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High-Skilled Immigration and the Comparative Advantage of Foreign-Born Workers across US Occupations
Gordon H. Hanson and Chen Liu
The increase in the demand for more skilled labor is among the most important changes in the US economy of the last forty years (Katz and Autor 1999). In the narrative crafted by Goldin and Katz (2008), technological advances and rising educational attainment are in something of a race, with the premium for skilled labor rising during periods, as in the 1980s and 1990s, when growth in the supply of college graduates is insufficient to meet the expanding demand for qualified labor. High-skilled immigration changes the nature of the competition between education and technology. Whereas in 1980 the foreign born accounted for only 7.1 percent of prime-age males with a college education, by 2012 this share had reached 17.1 percent. Today, the United States is able to meet the need for a more technologically sophisticated labor force either by growing its own talent through the education and training of native-born workers or by importing talent from abroad (Freeman 2005).
There is growing interest in how and why high-skilled, foreign-born workers enter the US labor market. One important channel of entry is US higher education. Many workers who ultimately obtain US permanent resident visas first enter the country as students (Rosenzweig 2006, 2007). The draw of US universities is due in part to their global standing, especially in science, technology, engineering, and mathematics (STEM). In global rankings of scholarship, US institutions of higher education account for nine of the top ten programs in engineering, for eight of the top ten programs in life and medical sciences, and for seven of the top ten programs in physical sciences. The lure of studying in the United States also derives from the contact that it facilitates with potential US employers (Bound et al. 2015). A job offer from a US place of business is essential to obtain a temporary work visa or an employer-sponsored green card. Whether foreign students choose to stay in the United States after completing their degrees depends on immediate US and foreign job-market conditions and on prospects for long-run growth in the United States relative to their home countries (Grogger and Hanson 2015).
In this chapter, we consider the possibility that the incorporation of foreign-born workers into the US economy depends on occupational comparative advantage that is at least in part specific to the country in which an individual is born. There is, of course, a long tradition of using comparative advantage to explain international trade in goods, with modern variants of the theory grounding these advantages in cross-country differences in the productivity distributions from which firms draw their industrial capabilities (Eaton and Kortum 2002). There is also a long tradition in labor economics, dating back to Roy (1951), in which workers are posited to vary in their skills for performing different occupational tasks. Recent work combines Eaton and Kortum (2002) with Roy (1951) to obtain models of comparative advantage in which workers are heterogeneous in their capabilities and in which the parameters of the underlying distribution of labor productivity differ between groups of individuals according to their demographic characteristics (Lagakos and Waugh 2013; Hsieh et al. 2013; Burstein, Morales, and Vogel 2015) or their countries of origin (Burstein et al. 2017).
We begin the analysis by documenting the growing presence of foreign-born workers in the US college-educated labor force. This presence varies markedly by occupation. Whereas the share of US college-educated workers who are foreign born rises modestly from 4.2 percent in 1960 to 11.6 percent in 2010–2012 in education, law, and social-service occupations, it rises more impressively from 6.6 percent to 28.1 percent over this same period in STEM occupations. Also notable is the difference in occupational-employment patterns by immigrants according to their country of origin. In STEM jobs, the share of US workers who are from India rises from near zero in 1960 to 9.3 percent, or one-third of all foreign workers, in 2010–2012. In health-related occupations, it is workers from Southeast Asia whose employment shares have risen most dramatically, reaching 5.4 percent, or one-fifth of all foreign workers, in 2010–2012 from negligible levels five decades previously. Specialization patterns are similar for male and female immigrants from the same origin countries.
Next, we use an Eaton-Kortum-Roy definition of comparative advantage to characterize occupational specialization by nationality and over time for college-educated workers. The measure of comparative advantage we use gives the log odds of, say, an Indian immigrant working in STEM over a manual occupation relative to the log odds of a US native-born individual working in STEM over a manual job. We document three features of occupational specialization in the US labor market. First, patterns of specialization by nationality are most extreme in STEM occupations. Among prime-age male college graduates, an immigrant from India is 10.7 times more likely than a US native-born individual to work in STEM over a manual job and 54.6 times more likely to do so than an immigrant from Mexico, Central America, and the Caribbean. Second, occupational specialization for male and female immigrant college graduates is strongly positively correlated across origin countries, with a partial correlation of male-female comparative advantage in 2010–2012 of 0.92 in STEM jobs, 0.86 in management and finance, and 0.71 in health-related occupations. Third, immigrant occupational specialization patterns persist firmly over time. For college-educated men, a regression of log comparative advantage in 2010 against the value in 1990 across birth countries yields very precisely estimated slope coefficients of 0.99 in STEM occupations, 1.02 in management and finance, and 1.01 in education, law, and social-service occupations. We take these results to mean that the factors that drive occupational specialization among immigrants are stable across decades and common to workers in different demographic groups from the same origin countries.
High-skilled immigration has important consequences for US economic development. In modern growth theory, the share of workers specialized in R&D plays a role in setting the pace of long-run growth (Jones 2002). Because high-skilled immigrants are drawn to STEM fields, they are likely to be inputs into US innovation. Recent work finds evidence consistent with high-skilled immigration having contributed to advances in US innovation. US states and localities that attract more high-skilled foreign labor see faster rates of growth in labor productivity (Hunt and Gauthier-Loiselle 2010; Peri 2012). Kerr and Lincoln (2010) find that individuals with ethnic Chinese and Indian names, a large fraction of whom appear to be foreign born, account for rising shares of US patents in computers, electronics, medical devices, and pharmaceuticals. US metropolitan areas that historically employed more H-1B workers enjoyed larger bumps in patenting when Congress temporarily expanded the program between 1999 and 2003. Further, the patent bump was concentrated among Chinese and Indian inventors, consistent with the added H-1B visas having expanded the US innovation frontier. Yet, the precise magnitude of the foreign-born contribution to US innovation and productivity growth is hard to pin down. Because the allocation of labor across regional markets responds to myriad economic shocks, establishing a causal relationship between inflows of foreign workers and the local pace of innovation is a challenge. High-skilled immigration may displace some US workers in STEM jobs (Borjas and Doran 2012), possibly attenuating the net impact on US innovation capabilities. How much of aggregate US productivity growth can be attributed to high-skilled labor inflows remains unknown.
When it comes to innovation, there appears to be nothing "special" about foreign-born workers, other than their proclivity for studying STEM disciplines in a university. The National Survey of College Graduates shows that foreign-born individuals are far more likely than the native born to obtain a patent, and more likely still to obtain a patent that is commercialized (Hunt 2011). It is also the case that foreign-born students are substantially more likely to major in engineering, math, and the physical sciences, all fields strongly associated with later patenting. Once one controls for the major field of study, the foreign-native-born differential in patenting disappears. Consistent with Hunt's (2011) findings, the descriptive results we present suggest that highly educated immigrant workers in the United States have a strong revealed comparative advantage in STEM. The literature has yet to explain the origin of these specialization patterns. It could be that the immigrants the United States attracts are better suited for careers in innovation — due to the relative quality of foreign secondary education in STEM, selection mechanisms implicit in US immigration policy, or the relative magnitude of the US earnings premium for successful inventors — and therefore choose to study the subjects that prepare them for later innovative activities. Alternatively, cultural or language barriers may complicate the path of the foreign born to obtaining good US jobs in non-STEM fields, such as advertising, insurance, or law, pushing them into STEM careers.
To understand possible sources of occupational comparative advantage by immigrants from different origin countries, we compare our measures of occupational specialization across three groups of individuals according to their nativity. Immigrants born and raised in an origin country (who arrived in the United States at age eighteen or older) would have been exposed to foreign educational institutions, at least through secondary school. Immigrants born in the origin country but raised in the United States (who arrived in the United States before age eighteen) would have been exposed to US education, at least at the university level. And individuals whose parents or grandparents were born in the origin country would have been exposed to US education throughout their lives. Occupational specialization patterns are similar across these three groups, suggesting that the country in which one is educated is not the overriding factor that explains employment regularities among highly educated immigrants.
In section 1.2, we present the data used in the analysis. In section 1.3, we describe the presence of foreign-born, college-educated workers in US occupations. In section 1.4, we define and measure occupational comparative advantage among US immigrants according to their country of origin. And in section 1.5, we provide a concluding discussion.
We use data from the Census Integrated Public Use Micro Samples (Ruggles et al. 2010) for the years 1960 (5 percent sample), 1970 (1 percent sample), 1980 (5 percent sample), 1990 (5 percent sample), and 2000 (5 percent sample), and the American Community Survey (ACS) for 2010 to 2012. We pool ACS files for 2010 through 2012 to increase sample size and, hence, measurement precision.
Throughout our analysis, we restrict the sample to individuals with positive earnings, who are between twenty-one and fifty-four years old at the time of the survey, and who have at least a bachelor's degree. Our focus on college graduates follows from our interest in the high-skilled labor force. The age restrictions we impose allow us to center on prime-wage workers who are likely to have completed their undergraduate studies. To measure employment, we calculate the number of full-time equivalent workers in given national origin, gender, and occupation categories by using weights equal to the sampling weight for an individual times her hours of work last year, which we take to be the product of weeks worked last year and usual hours worked per week. The US native-born population comprises individuals who were born either in the United States or abroad to parents who are US citizens. The foreign-born population comprises all other individuals.
To accommodate a perspective that spans six decades and dozens of source countries for immigrants, we aggregate occupations into six broad categories. Aggregation helps avoid having large numbers of cells with zero entries, which is of particular concern for smaller source countries and in earlier years. The occupation categories are
STEM (architects, computer programmers and software developers, engineers, life and medical scientists, and physical scientists);
management, finance, and accounting (accountants, chief executives, financial managers, general managers, market surveyors, and economists);
health (dentists, pharmacists, physicians, registered nurses, therapists, and veterinarians);
education, law, social work, and the arts (instructors and teachers, lawyers, social and religious workers, writers, and artists);
technical, sales, and administrative support (administrative support staff, clerks and record keepers, sales representatives, sales supervisors, and technicians); and
less-skilled manual work (agricultural workers, construction workers, hospitality workers, household-service workers, machine operators and production workers, mechanics and repairers, and personal-service workers).
These categories divide occupations according to the level of education, the type of training, and the range of skills that are demanded on the job. Most STEM occupations require at least a bachelor's degree, as well as aptitude in quantitative reasoning. Because quantitative skills are grounded in mathematical logic, they may transfer from one country to another with relative ease, making human capital acquired in STEM jobs relatively portable across borders. Although management positions also require some familiarity with quantitative reasoning, they are intensive in the use of communication and other social skills to a degree that STEM positions are not. Health, education, law, and social work are distinguished by requiring a bachelor's degree or higher to enter these professions and by being subject to occupational accreditation processes that are specific to the United States or to individual states within the country. Accreditation may limit the portability of skills for immigrants in these professions. The final two occupational categories — manual work and technical, sales, and administrative support — typically do not require a college degree. The first category includes jobs from which advancement to higher-level positions is usually limited. The second encompasses jobs through which more-educated immigrants may first enter the labor force as they seek to establish their position in a new labor market.
1.3 Foreign-Born Presence in US Occupations
We begin the analysis by describing the presence of immigrants in US occupations, first for college-educated males and then for college-educated females. We then consider the specialization of immigrants from different origin countries in particular types of jobs. For ease of presentation, we present trends for immigrants grouped according to six sending regions: China, Hong Kong, and Taiwan; Eastern and Western Europe; East and Southeast Asia; India; Mexico, Central America, and the Caribbean; and South America. China and India merit attention because they account for a disproportionate share of the recent growth in US high-skilled immigration. Europe, a historic but now less important source of US high-skilled immigrants, offers an instructive contrast. East and Southeast Asia include Korea, long a source of high-skilled immigrants to the United States, and the Philippines and Vietnam, which supply immigrants at both low- and high-education levels. The two regions from Latin America and the Caribbean are the predominant sources of low-skilled immigrants to the United States, making them of interest in terms of their less studied, high-skilled labor outflows. Although we leave Africa and the Middle East out of the figures in this section, we will include these regions in the analysis presented in the following section.
1.3.1 College-Educated Males
Figure 1.1 shows the share of the foreign born in total US male employment of college graduates, as measured by hours worked, for six immigrant source regions in each of the six occupational groups. It displays the well-known pattern of a growing presence of highly educated immigrants in the US labor force. Across all origin countries, the foreign-born share of total hours worked by prime-age male college graduates increases from 6.6 percent in 1960 to 28.1 percent in 2010–2012 in STEM occupations; from 4.1 percent to 14.9 percent in management and finance; from 10.7 percent to 24.7 percent in health-related occupations; from 4.2 percent to 11.6 percent in education, law, and social work; from 3.8 percent to 13.1 percent in technical, sales, and administrative support; and from 7.8 percent to 18.8 percent in manual occupations.(Continues…)
Excerpted from "High-Skilled Migration to the United States and Its Economic Consequences"
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Table of ContentsIntroduction
Gordon H. Hanson, William R. Kerr, and Sarah Turner
1. High-Skilled Immigration and the Comparative Advantage of Foreign-Born Workers across US Occupations
Gordon H. Hanson and Chen Liu
2. The Innovation Activities of Multinational Enterprises and the Demand for Skilled-Worker, Nonimmigrant Visas
Stephen Ross Yeaple
3. Digital Labor Markets and Global Talent Flows
John Horton, William R. Kerr, and Christopher Stanton
4. Understanding the Economic Impact of the H-1B Program on the United States
John Bound, Gaurav Khanna, and Nicolas Morales
5. High-Skilled Immigration, STEM Employment, and Nonroutine-Biased Technical Change
Nir Jaimovich and Henry E. Siu
6. Firm Dynamics and Immigration: The Case of High-Skilled Immigration
Michael E. Waugh