22 Mar 2018, 22:23

Immigration and Wages

I live and work in the US thanks to the H1B Visa program. This is a program to get high skilled workers to the US. There is a narrative in the US right now that immigrants are taking jobs away from Americans. High skilled immigrants might be causing wage suppression for other Americans. A lot of my mostly liberal friends do not believe in this. The general belief in San Francisco is that immigration is great for the economy. I was not so sure.

The H1B program allows 65,000 high skilled workers to immigrate to the US every year. Approximately 90% of those visas go to folks in the software industry. The US produces 60,000 new CS graduates every year. A generous estimate would include 30,000 people from other STEM fields end up in CS jobs. So there is a pool of 90,000 US citizens who are eligible for CS jobs.

A layman argument is reducing immigration will increase wages for these existing employees. Some economists do not agree. The United States let farmers hire Mexican workers on seasonal permits until the mid sixties. Lyndon B Johnson ended this program in 1964. By 1966, 90% of tomatoes were being picked by machines in California. Programmers are not tomato pickers however it is not a given that reducing immigration will increase wages for citizens.

How would a world without H1B look? When the demand for programmers increases, companies will start paying more, i.e. wages will start getting higher. After the wages reach a certain level, companies will refuse to increase the wages further. Companies will invest much heavily in offices in countries with appropriate talent pool. The second thing the companies will do at this stage is push for productivity gains so that they have to hire fewer programmers to do the job.

The other way this could play out is companies, will not find enough engineers early on hampering growth. Engineering employees will cost more - companies have to raise more capital to get a product to the market. That in turn means venture capitalists will fund fewer startups. Fewer startups means fewer jobs as each startup creates auxiliary non software jobs. This is not good for the American economy. It makes life better for the already well off programmers and reduces the number of low skilled jobs.

Immigrants also found a lot of companies and in turn create jobs. 216 companies on the Fortune 500 were founded by immigrants or their children. You can see a similar theme in Nobel prize winners - 40% of the winners are immigrants to America. Companies and scholars, keep attracting smart people to America. This keeps the research and development engine churning.

I started writing this blog with skepticism, but after investigating quite a bit, I believe high skilled immigration is a win win situation - perhaps a bigger win for the US economy.