Skilled Immigration and the Employment Structures of US Firms

by Sari Pekkala Kerr, William R. Kerr & William F. Lincoln

Overview — The immigration of skilled workers is of deep importance to the United States, particularly in occupations closely linked to innovation and technology commercialization. Appropriate policies and admissions levels for skilled workers remain bitterly debated in the popular press. The authors analyze how the hiring of skilled immigrants affects the employment structures of US firms. This focus on the firm is both rare and important, since economists typically study immigration through the conceptual framework of shifts in the supply of workers to a labor market; yet substantial portions of the US immigration framework have been designed to allow American firms to choose the immigrants that they want to hire. Young workers account for a large portion of such skilled immigrants; for example, 90 percent of H-1B workers are under the age of 40. Given this context, the authors look specifically at the role of young skilled immigrants within more than 300 large employers and major patenting firms over the 1995-2008 period. The evidence suggests that increased employment of young skilled immigrants 1) raises the overall employment of skilled workers in the firm, 2) increases the immigrant share of these workers, and 3) reduces the older worker share of skilled employees. The latter effect is evident even among natives only. Overall, these results provide a multifaceted view of how young skilled immigration shapes the employment structures of US firms. There are significant implications for the competitiveness of American firms, the job opportunities of natives and immigrants employed by these firms, the larger national innovative capacity of the United States, and much beyond. Key concepts include:

Many parts of the US immigration process for skilled workers operate outside of formal markets and provide a central role to firms (e.g., sponsorship of H-1B workers). As such, firms need to take a much bigger role in immigration research going forward.
Consistent evidence links the hiring of young skilled immigrants to greater employment of skilled workers by the firm, a greater share of the firm's workforce being skilled, a higher share of skilled workers being immigrants, and a lower share of skilled workers being over the age of 40. The results on whether total firm size increases or not are mixed.
Employment expansion is greater for younger natives than their older counterparts. This tilting of the age structure of the firm (even in relative sense among skilled natives) with immigration is underexplored by economists.
Departure rates for older workers appear higher for those in STEM (science, technology, engineering, and mathematics) occupations compared to younger workers.
These results do not align with any single popular account and suggest that greater caution in public discourse is warranted.

Author Abstract

We study the impact of skilled immigrants on the employment structures of United States firms using matched employer-employee data. Unlike most previous work, we use the firm as the lens of analysis to account for a greater level of heterogeneity and the fact that many skilled immigrant admissions are driven by firms themselves (e.g., the H-1B visa). OLS and IV specifications find rising overall employment of skilled workers with increased skilled immigrant employment by firm. Employment expansion is greater for younger natives than their older counterparts, and departure rates for older workers appear higher for those in STEM occupations compared to younger workers.