Fact of the Week: Firms That Seek H-1B Visas Have Higher Rates of Product Reallocation

August 27, 2018

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Firms that seek H-1B visas have 36 percent higher rates of product reallocation than other firms.

Source: Gaurav Khanna and Munseob Lee, “High-skill Immigration, Innovation, and Creative Destruction,” NBER Working Paper 24824, July 2018.

Commentary: Given the Trump administration’s increased restrictions on H-1B visas, the program through which companies can sponsor skilled foreign workers to move to the United States, it is increasingly important to examine the impact that H-1B workers (and highly skilled migrants more broadly) have on the U.S. economy. A body of academic research has shown that high-skill immigration has a significant positive effect on the number of patents companies file. But according to a study published last month, past research may have underestimated the impact H-1B workers have on innovation more broadly.

By observing how frequently firms introduced new products and discontinued old products—a process known as product reallocation—researchers could calculate the rate of innovation as experienced by consumers, much of which is never patented. Firms that applied for an H-1B visa in 2000 or 2001 had product reallocation rates 36 percent higher than firms that didn’t in the subsequent period from 2000 to 2016, controlling for firm revenue. Further, firms that increased their share of H-1B workers by 10 percent over that period saw an additional 2 percentage point increase in product reallocation rates. When companies can hire the brightest minds from around the world, America benefits from the innovation, which results in newer, cheaper, and better products.