High-Tech Immigrant Workers Don’t Cost US Jobs

Hiring skilled immigrants by United States high-tech firms not only doesn't push out existing workers, it creates job opportunities for all, argues William Kerr.
by Dina Gerdeman

Many high-tech companies in the United States look overseas to fill talent gaps in their employment ranks by hiring skilled immigrants, often sponsoring the visas these workers need to live in this country. Critics say this can create an unpleasant fallout effect,the pushing out of older workers with higher salaries.

But new research indicates that although many tech firms do tend to favor employing younger workers, older native workers are not losing their jobs as a direct result of the immigrants being hired.

"We don't find rampant evidence of this idea that when a new immigrant comes in, the older worker is shown to the door," said Harvard Business School Associate Professor William R. Kerr, who recently cowrote a working paper called Skilled Immigration and the Employment Structures of US Firms with Sari Pekkala Kerr of Wellesley College and William F. Lincoln of Johns Hopkins University.

In the United States, the immigration of skilled workers is particularly prevalent among firms in the technology fields.

In 2008, immigrants represented 16 percent of the US workforce with a bachelor's education, and they accounted for 29 percent of the growth in this workforce during the period between 1995 and 2008. In jobs closely linked to innovation and technology, the share of immigrants was even higher, closer to 24 percent.

"Skilled immigration is important for the United States, where we do have a large Baby Boomer generation approaching retirement and leaving the workforce," Kerr says. "Some European countries also have workforces that have been aging substantially, and the replacement rate in the population for some of these countries is even negative; not enough new people are being born to replace people in their later years. Countries around the world are looking at immigration as one of the ways to keep the population base at its size or greater, and even better if that can be a skilled workforce."

Bitter Debate

Yet in the United States, specific policies and admission levels of skilled immigrants remain topics of bitter debate.

Some who advocate for higher rates of skilled immigration have used the phrase "national suicide" to describe the limited admissions of skilled workers compared to low-skilled workers in the United States. But critics are opposed to expanding admissions, saying skilled immigration rates are already too high.

Previous skilled immigration research focused on studying immigration through shifts in the supply of workers to a particular labor market. But Kerr and his fellow researchers took a rare route by looking at skilled immigration through the lens of the US firm by studying how the hiring of these immigrants affected the employment structures within 319 large employer firms and top patenting firms during the period between 1995 and 2008.

Many firms bring in immigrants through the firm-sponsored H-1B visa, the largest program for temporary skilled immigration to the United States. A company identifies a worker it wants to hire and then applies to the US government to obtain the visa.

Young workers account for a large portion of skilled immigrants, with 90 percent of H-1B workers under the age of 40. The visa is used especially for occupations in science, technology, engineering and math, which account for about 60 percent of successful applications. About 40 percent of H-1B recipients between 2000 and 2005 came from India, while 10 percent came from China.

Once the worker has migrated, the immigrant is essentially locked in with the firm until the person can obtain permanent residency or another visa. In many cases, the firm ends up sponsoring the immigrant for permanent residency, which strengthens the worker's ties with the firm even more.

“I don't have the belief that firms are using this to reduce the wage level that they have to pay their young workers”

Opponents of skilled immigration argue that companies are saving money by underpaying their immigrant workers substantially. Although Kerr agrees that many immigrants are underpaid when compared to native workers, he notes that many studies find the average difference in pay is only about 3 to 5 percent, and others find no differences or positive effects. This may be because the laws that surround skilled visas don't allow companies to pay much less than the prevailing wage.

"The most extreme studies find a differential of 20 percent or thereabouts, but even that difference is not as substantial as it first sounds," he says. "There are legal fees and recruiting costs for hiring immigrants, and that kind of stuff will quickly wipe out any underpayment that a firm would get off a $50,000 salary. So I don't have the belief that firms are using this to reduce the wage level that they have to pay their young workers in these companies."

Kerr points to other factors beyond salary: "Younger immigrant workers are often more tied to the firm, are willing to work long hours, and often have fewer family commitments. Their salary may also be lower, especially relative to older workers whose salary has increased over time, but that can be second-order to these other traits."

Specifically, Kerr and his research colleagues found that increased employment of young skilled immigrants impacts the employee makeup of firms in three main ways:

1. Hiring young skilled immigrants raised the overall employment of skilled workers in the firm. The researchers found a strong link between expansions in a firm's young skilled immigrant employment (those under 40 years old) and expansions in other parts of the firm's skilled workforce.

Anecdotal input about the affect of skilled immigration on firms is varied. Advocates for skilled immigration say many companies hire additional native employees along with the hiring of immigrants. For example, Microsoft cofounder Bill Gates has said in congressional testimony related to H-1B that the company hires four additional employees to support each worker hired on the visa. On the other end of the spectrum is the view that US companies hire skilled immigrants through the H-1B program to displace citizen workers with high salaries, effectively lowering a firm's costs.

Kerr says his research pointed to a trend somewhere in the middle of the two: Although he didn't find a four-for-one employment increase, he did find that an increase in skilled immigrant workers led to overall growth. The size of the firm grew roughly by the immigrant in addition to one extra skilled worker, he says.

"I think it's a case of complementary work. You bring additional immigration into a high-tech firm, and that allows it to expand its rate of innovation and the number of products it creates, and that creates jobs for everyone from new marketing people to new HR staff to new finance jobs and legal counsel. It creates a demand for other jobs in the firm that are also growing with the innovation and progress that the firm is making."

2. Hiring skilled immigrants increased the immigrant share of these workers. This may seem obvious, Kerr points out. However, under the Microsoft scenario of four new hires for every one immigrant, the share of immigrant workers might actually decrease, but Kerr did not find that to be the case.

"What we are finding overall is that you are increasing the overall size of the firm and its skilled workforce, but you're creating that at a lower rate than immigrants being hired, so the immigrant share of the workforce is increasing," he says.

3. It reduced the share of skilled workers over the age of 40. While it may seem to make sense to blame immigration for the departure of older native workers, the decline in the older worker share is not solely due to employing more young immigrants, Kerr points out.

"We're not seeing amongst our firms in the study evidence of people being pushed out of their jobs," Kerr said. "The employment of older workers is not growing as quickly as the other groups, but there are also not absolute declines in employment levels."

"You observe this tilting of the age structure among just natives only," he adds. "As skilled immigration comes into these firms, the firm's native workforce is becoming younger on its own. That suggests that the immigrant's complementarity with younger natives is shifting the relative demands for labor within the firm."

Understanding The Facts

Firms should find the study results interesting, Kerr says. And since firms are often selecting the specific workers they want to hire, rather than the US government selecting people, "it seems particularly valuable to understand the impact of these admissions on the firms themselves," the paper notes.

Firms need to take a much bigger role in immigration going forward.

"My belief is that the debate has become too polarized and you have people on both sides advocating positions that have become caricatures," Kerr says. "There are two sides to the sword. It's better for us to understand the facts that surround skilled immigration and think about ways to formulate immigration policy as a result."

About the Author

Dina Gerdeman is a senior writer for Harvard Business School Working Knowledge
    • afraid to say
    • programmer, afraid to say
    Kerr is sugar coating the fact that half my friends and collegues got booted out in favor of young Indian programmers who hardly make anything; and everyday i come to work wondering if i'll be next; oh and my friends can't find any work any where because they are not young Indians willing to work for peanuts
    • Suman
    • Manager, WBSEDCL
    In this present open market where most of the big corporate s have operations throughout the world the fear for immigrant workforce is not that much crucial because anyhow the company can do the non crucial assignments through its outside operation (like in China or India) & for the crucial applications the company normally does not differentiate between the talent & the pay.
    I look positive in it ,its boosting the economy by which all the citizens will be benefited.
    • Gail Johnson
    • self employed author, self employed author
    This article is a joke, right?
    1. Of course, there will be more technical workers in a firm because immigrants cost less. A firm can 3 or 4 people from India instead of 2 from the USA. The 2 that would have been hired from the USA will be out of luck.
    2. Same issue. More immigrants hired, the greater proportion of immigrants in firm. And the Americans who would have taken those jobs are again out of luck.
    3. What a great thing it is to reduce the number of skilled workers over 40. Chuck out those who actually have experience. The cheaper young immigrants will be the experienced programmers of India in the future.

    What this country really needs is strong technical workers labor union. An article like this makes me think it could happen.
    • Parent and PhD EE
    • CTO, a stealthy start-up
    How absurd is it that the same organizations wanting us to encourage youth to enter STEM careers are also the organizations advancing policies which are designed to drive-down the lifetime earnings of STEM workers?
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    It is an irony that most of the countries lament on talent and skill shortage but at the same time there is movement elsewhere and vice versa of skilled persons. It is understood for countries where human productivity is low and need is felt to utilize migrants - without dislocating the locals - but in advanced countries like US where local talent would be available, the only plausible reason to prefer immigrants is lower payouts and higher productivity because these people are generally single for a long time with lesser family responsibilities. That said, it seems logical that each country needs to first offer- even prefer - jobs to natives and only if suitability is the problem hunt people from elsewhere.
    • Mani K
    • Senior Auditor, Indian Audit & Accounts Department
    Some year ago, some locals in Bangalore (now Bengaluru) assembled in name of a banner, at the gate of Infosys Technologies Limited, India, demanding employment for the SONS OF THE SOIL. But the reality is these folks who were demanding priority over other qualified persons is-- their birth in the same state where the company's Head Quarters is founded/ located. If you prefer to 'call a spade a spade', what is the justification for the local folks. Otherwise they cannot even think of entering into such technology companies. What the locals didn't understand is, inside Infosys, it is not a bed of roses.
    • R. Lawson
    • Software Consultant, SDS
    The H-1b visa costs not only jobs, but it also drives down salaries. The people saying otherwise make more money when they drive down salaries, they are immigration attorneys who make money providing legal services, or they are industry groups.

    Getting incredibly tired of these lies that keep spreading which cover up the H-1b impacts on American workers.
    • Old one
    • IT
    I strongly disagree with this sentiment. I have seen several workers come from overseas to do jobs similar to mine that hound me for knowledge. The concept is that they came over here since they have skills that companies cannot find. They are just another body coming over here to make their company money at the American workers' expense.
    I want to be patient with inexperienced workers but they are sent to the US with the assumption they already have these skills.
    Keep in mind - I believe in a free market, but I do not like being gamed and lied to.

    And, yes, I believe you are lying. Or ignorant.
    • Alexander Boyle
    • Vice Chairman (retired ), Chevy Chase Bank
    This research ties in beautifully to the ground breaking research conducted by HBS Professors Porter and Rivkin on the subject of declining U S Competitiveness and could be very helpful in favorably influencing the debate in Washington on high skill immigration as a part of the overall debate on immigration reform.
    • Caroline Gerardo
    • Author, not mentioning
    This is flawed data. A programmer age 56 making $85000 is easily replaced by two Indian immigrants at $35 a piece every day. Companies can put up shop offshore to get around H-IB. This is true in sciences, engineering, information technology... Today's American current STEM graduate a will compete for a job here at home against immigrants who will work for half price.
    • Go Home Visa
    • H1B Hater, USA
    oh boy, another b/s article from Harvard, more lies about how replacing American workers on American soil somehow defies mathematics and creates more jobs for Americans...I didn't go to Harvard, so I guess that explains why I'm confused. Great article Dina, how much did NASSCOM pay you for this one ?
    • onelegd1
    • part of underemployed
    I'm not against anybody striving to achieve success.
    But I don't believe the article is correct.

    H1-B should only be used if there are not enough educated and productive workers already in USA, particularly including existing citizens.

    This economy needs to really get the facts straight about 50+ aged engineers who have proven they can learn and produce with any technology.

    Today's high-tech firms take the strategy that you must have exact language and tool chain to be desirable. Not that anyone with 20+ years experience could possible learn another software language, framework, and toolchain and be productive.

    Stop the lie that every high-tech worker has a job. Search the IRS records for every high-tech worker between 49-59 who is out of workforce.

    P.S. I see a lot of comments that highlight my experiences. I'm typically left of center in my beliefs. Does HBS only look at an immediate bottom line and have no sense of future community stability in the USA?

    P.P.S. what does this mean regarding HBS fairness.

    "By hitting "Submit" you agree that your comment, in whole or in edited form, may be posted online. Comments are selected on the basis of relevancy and variety; not all will be posted"

    I believe the author should respond to comments.