The Importance of Immigration for U.S. Competitiveness

In 2021 and 2022, the 117^th Congress authorized roughly $80 billion in federal spending targeted towards specific locations, also known as “place-based” spending. Of particular note is the creation of at least 20 geographically distributed regional technology and innovation hubs as part of the 2022 CHIPS and Science Act. The success of these investments depends on many factors, one of the most important being the availability of skilled workers.

Yet the United States faces a labor shortage problem exacerbated by an aging population. For many years, the Bipartisan Policy Center has examined the role of immigrants in the U.S. economy and where bipartisan agreement is possible on reforming immigration policy. With the opportunity presented by the massive federal financial infusion of the CHIPS and Science Act, and likely shortages in the availability of workers to make that spending productive, an increase in place-based, high-skilled immigration stands to boost U.S. regional growth and international competitiveness.

Lessons from Silicon Valley

The recent case of Silicon Valley’s development demonstrates the importance of immigration, and particularly high-skilled immigration, in driving the success of a thriving technology and innovation center. Research from the early 2000s noted that more than a quarter of Silicon Valley’s highly skilled workers were immigrants, with skilled immigrants accounting for one-third of the region’s engineering workforce. In 1998, Chinese and Indian engineers were senior executives at one-quarter of Silicon Valley’s technology businesses. These immigrant-run companies collectively accounted for more than $26.8 billion in sales and 58,282 jobs.

Importantly, foreign-born scientists and engineers were starting new businesses faster than native counterparts from 1995 to 2005, with just over half of the new start-ups in Silicon Valley founded by immigrants during this time period. This persisted in subsequent years and across the country: from 2010-2019, foreign-born workers accounted for up to three-quarters of the growth in businesses across 248 metro areas. These new businesses have benefited the native population by creating jobs for them, boosting business dynamism, and driving economic growth. Indeed evidence suggests that an increase in the immigrant share of the population leads to a proportionally greater increase in job creation across the board.

The lesson is that embracing foreign talent and tapping into their entrepreneurship can help drive the success of new regional technology and innovation hubs across the country, whether they be in the U.S. heartland, the Southeast, or elsewhere. 

The Vital Role of Immigration

 While many factors made Silicon Valley a success, immigration was a key ingredient. Today, in the face of chronic labor shortages, immigration is vital to keeping the U.S. competitive and ensuring that the federal government’s latest investments are used productively. Indeed, a 2021 survey of technology executives found that a majority raised labor shortages as their top concern, ranking it higher than supply chain issues and cybersecurity threats.

Without action, we can expect labor shortages to worsen, both as the demand for digital skills continues to grow and the supply of labor falls as the U.S. population ages. According to the Congressional Budget Office, without net immigration, we can expect the U.S. population to start declining in 2042.

Furthermore, STEM workers are not equally distributed across the United States, as shown in the map below. This could hinder the success of new regional technology and innovation hubs, which the CHIPS and Science Act specifies must be distributed geographically.

The Concentration of STEM Workers, by State: 2019

Source: Diagram from National Center for Science and Engineering Statistics, based on data from U.S. Census Bureau, ACS, 2019.

In theory, internal migration can address this issue as workers match their skills and move to new technology and innovation hubs in search of opportunities to be more productive and earn higher wages. However, such internal migration is limited for various reasons, including cost, lack of information, and reluctance to move due to attachment to one’s home, family, and community. Research suggests a decline in internal migration in the U.S. over the past 40 years, with another study finding no evidence that shocks to local manufacturing in the U.S. led to substantial changes in population in the affected areas. In short, U.S. workers don’t like to move, even for work opportunities or higher pay.

The U.S. cannot rely on domestic labor alone to meet its ambitious goals. Immigration, particularly high-skilled and with some targeting to specific areas, will be vital in ensuring that the desired outcomes from major industrial investments are realized.

Immigration Policy Options for Competitiveness

While the current U.S. employment-based immigration system operates largely at the federal level with policy made for the whole country, decentralized place-based systems have been proposed that would supplement the existing system by allowing states or local governments to sponsor foreign workers based on local labor needs.

The State Sponsored Visa Pilot Program Act of 2019 would have created a new visa to admit foreign nationals to a state “to perform services, provide capital investment, direct the operations of an enterprise, or otherwise contribute to the economic development agenda of the state in a manner determined by the State.” President Biden’s U.S. Citizenship Act of 2021 would have allowed any county or municipality to petition for additional immigrant visas to support the region’s economic development strategy. Initiatives like the Global EIR program attract immigrant entrepreneurs to build their businesses on and around university campuses. Facilitating geographic targeting of immigration through measures such as these would help provide the talent new technology and innovation hubs need, and states are calling for such action.

Alongside geographic targeting, particular attention should be paid to enabling more STEM immigration. There are numerous potential policy options here, but one priority area should be retaining foreign STEM students in the U.S. who face a difficult road from student to employment visa, causing many to leave and take their talent to other countries. An innovative option could simply be “stapling green cards” to the diplomas of such students.

Place-based immigration programs that facilitate high-skilled immigration have been used to great effect in Canada and Australia. Failure of the U.S. to exploit their potential would mean missing out on making the most of place-based industrial policy investments and their promise to boost U.S. growth and international competitiveness.