The challenges provoked by difficult immigration policies and procedures is something I’ve touched upon a number of times, as not only do scientists and entrepreneurs find it challenging to navigate extensive processes, startups and other smaller organizations often lack the resources to support them.
It creates a clunky and gummed up talent pipeline that does no one any favors. A new paper from Wharton explores whether excessive immigration restrictions actually force companies to take work elsewhere and offshore to another country entirely.
The research examines the impact of the controversial H-1B visa program that is designed to allow U.S. companies to offer temporary employment to highly skilled foreign workers. The number of workers allowed via the scheme was capped in 2004, and the researchers wanted to focus on what they perceived to be an overlooked aspect of the immigration debate.
They suggest that there has been extensive examination of the impact on wages or employment of American workers, while the innovation output of firms has also been explored in depth. It creates a spectrum whereby you examine migration through its impact on innovation or local jobs. Of course, that’s not the only choice multinational firms have, as they can also take the work that needs doing elsewhere.
Work to be done
After all, an obvious alternative strategy if you can’t bring the talent to you, is to go where the talent is instead. The researchers tested this hypothesis using the 2004 policy change that saw H-1B visas heavily restricted as the focal point. By looking before and after the implementation of the policy, they believe they can understand its impact on organizational behavior.
The analysis revealed that there was a considerable surge in foreign employment after the H-1B rules were tightened. This is an important finding, as organizations were not responding as advocates for the new rules had hoped. They weren’t turning to the domestic labor market to find the talent they needed, or indeed investing in training local workers, but instead offshoring to where the talent already was.
Perhaps unsurprisingly, this phenomenon was most pronounced among firms that were heavily R&D focused, with software firms especially prone to take work to where the talent was, even if that meant offshoring it.
The most popular destinations for this offshoring were Canada, China and India, but the behaviors differed for each country. In China and India, for instance, this is a straightforward exchange, as these are the countries where most of the H-1B visas go to, so if the talent can’t be imported, the work is exported instead.
Canada presents a slightly different picture however, as the authors suggest that their more liberal immigration policies could see the talent that wanted to go to the U.S. going to Canada instead, and the work following them there.
The effect on innovation
The research also explored some of the impact this behavior is having on innovation. The authors argue that a lot of the concern around immigration is that the people coming into the country aren’t really the best of the best, but are rather more moderately skilled individuals who will be undercutting wages for work that could be done by natives.
The researchers tested this hypothesis by examining the kind of jobs that were being offshored to see if they were of the most highly skilled kind that fuel innovation today.
Lo and behold, it did indeed appear to be the more innovative jobs that were being moved overseas, with the foreign affiliate companies showing a clear spike in patenting in the wake of the increase in their workforce.
Collective goals
It’s perhaps telling that opponents of migration are often also opponents of companies offshoring work overseas, so it’s an important finding that reducing immigration numbers doesn’t actually result in more jobs for local workers.
What’s more, the finding from previous research that such restrictions tend to hurt the kind of dynamic startups that any economy needs to thrive is surely also a point of considerable concern.
The Wharton study is a timely reminder that policy interventions like these often have unforeseen consequences, and that it’s important to display a degree of mental flexibility and adjust policies when those consequences are known.
This is especially important for the startup community, as while bigger firms can either provide the resources to help navigate immigration processes or offshore to affiliates overseas, startups are often restricted in the strategies they can respond with. The Wharton research suggests that in some instances, if talent can’t be recruited, then innovation simply doesn’t occur as efforts are focused in other directions, which suggests an insurmountable hurdle to pursuing a particular line of inquiry. For a startup who may only have that single line of inquiry, that’s a major problem.
With immigration restrictions seemingly getting tighter around the world, this is a vital issue for policy makers to think of, not least if they want their economies to be innovative and dynamic.
