Human Capital, Skilled Immigrants, and Innovation

Rasha Ashraf, Rina Ray
Skilled Immigrants, and Innovation (September 14, 2017),
Before 2004, by sourcing skilled labor in the international labor market, large, innovative US firms effectively utilized an alternative to investing in the existing human capital stock of these firms. After the immigration policy shock of 2004, when new skilled immigrant hiring became constrained, the firms dependent on skilled immigrant workers reduced R&D investment proactively and contemporaneously. Firm-level innovation outcome, measured by patents and citations, declined for these firms and there was an increase in Sales, General, and Administrative (SG&A) expense beginning three years after the shock. An increase in SG&A suggests a plausible increase in investment in the human capital of existing employees. Our results are robust to placebo tests, tests for alternative hypotheses, a set of falsification tests, and a battery of robustness checks. Although real wages declined for both immigrants and host-country workers after the shock, the decline is statistically significant only for the immigrant workers.