For months, economists and pundits have waffled on the reasons for the so-called Great Resignation: low wages, poor employee benefits, concerns about worker safety. If you ask Manu Smadja, the nation’s ongoing labor shortage certainly is real, and in part, it’s being caused by another overlooked factor: a dramatic, sudden legal immigration shortfall.
According to Smadja, CEO at MPOWER Financing, the drop in the number of new immigrants to the U.S. over the last year is a driving force behind the labor shortage. For example, the Pew Research Center reports that in a normal year the U.S. welcomes about 1 million immigrants, and roughly three-quarters of them end up participating in the labor force. In 2020, as the United States shut its borders due to COVID-19, that number dropped to about 263,000.
Given the substantial drop in immigrants participating in the labor force, Smadja says, it’s not surprising that a recent report from the U.S. Bureau of Labor Statistics found that despite 10.1 million job openings in June, only 8.7 million individuals were looking for work.
Tim Sackett, an HR tech analyst, influencer, blogger and president at HRU Technical Resources, a recruiting and staffing solutions provider, notes that while the correlation of open jobs to the unemployment number should easily work out for employers, the “dirty little secret” in US hiring is that most of the 10 million open jobs are in fields and requiring expertise that the 8 million unemployed just don’t have.
“Our government loves to talk about reskilling the labor force, but teaching someone with no or low-skill level, who is undereducated, extremely complex software engineering concepts isn’t based in reality,” he says. “Which is why U.S. employers rely on foreign immigration so deeply for highly educated workers.”
COVID immigration restrictions certainly have had a major impact on the situation, Sackett says, especially for Chinese students, many of whom received various visa statuses that allowed them to remain and work after graduating from US colleges and universities.
“Many US universities saw a major drop in Chinese enrollment in 2020 and 2021, and this had a major impact on higher-ed budgets, but also on employers showing up at campuses hoping to hire many of these students that predominately graduated with math and science degrees,” Sackett says.
Smadja–whose Washington, D.C.-based company provides loans to high-promise international students based on the student’s future earnings, rather than credit score, collateral or a co-signer–says investing in international talent is one avenue for stemming the tide of the Great Resignation.
“Helping international students come to the United States will help boost immigration and improve the ongoing labor shortage facing many American employers,” he says.
International students contributed $61 billion to the U.S. and Canadian economies during the 2019-2020 academic year, Smadja says. And that figure isn’t just tuition and fees, but it includes their contributions to local communities through housing, dining, books, transportation and other expenses. A 2017 study published in the Journal of Public Economics found that enrolling 10 international students in U.S. higher education led to eight additional U.S. citizens being enrolled, thanks to high-tuition international students helping to subsidize their domestic classmates.
“While in school, international students–who, by definition, do not get federal aid–pay full tuition and fees and are therefore critical to university budgets,” he says. “This enables scholarships and tuition discounts for domestic students.”
Smadja explains that families of international students that can obtain financing for school in their home country often have to put up their assets as collateral to ultimately get a loan with a very high interest rate and which covers only a portion of the funding needed. Meanwhile, private student lending in North America has remained unchanged for decades. Eligibility is still determined by domestic credit scores, which are unavailable for international students.
Despite these obstacles, many international students who make it to graduation desire to stay and work in the country they studied in, thus helping to bridge the growing talent gap in the U.S., particularly in the science, technology, engineering and math sectors.
Many also stay on as business leaders, Smadja says, citing data showing that one in five entrepreneurs in the U.S. is an immigrant and that immigrant-owned businesses employ 8 million Americans. Many of these entrepreneurs came to this country as international students, Smadja says; in fact, the CEOs of Tesla, Microsoft and Google, among other large tech innovators, all were once international students in North America.
“Unfortunately, without friendly immigration policies, it’s difficult for these highly educated students to stay in their host country and contribute,” Smadja says, noting that while Canada has been a model country at attracting foreign talent through its fast-track residency program and other government investments, the situation is different in the U.S. Here, the growing backlog of visa applications due to COVID-19 and stringent immigration rules have caused the U.S. to fall behind in attracting global talent.
“Of course,” Smadja says, “we support the idea that international students should be offered the opportunity to complete their studies and gain employment in their chosen field. American employers can reap the benefits from that outcome.”