How Do Restrictions on High‐​Skilled Immigration Affect Offshoring: Evidence from the H-1B Program

The question regarding the impact of immigration on the host country has long been controversial, but it has risen to the forefront of political debates in recent years. Unexpected political shifts such as the Brexit vote and the election of President Trump have been attributed to voters’ concern about the impact of immigration. While the debate surrounding low‐​skilled immigration has captured headlines in the United States, high‐​skilled legal immigration—and particularly the H-1B visa program—has also been contentious. Critics of the H-1B program argue that skilled immigrants displace native‐​born workers and drive down their wages. Indeed, H-1B rejection rates have more than tripled since Trump signed the Buy American and Hire American executive order in early 2017. However, business leaders have decried both these recent measures and long‐​standing restrictions on high‐​skilled immigration, arguing that the shortage of workers with specialized skills has negatively affected the competitiveness and innovation of high‐​tech firms and the U.S. economy.

Policy debates like these have spawned extensive academic literature evaluating the claims of each side. The debate, however, has largely overlooked the secondary consequences of restrictions on hiring high‐​skilled immigrants: multinational companies faced with decreased access to visas for skilled workers have an offshoring option—namely, hiring the foreign labor they need at their foreign affiliates. U.S. multinational firms are responsible for 80 percent of U.S. research and development (R&D), employ about a quarter of U.S. private‐​sector employees, and employ the highest number of skilled immigrants. Thus, understanding the response of multinational companies to these restrictions on skilled immigrants is especially significant.

Unlike other firms, multinational companies have the option of responding to restrictions on skilled immigration by offshoring their high‐​skilled activities. If U.S. multinationals use this option in response to restrictive H-1B policies—as their public statements suggest—then such restrictive migration policies are unlikely to have the desired effects of increasing employment and earnings of high‐​skilled natives but rather will have the effect of offshoring high‐​skilled jobs.

By Britta Glennon for CATO INSTITUTE
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