Research Shows Immigrants Inspire Innovation and Production

A new report finds H-1B visa holders play a key role in the success of many organizations.
By: | August 8, 2018 • 3 min read
immigrants and innovation

Long before he took office, then-presidential candidate Donald Trump set his sights on immigrants. As part of his “America First” agenda, Trump moved quickly to limit H-1B visas for specialty workers, including the highly skilled individuals who serve pivotal roles at some of the nation’s largest tech companies. During Trump’s first eight months in office, challenges to H-1B requests rose 45 percent, leading to widespread criticism from employers and immigration advocates. In May, several technology-outsourcing firms filed a lawsuit against U.S. Citizenship and Immigration Services, arguing the new policy would leave them with a shortage of highly skilled workers.

A National Bureau of Economic Research working paper may add fuel to the fire. Written by two assistant professors of economics at the University of California San Diego, the paper, High-Skill Immigration, Innovation and Creative Destruction, asserts that high-skilled workers from abroad have a meaningful impact on the ability of companies to create new products and replace outdated ones, positively impacting revenue and profitability.

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Previous studies of the impact of high-skill immigration have focused solely on patent production, which is a good measure of newer production processes, according to co-author Gaurav Khanna, an assistant professor of economics at the University of California San Diego’s School of Global Policy and Strategy, and a nonresident fellow at the Center for Global Development in Washington. Together with Assistant Professor of Economics Munseob Lee, Khanna took a novel approach to measuring the impact of H-1B visa holders on organizational profitability. They merged publicly available data on Labor Condition Applications, which companies are required to file every time they seek to hire an H-1B employee, with firm-level data from the Nielsen Retail Scanner, which provides information on products. This new measure of innovation, dubbed product reallocation, allowed for comprehensive examination of the impact of hiring foreign workers on innovation and firm production.

“The patenting literature is more of a black box because a lot of important innovations are never patented and a lot of patents don’t actually lead to new production,” says Khanna. “Product reallocation captures what economists call incremental innovation—small changes in what the products look like and how the products are produced, which is a big driver of firm growth.”

The report is a “welcome addition,” according to John Sumser, principal analyst at HRExaminer,  and HRE columnist, who views it as “more evidence in support of diversity as a source of innovation.” Sumser wasn’t surprised by the connection it draws between immigrants and innovation, as he says the ability to see from outside a “culture’s paradigm” is key to new product development.

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