If we want to innovate, import potential innovators

There is an important article in the current issue of the Economist. I quote:

William Kerr, an economist at Harvard Business School, used name-matching software to identify the ethnicity of each of the 8m scientists who had acquired an American patent since 1975. He found that the share of patents awarded to scientists born in America fell between 1975 and 2004. The share of all patents given to scientists of Chinese and Indian descent living in America more than tripled, from 4.1% in the second half of the 1970s to 13.9% in the years between 2000 and 2004. Nearly 40% of patents filed in 2005 by Intel, a silicon-chip maker, were for work done by people of Chinese or Indian origin. Some of these patents may have been awarded to American-born children of earlier migrants, but Mr Kerr reckons that most changes over time arise from fresh immigration.....

What of the criticism that these workers are displacing native scientists who would have been just as inventive? To address this, Mr Kerr and William Lincoln, an economist at the University of Michigan, used data on how patents responded to periodic changes in the number of H-1B entrants. If immigrants were merely displacing natives, increases in the H-1B quota should not have led to increases in innovation. But Messrs Kerr and Lincoln found that when the federal government increased the number of people allowed in under the program by 10%, total patenting increased by around 2% in the short run. This was driven mainly by more patenting by immigrant scientists. But even patenting by native scientists increased slightly, rather than decreasing as proponents of crowding out would have predicted. If anything, immigrants seemed to “crowd in” native innovation, perhaps because ideas feed off each other. Economists think of knowledge, unlike physical goods, as “non-rival”: use by one person does not necessarily preclude use by others.

• William Kerr and William Lincoln, “The Supply Side of Innovation: H1-B Visa Reform and US Ethnic Innovation”. HBS Working paper 09-005, December 2008.
• Ajay Agrawal, Devesh Kapur and John McHale, “Brain Drain or Brain Bank? The Impact of Skilled Emigration on Poor-Country Innovation”. NBER Working paper No. 14592, December 2008.

Comment: The Grassley-Sanders amendment included in President Obama’s fiscal-stimulus package restricts the freedom of recipients of federal bail-out money to hire high-skilled foreign workers under the government’s H-1B visa program.

President Obama has expressed an interest in innovation as the long term motor for the economy, and wanted the stimulus package to serve the interest of long term economic progress, including for example strong support for energy and health information systems innovations.

On the other hand, the Democratic party has strong labor support and tends to attract people concerned with the transfer of American jobs abroad.

However, we should distinguish between immigration that creates jobs for the other Americans and immigration that substitutes an immigrant for someone who is already here. The H1 visa program is specifically oriented to filling jobs that we need filled which can not be filled with the existing workforce.

It is the natural vehicle for importing the innovators who will create new industries and new technologies, which in turn will create new jobs.

As a Peace Corps Volunteer I did a production study for a canning factory in Chile which indicated that the firm could make money by expanding production, creating 130 jobs. Thus as a guest worker, over a short time, I probably catalyzed the creation of more than 100 jobs. That is the kind of multiplier effect we can hope to achieve through smart use of the H1 visa program. JAD