HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 1

How Attracting More Foreign Skilled

Workers and Entrepreneurs Can

Improve the U.S. Immigration Policy

Giorgio Tomassetti

ECO 523-01: Topics in Public Policy

Presentation Date: November 17, 2010

 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 2

Introduction

Immigration is an extremely complex topic of our time and the future of the United States

will be partially shaped by the decisions and the actions taken today on this matter. In this paper,

I want to answer the following question: how can we improve our immigration policy by

attracting the best minds from all over the world and why this is important for the U.S.?

After a brief description of the issue of immigration in general terms, I will explain why the

U.S. needs to improve its immigration system and how foreign skilled workers and entrepreneurs

can help the U.S. achieve this goal. Immigrants are a heterogeneous group of people and by

focusing on those individuals that bring greater benefits than costs, we can make immigration a

beneficial phenomenon for this country. For instance, my research shows that new firms are

essential for the economy of this country, and they are also the main source of new jobs. Foreign

entrepreneurs and skilled workers can therefore bring great benefits to the U.S. economy. In

order to understand how we can improve the system, I will outline the U.S. immigration law and

point out the fact that it does not reward wealth creation. Then I will describe how we can use

some economic concepts to better understand the issue of immigration. Finally, in the last part of

my paper I will explore some improvements that can be made in the current regulation in order

to attract more foreign skilled workers and entrepreneurs.

The research I conducted convinced me that in order to improve the overall wellness of the

country, it is more efficient to take a libertarian stand when making decisions that affect those

who can potentially benefit our society and our economy. The best way to implement this

thinking is by providing immigrants with an easier immigration process and less uncertainty on

the final outcome. In addition, a specific Visa for entrepreneurs would also be a significant

improvement of the current policy.

 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 3

In discussing my argument, my primary focus will be on efficiency; therefore I will mainly

analyze the conflict between experts and markets, while politics will remain a secondary issue

for reasons that I will then explain.

The immigration Issue

Before analyzing the current immigration policies, it is necessary to have an adequate

understanding of the issue in general terms. The world population is projected to reach 9 billion

people by 2050, from the current 6.8 billion and net migration to the more developed regions will

be approximately 2.4 million per year, 1.3 million of which are directed to Northern America

(World population prospects: the 2008 revision, 2009). It is therefore crucial that the policies that

control this phenomenon are able to set the right combination of incentives in order to stimulate

mainly the favorable results that immigration can have on this country, while trying to prevent

the undesirable outcomes.

One of the main ideas that I want to point out in this paper is that immigrants are not a

homogeneous group of people and, therefore, they should not be regulated in the same way.

While it is true that they share some common traits, they have various impacts on society and on

the economy. For instance, an illegal immigrant does not contribute financially in terms of taxes

paid, while a foreign skilled worker could represent a source of wealth for the community he

lives in and, more generally, for the entire country. We can therefore divide immigrants into

categories and it is reasonable to analyze each category separately.

 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 4

In this paper, I will focus on skilled immigrants and foreign entrepreneurs because my

research suggests that the U.S. is losing international competitiveness in this dimension1 and,

more importantly, evidence suggests that these immigrants can have great benefits to the society

and the economy of a country.

The biggest problem that foreign skilled workers and entrepreneurs have to face is their

legal status while in the United States. For instance, there is not really a Visa for entrepreneurs in

the United States. This is a surprising finding if we consider that, for example, a recent study

from the Ewing Marion Kauffman Foundation shows how “without startups, there would be no

net job growth in the U.S. economy” (Kane, 2010, p. 2). I will then describe the different ways

by which it is possible to obtain a Green Card, but first I want to explain the benefits that skilled

immigrants can bring to this country.

Benefits of Skilled Immigrants

In this section I will analyze the main benefits that foreign skilled immigrants and

entrepreneurs have on the economy of this country.

According to Legrain (2007), skilled migration brings three main benefits. First of all,

immigrants bring different skills and qualities that can be extremely useful, especially in the

business world; also, cultural diversity has a positive impact on society. Second, talented

foreigners may boost innovation and, finally, there are substantial benefits in having a significant

pool of talent in a single location. For instance, places like Silicon Valley have been successful in

1
For instance, according to the Business Administration's Office of Advocacy (2010), the U.S. has sunk to third
place when it comes to fostering entrepreneurial creativity.
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 5

attracting many foreign entrepreneurs, as we can see from Figure 1.

60.00% 54.40%

50.00% 43.80%
35.80%
40.00% 31.60% 31.00%
26.20% 24.30%
30.00% 23.40%

20.00%

10.00%

0.00%

Immigrant‐founded startups as a percentage of total startups in tech centers

Figure 1: Immigrant-founded startups as a percentage of total startups in tech centers2

According to a recent study commissioned by the National Venture Capital Association

(Anderson & Platzer, 2006), 40 percent of U.S. publicly traded venture-backed companies in the

high-tech manufacturing sector and 25 percent of all the venture-backed companies that have

gone public in the last 15 years were started by immigrants. If we compare this data with the

number of legal immigrants, only 8.7 percent of the total population, we understand how

valuable the contribution of immigrants to the economy is. Google, Yahoo, eBay, Intel and Sun

Microsystems are just a few of the many companies that were started by immigrants.

It is interesting to notice that immigrants tend to share the same personality traits of

successful entrepreneurs. These personality traits are: the need for achievement, a propensity for

risk-taking, a tolerance of ambiguity, tenacity and passion. Also, the social networks of

2
Source: (Wadhwa, Saxenian, Rissing, & Gereffi, 2008)
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 6

immigrants usually have greater degrees of network closure and greater brokerage opportunities,

which usually equals in an increase in the likelihood of firm survival in high-growth and

turbulent industries (Dalziel, 2008). Therefore, statistically, among successful entrepreneurs,

immigrants tend to perform better than non-immigrants3. This means that investing in highly

skilled immigrants is economically convenient for a country.

Gianmarco Ottaviano and Giovanni Peri tried to calculate in economic terms the impact

that immigrants have on the economy. They compared the rents and the wages in 160 U.S. cities

between 1970 and 1990 with the proportion of foreign-born residents and they found a positive

correlation between the two; the more foreign-born residents, the higher the wages and the rents.

They also proved that “a more multicultural urban environment makes US-born citizens more

productive” (Ottaviano & Peri, 2005).

After explaining the main benefits of skilled immigration, in order to make policy

improvements, we first need to analyze the current immigration law.

U.S. Immigration Policy

The U.S. immigration system allows foreign people to live legally in this country if they

either have a Green Card or a temporary Visa. A United States Permanent Resident Card, also

known as a “Green Card,” is an “identification card attesting to the permanent resident status of

an alien in the United States of America” ("Permanent residence (United States)").

3
Although the research has been conducted on a pool of people who immigrated to Canada as adults, the results can
be applied to the U.S. economy as well.
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 7

There are three main ways to obtain a Green Card (USCIS, 2009). First, it is possible to

receive a Green Card through a family member. This path is the least complex and many

foreigners apply for this one even if they are here for other purposes. For example, many

entrepreneurs who married an American citizen received their Green Card through family and

not through investment.

The second way to receive a Green Card is through a job offer or an investment. The main

problem with the Green Cards received through employment is that only a limited number of

them can be granted each year. Also, the process that the employer has to go through in order to

sponsor his employee is extremely complicated, a positive outcome is not guaranteed, and the

process usually takes more than a year. In a survey conducted by the NVCA (Anderson &

Platzer, 2006) 66 percent of the responders said that “current U.S. immigration laws affecting

skilled professionals harm American competitiveness.”

In the case of immigration through an investment (EB-5 Visa), it is necessary for the

immigrant to invest at least $1,000,000, or $500,000 in a high unemployment or rural area, and

to create or preserve ten permanent full time jobs. This type of Visa is the only one that rewards

an economic contribution but, unfortunately, it is not particularly popular among entrepreneurs,

since it is actually more targeted for investors. Also, the investment required by the EB-5 Visa is

much greater than the average cost of startup, which is approximately $31,150 (Scott, 2009).

The third way to obtain a Green Card is through refugee or asylum status. There are other

ways to obtain a Permanent Resident Card, but they are not relevant to my paper.

Finally, it is important to notice that the U.S. allows approximately 1 million immigrants

every year, which corresponds to only 0.3 percent of the total U.S. population.
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 8

Market Response to the Regulations

Refugees and  Other, 1.3%
Asylees, 15.7%

Diversity 
program, 4.2%

Investors, 0.3%

Employment,  Family, 66.1%
12.4%

Figure 2: Legal Permanent Resident Flow by Major Category of Admission (2009)4

Now that we are aware of the different kinds of Green Cards, we need to analyze how there

are actually being used. As we can see from the chart, 12.4 percent of them are obtained through

employment and, more importantly, only 0.3 percent were given to investors. Currently the

Investor Visa is capped at a 10,000 annual quota but, for example, in 2009 only 3,688 people5

were granted the immigrant investor status (U.S. Department of Homeland Security, 2010). Of

these 3688 people, only 1,290 of them were given to applicants, while the other 65 percent went

to the spouses and children of EB-5 Principals.

4
Source: (Monger, 2010)
5
This number is much higher than the average between 2001 and 2003, which is of only 136 people.
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 9

If we compare this number with the 47,879 people who immigrated through the Diversity

Visa Lottery6, which is given at chance, we understand that the current immigration system is not

so focused on promoting the creation of wealth in this country. Indeed, as I pointed out at the

beginning of this paper, immigrants are a heterogeneous group of people, and they have different

impacts on society and on the economy.

Economic Consequences of Immigration

Immigration is a very complex issue, not only from a cultural point of view, but also in

economic terms because it implies the movement of factors of production, which changes the

relative quantities of factors (Bodvarsson & Van den Berg, 2009). In this section I want to

address the main economic consequences of immigration.

Immigration can be analyzed in terms of demand and supply. Indeed, there are constantly

people who want to immigrate to another country, but at the same time, only a limited number of

them will be able to do so given the numerical restrictions that many countries have, including

the United States. This situation creates scarcity and therefore the ability to immigrate has a

value for the immigrant, which is usually greater than the sum of the various expenses that the

immigration process requires. On the other hand, the value that an immigrant can bring to a

country can be significant, both in terms of money and culture. Also, for a complete analysis, we

should consider the impact that second-generation immigrants have. Although second-generation

earnings are influenced by the first-generation immigrant earnings and vary based on the country

6
The Diversity Visa Lottery is a lottery that assigns 50,000 visas each year to those individuals who are from
countries with low rates of immigration to the U.S.
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 10

of origin7, data show that children of immigrants tend to have higher education and wages than

children of natives (Borjas, 2000).

In order to estimate the impact of immigrants on the economy, we should examine how

they perform in both the short and the long-run. If we only consider skilled workers and

entrepreneurs, we can conclude that these immigrants perform quite well from the beginning.

Empirical evidence shows how immigrants with the highest level of effective human capital

when they immigrate make the largest post-migration investment (Borjas, 2000).

Currently the U.S. immigration system restricts the number of people that can immigrate to

this country. A quota in this case can have multiple effects, depending on the costs and benefits

associated with each category of immigrants. For example, a quota on skilled immigrants is

inefficient because it reduces the overall benefits that this country can receive from immigration.

Immigration policy is highly regulated and there is very little space for freedom of choice

for both immigrants and Americans who want foreign people to immigrate to the U.S. Therefore

we can conclude that domestically the immigration market does not function like a competitive

market. Nevertheless, on an international level, people have the freedom to decide to which

country they immigrate. Different categories of immigrants have different demand curves; some

of them are very inelastic and would be willing to pay a high price for having the opportunity to

immigrate to the U.S. while other people’s demand curve can be extremely elastic. For example,

a skilled worker could consider other countries other than the U.S. if immigration regulations

here were too costly and complicated.

7
Immigrants from countries like Germany and the United Kingdom usually have higher immigrant earnings than
those immigrants who come from countries with lower immigrant earnings, such as Mexico for example
(Bodvarsson & Van den Berg, 2009).
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 11

Deciding How to Decide

As I stated in the introduction, my primary focus will be on the conflict between experts

and markets, while politics plays a secondary role.

While it is true that immigration policy is a domain of exclusive federal competence in the

United States, it is also necessary to realize that, given the complexity of the issue, politicians

tend to make decisions based on what the voters demand and the experts’ advice. In my opinion,

having Congress making decisions on immigration policy is quite an effective solution because a

decision made by Congress is usually the result of a shared agreement, which should translates in

public support for the legislation and therefore greater stability. Stability is particularly valuable

because the immigration process for an immigrant usually lasts for more than one year and

changes in regulations make the process even more complex. In other words, an artificial

equilibrium is created by institutions.

How to Think About Immigration Policy

Now that we have a better understanding of the effects that skilled foreigners can have on

this country, we need to determine which sets of principles we should use when making

decisions on related regulations.

When we improve our immigration system, we want to increase the overall wellness of the

country, both in economic and cultural terms. Thus, a utilitarian prospective8 should be used

when dealing with general immigration law. However, in order to make our country more
8
Thinking in terms of utilitarianism implies researching the greatest happiness for the greatest number.
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 12

attractive to foreign entrepreneurs and skilled workers, we need to create a set of incentives for

them to come. For this reason, when talking about immigrants that can potentially create wealth

in the U.S., a more efficient way to design the regulations is by taking a libertarian stand. The

libertarian point of view that immigration policies on skilled workers and entrepreneurs need is,

in my opinion, the one of John Stuart Mill. Mill (1859) thought that libertarianism was a tool that

society could use to achieve greater social welfare. The idea of libertarianism is that if each one

of us pursues his own best interest without harming others, the whole society will be better off.

However, Mill suggests that individual freedom could have some restrictions. This view of

libertarianism best fits the issue of immigration since in order to have a healthy immigration,

some form of restriction must be in place, even if minimal.

Thinking in terms of libertarianism when dealing with some categories of immigrants in

order to achieve a great objective, which is greater welfare, is a paradigm shift that can have a

beneficial effect on the U.S. economy.

How to Improve the System

Having explained the benefits and the consequences of skilled immigrants, we can now

explore some possible improvements of the current regulation.

Robert Litan, vice president for Research and Policy at the Kauffman Foundation, believes

that the U.S. should enable the thousands of foreign students in America and the millions of

engineers, scientists and other highly skilled workers here on H-1B temporary Visas, to obtain a

Green Card if, for example, they can hire 5 or 10 American nonfamily members (Friedman,

2010). From a strictly economic prospective, forcing skilled immigrants to leave the country, due
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 13

mainly to an insufficient number of Visas and a complex immigration process, represents a

negative return on investment for the country.

An interesting example of how interest groups are trying to improve the current

immigration system is the “StartUp Visa Act”, which is a legislation proposed by a group of

venture capitalists that would introduce a two-year Visa for any immigrant entrepreneur who

receives $250,000 in capital from American investors. After that, if the entrepreneur has created

at least five full-time jobs, raised an additional $1 million or had $1 million in revenue, he would

be allowed to become a permanent resident (Kerry & Lugar, 2010). The StartUp Visa Act would

therefore enable successful entrepreneurs to legally reside in the United States.

While we can discuss how the ideas described above can be improved, we cannot ignore

that there is a need for improvement, and foreign skilled workers and entrepreneurs can help us

achieve this goal.

First, given the fact that the current U.S. immigration system does not have a specific Visa

for entrepreneurs and considering the beneficial effects of entrepreneurship in this country, I

would suggest the creation of a Visa for entrepreneurs. Also, I would suggest incrementing the

number of Green Cards available each year for foreign workers and for investors. As I mentioned

before, in 2009 only 0.3 percent of the total number of Green Cards went to investors and on

average only 5-10 percent of the applicants in this category are entrepreneurs. Among companies

who use H-1B Visas9, nearly 40 percent said the lack of H-1B Visas has “negatively impacted

[their] company when competing against other firms globally” (Anderson & Platzer, 2006, p. 7).

9
The H-1B is a non-immigrant visa in the United States that allows U.S. employers to temporarily employ foreign
workers in specialty occupations ("H-1B visa").
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 14

Conclusion

In this paper I described the current U.S. immigration policy with a particular focus on how

the current system can be improved in order to attract more skilled workers and entrepreneurs.

The general purpose of an immigration policy should be to maximize the positive effects that this

phenomenon can bring to a country, and in order to achieve this objective we should address

each group of immigrants separately, by using a different set of norms for each one of them.

Improvements on immigration policies that affect skilled workers and entrepreneurs can have a

tremendous effect on the economy and on society. Indeed, research clearly shows the positive

effects that immigrants, and especially skilled immigrants, have on the country.

Given the empirical evidence and the arguments I made in this paper, I believe that in order

to design a smarter immigration policy, some actions should be completed before making

decisions. First, experts should make realistic predictions regarding the demand of Green Cards

in the coming years, and this is why in the first part of my paper I introduced the issue in general

terms. Second, they should try to estimate the benefits and the costs that the different categories

of immigrants have on the economy and on society and only then, based on the results, design

specific policies for each category. In the case of foreign skilled immigrants and entrepreneurs,

my research suggests that it is more efficient to think in terms John S. Mill’s libertarianism,

while we can address the general immigration regulations from a utilitarian prospective.

Designing a policy that inspires the best brains from around the world to come to the U.S.

and create wealth requires an easy and certain immigration process. In addition, the U.S. should

consider introducing a specific Visa that targets foreign entrepreneurs since, as I previously

stated, the current regulation does not have one. An immigration policy that allows demand and
 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 15

supply of talented individuals to naturally adjust to the needs of the economy would be more

efficient and valuable for this country.

Also, we need to acknowledge that however we decide to allocate Visas and Green Cards,

we are discriminating. The current system seems to discriminate against those who do not have

relatives in the U.S., while a smarter immigration system would, in my opinion, reward more

those who can create wealth in this country.

In discussing my argument, my primary focus was on efficiency and the resulting conflict

between experts and markets. Even though politicians are the ones who make decisions on

immigration policy, as I explained earlier, they are usually advised by experts and they have to

respond to their voters’ needs. Therefore politics was a secondary issue in my paper. Finally,

further research should be conducted in order to determine the most effective ways to attract

skilled workers and entrepreneurs from around the world.

 HOW ATTRACTING MORE FOREIGN SKILLED WORKERS 16

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