College-Educated Immigrants Bolster U.S. Productivity

By Nicolas Morales of the Federal Reserve Bank of Richmond. Excerpt:

"A seminal 2010 paper on the relationship between immigration and innovation — written by Jennifer Hunt of McGill University (at the time) and Marjolaine Gauthier-Loiselle of Princeton University (at the time) — showed that at the state level, a 1 percent increase in college-graduate immigrants increases patents per capita by 9 percent to 18 percent.² The patenting prowess of college-graduate immigrants can be explained almost entirely by immigrants disproportionately holding degrees in science and engineering. Such findings are consistent with the data in Table 1, which show that immigrants disproportionately work as computer scientists, engineers and college professors in high-innovation industries such as information technology, electrical manufacturing and higher education.

More recently, economists at Stanford University exploited a novel dataset that links individuals to patent records to quantify the contributions of immigrants to innovation in the United States.³ (Like Hunt and Gauthier-Loiselle, they used patents as a proxy for innovation.) First, they showed that while immigrants are only 10 percent of the U.S. population, they account for 16 percent of all inventors (defined as originators of patented innovations) and 23 percent of all patents. The researchers also note that immigrants and natives obtain patents of similar quality. They find further evidence that immigrants are more likely to cite patents by foreign inventors and to coauthor with inventors who reside outside the United States. They conclude that the ability of immigrants to bring in foreign technologies and collaborate with a more diverse group of researchers might be why immigrants are able to obtain more patents.

To estimate the total contribution of immigrants to U.S. innovation, the Stanford economists quantify not only the direct effects, through the creation of patents by immigrants, but also the indirect effects, such as positive productivity spillovers on U.S. inventors. For example, immigrants could expose natives to new sets of tools and technologies. The researchers find that, on average, terminating a research relationship with an immigrant collaborator decreases the U.S. inventor's future patenting activity by 26 percent, while terminating a research relationship with a U.S. collaborator decreases future patenting by 10 percent. Using these results, they estimate that immigrants contribute 37 percent of total U.S. innovation, 15 percent directly and 22 percent indirectly.

Reducing Communication and Cultural Barriers

Historically, policymakers have attempted to create jobs in their countries by designing policies to attract economically significant operations of foreign-based multinational corporations. Immigration can have a big impact on such location decisions because immigrants have skills, such as knowledge of a foreign language or foreign cultural norms, that facilitate communication between the parent company and the U.S. affiliate. Konrad B. Burchardi at Stockholm University, Thomas Chaney of Science Po and Tarek A. Hassan at Boston University established this relationship in a 2019 paper using 130 years of data on immigration to U.S. labor markets.⁴ They found that within a labor market, the number of U.S. jobs available at firms headquartered in a specific origin country increases 7 percent when the number of individuals with ancestry from that country doubles. The main explanation for this effect is that immigrants facilitate communication between the affiliates in the United States and their parent companies abroad. The researchers concluded that the effects of immigration on foreign direct investment last a long time — even after immigration from a specific country to the labor market ceases — because immigrants pass traits to their descendants, such as language skills and cultural norms, that help reduce communication barriers."