible Assets, Hidden Liabilities and the Lasting riumph OverScarcity. New York: Encounter Books, 2009. Print.

6 Human Capital Accounting in the United States, 1994-2006,Michael S. Christian, .

7 Feroli, Michael. U.S. Recession and Repression Are Only inOur Minds. Global Data Watch. J.P. MorganChase, 30 Sept.2011. Web. .

8 Ibid. From Poverty to Prosperity: Intangible Assets, Hidden Liabilitiesand the Lasting riumph Over Scarcity.

9 Hunt, Jennier. Which immigrants are most innovative andentrepreneurial? Distinctions by entry visa.(Working Paper No.14920). Cambridge: National Bureau or Economic Research.April 2009. .

10 United States. Small Business Administration.Estimating theContribution of Immigrant Business Owners to the U.S. Economy . ByR. W. Fairlie. 334th ed. Washington, D.C.: Small Business Ad-ministration, 2008. Ofce o Advocacy Research Summary. Web..

11 Kane, im. Te Importance of Startups in Job Creation and JobDestruction. Rep. Kauman Foundation, 7 July 2010. Web. .

12 Wadhwa, Vivek, AnnaLee Saxenian, Ben Rissing, and GaryGeref.Americas New Immigrant Entrepreneurs. Rep. KaumanFoundation, 4 Jan. 2007. Web. .

13 Brooks, Arthur C. Te Battle: How the Fight between Free Enterprise

and Big Government Will Shape Americas Future. New York: BasicBooks, 2010. Print.

14 Orrenius, Pia M, and Madeline Zavodny. Beside the Golden Door:U.S. Immigration Reform in a New Era of Globalization. Washing-ton, D.C: AEI Press, 2010. Print.

15 Creating and Growing New Businesses: Fostering Innovation, Hearingbefore the Subcommittee on echnology and Innovation, House Com-mittee on Science, Space, and echnology,112th Cong. (2011) (BrinkLindsey).

16 Open for Business: Migrant Entrepreneurship in OECD Countries.Paris: OECD, 2010. Print.

17 Chiswick, Barry R. High-skilled Immigration in a Global LaborMarket. Washington, D.C: AEI Press, 2011. Internet resource.

18 Ibid. Open for Business: Migrant Entrepreneurship in OECD Coun-tries.

19 Kerr, William R, and William F. Lincoln. Te Supply Side of In-novation: H-1b Visa Reforms and Us Ethnic Invention. Cambridge,Mass: National Bureau o Economic Research, 2010. Internetresource.

20 Ibid. Chiswick, Barry R. High-skilled Immigration in a Global LaborMarket. Washington, D.C: AEI Press, 2011. Internet resource.

21 Grossman, V. and Stadelmann, D. High-skilled immigration: the linkto public expenditure and private investments, in Chiswick, B.R. (ed.),

High Skilled Immigration in a Global Labor Market, Washington,D.C.: American Enterprise Institute, pp. 201230.

22 MacDonald, J.., Warman, C., and Worsick, C.Earnings, Occupa-tions, and Schooling Decisions, in Chiswick, B.R. (ed.), High SkilledImmigration in a Global Labor Market, American EnterpriseInstitute, Washington, pp. 165198.

23 Ferrie, J.A Historical Perspective on High-Skilled Immigration, inChiswick, B.R. (ed.), High Skilled Immigration in a Global LaborMarket, American Enterprise Institute, Washington, pp. 1649.

24 Greenstone, Michael, and Looney, Adam. en Economic Facts AboutImmigration. Washington, D.C.: Te Hamilton Project, BrookingsInstitution. 2010. Web.

25 abarrok, Alex. Launching the Innovation Renaissance: A New Pathto Bring Smart Ideas to Market Fast. Amazon Digital Services. 2011.

26 Wadhwa, Vivek. Americas Other Immigration Crisis: the UnitedStates Has a Pressing Immigration Problem. But Its Not theOne You Hear about on Cable Chat Shows. Vivek WadhwaExplains How We Are Bringing the Worlds Smartest Minds toOur Shores, raining Tem, and Ten Pushing Tem Away. TeAmerican ( Washington, DC) 13 July 2009. Internet Resource.

27 Wadhwa, Vivek, Saxenian, AnnaLee, Freeman, Richard, andSalkever, Alex. Losing the Worlds Best and Brightest: Americas NewImmigrant Entrepreneurs, Part V.Rep. Kauman Foundation,March 2007. Web.

28 Greenstone, Michael, and Looney, Adam. en Economic Facts AboutImmigration. Washington, D.C.: Te Hamilton Project, BrookingsInstitution. 2010. Web.

29 Kane, im, and Robert E. Litan. Knowledge Economy Immigra-tion: A Priority for U.S. Growth Policy. Rep. Kauman Foundation.30April 2009. Web. .

30 Simon, Julian L. Te State of Humanity. Oxord, UK: Blackwell inassociation with the Cato Institute, 1995. Print.

Endnotes

f nn :n.sb./n


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