Working Paper: NBER ID: w27538
Authors: Britta Glennon
Abstract: Highly-skilled workers are not only a crucial and relatively scarce inputs into firms’ productive and innovative processes, but are also a critical resource determining competitive advantage. An increasingly high proportion of these workers in the US were born abroad and permitted to work on skilled worker visas. How do multinational firms respond when artificial constraints, namely policies restricting skilled immigration, are placed on their ability to hire scarce human capital? This paper combines visa microdata and comprehensive data on US multinational firm activity to demonstrate that firms respond to restrictions on H-1B immigration by increasing foreign affiliate employment at the intensive and extensive margins, particularly in China, India, and Canada. The most impacted jobs were R&D-intensive ones, but there is some evidence that non-R&D employment was also affected. The paper highlights a means by which firms can circumvent constraining policies and mitigate country-level risk, but it also suggests that, for the average MNC, this means is imperfect; for every visa rejection, they hire 0.4 employees abroad. The most globalized MNCs are the most likely to respond to these restrictions by offshoring, highlighting that firm capabilities—in the form of prior internationalization—shape the decision and ability to offshore in response to skilled immigration restrictions; indeed, these firms hire 0.9 employees abroad for every visa rejection. More broadly, the paper provides evidence of a push factor for internationalizing knowledge activity: artificial constraints on resources result in firms circumventing restrictive policies in ways that may not be anticipated by policy makers.
Keywords: high-skilled immigration; H1B program; offshoring; multinational firms
JEL Codes: F16; F22; F23; J61; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in H1B visa availability (J68) | Increase in foreign affiliate employment (F29) |
| Reduction in H1B visa availability (J68) | Increase in foreign affiliate employment at intensive and extensive margins (F29) |
| Reduction in H1B visa availability (J68) | Increase in offshoring (F69) |
| H1B visa restrictions (K37) | Internationalization of knowledge activities (O36) |
| Prior internationalization (Y20) | Response to immigration restrictions by offshoring (F22) |