Yes Virginia, We Do Have a Need for More STEM Workers

It appears that Congress may actually take up the issue of immigration reform and with it the issue of high-skill immigration. And toward that end Senators Hatch (R-UT), Klobuchar (D-MN), Rubio (R-FL) and Coons (D-DE) have taken the lead on the Immigration Innovation Act of 2013 (known as I-squared) which would make it easier for foreign science, technology, engineering and math (STEM) students and workers to come and stay in America, while at the same time raising increased funds from the U.S. high-tech industry to support programs to help train Americans in STEM skills.

And not surprisingly this common sense and needed legislative proposal has provoked the usual opposition from the some on the left. Take Ross Eisenbrey’s recent New York Times op-ed, “America’s Genius Glut.”  Eisenbrey, of the liberal Economic Policy Institute, argues that I-squared is not needed, because, he claims: 1) America’s technology leadership is not endangered; 2) We aren’t turning away foreign students, or forcing them to leave once they’ve graduated.; and most importantly 3) there is no labor shortage in high-tech occupations.  Let me address these fallacies of each of these arguments.

America’s technology leadership is not only endangered, it’s been lost

If America is doing great at innovation then why liberalize high-skill immigration policies, or for that matter expand programs to get more Americans into STEM jobs. To make this case, Eisenbrey cites Harvard economist Richard B. Freeman, who shows that “with just 5 percent of the world’s population, [the U.S.] employs a third of its high-tech researchers, accounts for 40 percent of its research and development, and publishes over a third of its science and engineering articles. And a marked new crop of billion-dollar high-tech companies has sprung up in Silicon Valley recently, without the help of an expanded guest-worker program.”

While this is true, it misses the point that America used to be responsible for much higher numbers on all of these indicators. As we argue in our recent Yale University Press book Innovation Economics: The Race for Global Advantage, while other nations were now setting their sights on winning the race for global innovation advantage, America was asleep, convinced of its own innate economic superiority, and like Eisenbrey, convinced that it needed to do little to win the race. In 2011, the Information Technology and Innovation Foundation (ITIF) released a report, The Atlantic Century II, which benchmarked forty-four nations and regions on sixteen core indicators of innovation-based capacity.  When assessing rates of change in innovation capacity during 2000–2009 (that is, the rate of improvement on these sixteen indicators), the United States ranked second to last, ahead of only Italy. In other words, forty-two nations or regions made faster progress than the United States did at bolstering their innovation competitiveness. In fact, the United States placed near the bottom for rates of change at enhancing its levels of higher-education attainment, number of scientific researchers per capita, and number of scientific publications per capita, while also scoring poorly at increasing its levels of R&D.  And one reason, as George Mason’s David Hart has written, is because many other nations have liberalized their high skill, STEM-focused immigration policies.

And with respect to the billion dollar high tech companies in the Valley, the American innovation economy is more than the Valley. Moreover, most of these firms were in a narrow arrow of Internet-based companies that, while innovative, are not enough to power the jobs and innovation needed in the United States. This is one reason America is running a trade deficit in high technology goods of over 100 billion dollars.

We Aren’t Recruiting and Retaining Enough Foreign STEM workers

Even if we are losing the innovation race, Eisenbrey argues it’s not because of lack of foreign talent: “Nor are we turning away foreign students, or forcing them to leave once they’ve graduated. According to the Congressional Research Service, the number of full-time foreign graduate students in science, engineering and health fields has grown by more than 50 percent, from 91,150 in 1990 to 148,900 in 2009. And over the 2000s, the United States granted permanent residence to almost 300,000 high-tech workers, in addition to granting temporary work permits (for up to six years) to hundreds of thousands more.”

But first this misses the major point.  Yes, foreign graduate STEM enrollment has grown. But few advocates of high-skill, STEM immigration would argue that the problem is not one of foreign students not being admitted to America to go to university.  The problem is that it is difficult for them to stay.

Moreover, we may not be able to rely on high-skill foreign STEM talent too much longer. Anna Lee Saxenian has documented this, showing that as Taiwan’s economy (and universities) developed, Taiwanese STEM students getting degrees in the United States were much more likely to return home to Taiwan. And as nations like Indian and China develop, it is certainly possible that fewer of their top students will come to the United States for STEM degrees, and likewise that fewer will stay. The Chinese government is certainly aware of this, and it is one reason why it is making a major push to develop a considerable number of new research universities. The Chinese have constructed campuses and science parks to accommodate what it hopes will be a boom in homegrown technological advances. This is part of China’s ambitious “Thousand Talents” program, which seeks to lure Chinese-born scientists and engineers in the United States.

There is a shortage, even if It doesn’t show up in wage inflation

Finally, Eisenbrey argues that even if we can’t get enough foreign STEM talent, it doesn’t matter because we don’t need it.  We have plenty of domestic talent: “If anything, we have too many high-tech workers: more than nine million people have degrees in a science, technology, engineering or math field, but only about three million have a job in one. That’s largely because pay levels don’t reward their skills. Salaries in computer- and math-related fields for workers with a college degree rose only 4.5 percent between 2000 and 2011. If these skills are so valuable and in such short supply, salaries should at least keep pace with the tech companies’ profits, which have exploded.” This is in fact a central argument made by opponents of STEM immigration. But in a global STEM labor market it’s fundamentally flawed. There are several reasons for this.

First, we don’t have enough STEM talent, particularly in the STEM occupations most related to U.S. competitiveness, engineering and computer science. Most of the growth of U.S. STEM degrees has been in biological, agricultural and environmental sciences. In contrast, growth in engineering and the physical sciences was minimal. Moreover, from 2000 to 2007, non-STEM bachelor’s degrees grew 24 percent, compared to just 16 percent for STEM bachelor’s degrees. We see the same pattern for Master’s degrees. STEM master’s degrees awarded increased by about 2 percent per year from 1993 to 2007, which is about half of the annual growth rate in the number of total master’s (4 percent).  And while Ph.D. level production increased somewhat faster, number of doctoral degrees awarded increased by about 2.5 percent per year from 1993 to 2007, which is lower than the 3 percent annual growth rate in the number of non-STEM Ph.Ds.

Moreover, there has been a steady growth in STEM jobs. Data from the Census Bureau’s American Community Survey show that the number of scientist and engineering-employed workers increased at a rate of about 2.2 percent per year from 2000–2007, compared to the 1.4 percent annual growth rate for the overall workforce over this period. Moreover, the STEM work-force has grown more than 50 percent faster than the number of STEM degree recipients.

Moreover, the Bureau of Labor Statistics projects the number of STEM jobs to grow over the next decade faster than other jobs. Moreover, if the United States is ever to turn its economy around, including eliminating the massive trade deficit, we will have to do it largely through science and technology-based industries. If we were to eliminate the trade deficit by expanding exports, many of these exports would likely be in technology based sectors. We would need to employ large numbers of additional STEM workers.

But at the heart of the “we don’t need more STEM immigration” argument is the wage argument. According to this view American students are not enrolling in STEM because of wages are not high enough.  But this ignores that STEM wages are the third highest of any occupational group, after law and medicine.

But they argue that if there is a shortage, STEM wages should have grown faster.  Indeed, since 1983, wage growth for STEM occupations has tracked that for all occupations as a whole, increasing by about 3.4 percent on average annually.  In neoclassical economics, the prima facie evidence of any kind of shortage, labor or otherwise, is increasing prices and expanding supply. Absent price and responding supply increases, there simply cannot be a shortage in these models. But the conventional neoclassical models are inadequate when analyzing STEM labor markets on both the supply and the demand side.

On the demand side, it is true that for many occupations where workers are predominately employed in non-traded industries (e.g., like trucking and nursing), shortages often lead to faster than average wage increases as employers bid up wages to attract a scarce supply of workers. And because the skill acquisition is relatively straightforward (and often can be accomplished in a matter of months, rather than years), higher wages pull in more workers.  But for occupations with workers predominately employed in internationally traded industries (e.g., computers and software, chemicals, pharmaceuticals), demand and supply factors are at least partially influenced by global, as opposed to domestic market conditions. In these occupations, shortages in workers may not lead to higher wages, for the globally competitive conditions in the industry may limit companies from paying higher wages, especially if many of their competitors are in low-wage nations. In the cases of shortages, firms may simply see positions unfilled with no above-average wage increases, or they may fill those positions overseas. The problem with the neoclassical model is that it assumes that average wage increases mean no shortage, when it could just as easily be a reflection of a shortage that is addressed in a global marketplace. And we see this differential in the wage increases for different professions. In professions such as law and medicine, in which licensing and the location-specific nature of work reduce vulnerability to  foreign competition, wages increased faster than for STEM jobs, which are more exposed to international competition.

Moreover, it is likely that if more STEM graduates were available that the expansion of the STEM workforce would have been even larger; technology companies that possibly expanded offshore due to shortages of STEM talent might have expanded instead in the United States. And the evidence is clear that foreign STEM workers end up leading to even more STEM jobs in the United States. One reason is because they innovate and start new companies. Considering that the number of patents granted to U.S. residents has remained constant since 2005, U.S. innovation would be declining without the influx of foreign workers. Moreover, at least seven studies have examined the role of immigrants in launching new companies and all conclude that immigrants are key actors in this process, creating 15-26 percent of new companies in the technology sector. Because new companies with 20 or more employees account for nearly all new net job creation, one can argue that the influx of foreign-born STEM workers is helping to boost jobs for U.S.-born STEM workers.

On the supply side the argument is that if we want more STEM workers we should just raise salaries by a few percent and all is well. But this ignores the fact that STEM is not like other occupations like sales or even medicine. For someone to be a scientist or engineer they need to have a particular personality orientation and really like STEM. How else would they make it through the hard work of getting a degree?

Moreover, the fact that we see more interest in high schools students in the arts than in STEM is not because they think they can make a fortune in the arts. For example, as ITIF report in its report Refueling the U.S. Innovation Economy: Fresh Approaches to STEM Education, enrollment in the music theory advanced placement test high school students test grew by 362 percent between 1997 and 2009, while enrollment in the Computer Science AB AP test grew by just 12 percent. Even Latin Virgil and French Literature AP test enrollment grew faster than Computer Science. In 2008, more than three times as many students took the Art History AP test as did the Computer Science AB test. I guess it’s those high wages for artists that are drawing them to it, instead of Computer Science, with its wages twice as high as the average U.S. wage.

At the end of the day, Eisenbrey’s arguments against high skill immigration are grounded more in attempts redistribute a shrinking economic pie away from companies and toward workers, rather than growing it so all Americans can benefit. Americans can’t afford to fighting over the slices of the pie, we need to be coming together to grow the pie, and efforts like I-squared are key ingredients in that recipe.