How Do Restrictions on High-Skilled Immigration Affect Offshoring? Evidence from the H-1B Program
Skilled immigration restrictions may have secondary consequences that have been largely overlooked in the immigration debate: multinational firms faced with visa constraints have an offshoring option, namely, hiring the labor they need at their foreign affiliates. If multinationals use this option, then restrictive migration policies are unlikely to have the desired effects of increasing employment of natives, but rather have the effect of offshoring jobs. Combining visa data and comprehensive data on US multinational firm activity, I find that restrictions on H-1B immigration caused foreign affiliate employment increases at the intensive and extensive margins, particularly in Canada, India, and China. Download the most recent version here
Wall Street Journal.
The Washington Post.
“Does offshoring manufacturing harm innovation? Evidence from Taiwan”
- with Lee Branstetter, Jong Rong Chen, and Nikolas Zolas
Policymakers, managers, management scholars, and economists have long debated the impact of the movement of manufacturing to low-wage developing countries on the innovative capacity of the offshoring firms and countries. On the one hand, offshoring can have a positive effect on home country innovation through efficiency gains and resource reallocation. On the other hand, separating the manufacturing and R&D functions of a firm could degrade the capacity of the firm to engage in some kinds of innovation. Empirical assessment of these conflicting hypotheses has been undermined by a lack of data as well as the endogeneity of changes in offshoring and changes in innovation. We shed light on this debate by studying the impact of Taiwanese high-tech companies’ decisions to offshore manufacturing to mainland China on their patenting behavior. In particular, we exploit a policy shock in Taiwan in 2001 that lifted many of the restrictions that had prohibited Taiwanese companies from legally offshoring their manufacturing to China. The response of Taiwan’s electronics and IT firms to this policy shock was rapid and substantial – a large fraction of these firms’ manufacturing operations shifted to mainland China within just a few years. Using a unique and highly granular panel dataset, combined with a 2SLS estimation strategy that leverages this exogenous policy shock, we identify the causal relationship
- with Lee Branstetter and J. Bradford Jensen
In recent decades, multinationals have increasingly done R&D in non-traditional R&D destinations, with especially fast growth in emerging markets. This presents a puzzle: R&D is a knowledge-intensive activity, but local knowledge sources in non-traditional locations are often far from the technological frontier. We explain this puzzle by introducing a mechanism by which foreign affiliates can develop their technical capabilities to become active contributors to the multinational’s global innovation effort: utilizing home-based inventors on foreign affiliate inventor teams to facilitate knowledge transfer. Their utilization then declines as local inventors “catch up” technologically. We also provide evidence that the R&D portfolios of multinationals within each country are frequently concentrated in multiple technical areas, so aggregating across different technology areas might hide meaningful variation in firm behavior.
“Money for Something: Braided Funding and the Structure and Output of Research Groups”
- with Russel Funk, Julia Lane, Matthew B. Ross, and Raviv Murciano-Goroff
In 2017, the federal government invested over $40 billion on university research; another $16 billion came from private sector sources. The expectation is that these investments will bear varied fruits, including outputs like more economic growth, more scientific advances, the training and development of future scientists, and a more diverse pipeline of STEM researchers; an expectation that is supported by the work of recent Nobel Laureate in Economics, Paul Romer. Yet volatility in federal funding, highlighted by a 35 day federal shutdown in early 2019, has resulted in an increased interest on the part of scientists in finding other sources of funding. Understanding the effect of such different funding streams on research outputs is thus of more than academic importance, particularly because there are likely to be tradeoffs, both in terms of the structure of research and in terms of research outputs. For example, federal funding is often intended to affect the structure of research, with explicit goals of training the next generation of scientists and promoting diversity; those goals are less salient for non-federal funding. On the output side, federally funded research may be more likely to emphasize producing purely scientific outputs, like publications, rather than commercial outputs, like patents. The contribution of this paper is to use new data to examine how different sources of financial support – which we refer to as "braided" funding – affect both the structure of scientific research and the subsequent outputs.
“The IT Revolution and the Globalization of R&D.”
- with Lee Branstetter and J. Bradford Jensen
Since the 1990s, R&D has not only become less geographically concentrated, but there has been especially fast growth in less developed emerging markets like China and India. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/IT domain. The increase in foreign R&D on the firm side has been largely concentrated within software and IT-intensive multinationals. This concentration is mirrored on the country side; new R&D destinations such as India, China, and Israel look very different in the types of innovative activity being done there than older R&D destinations such as Germany, France, the UK, Canada, and Japan. In this paper we will document three important phenomena: (1) the globalization of R& D by US MNCs, (2) the growing importance of software and IT to firm innovation, and (3) the rise of new R&D hubs, and the differences in the type of activity done there. We argue that the shortage in software/IT-related human capital resulting from the large IT- and software-biased shift in innovation drove US MNCs abroad, and particularly drove them abroad to “new hubs” with large quantities of STEM workers who possessed IT and software skills. Our findings support the view that the globalization of US multinational R&D has reinforced the technological leadership of US-based firms in the information technology domain and that multinationals’ ability to access an increasingly global talent base could support a high rate of innovation even in the presence of the rising (human) resource cost of frontier R&D.
Carnegie Mellon University. "Analysis chronicles changes in US investment." ScienceDaily. ScienceDaily, 6 August 2018.
ZDNet. “US companies continue to look overseas for tech talent.” 20 August 2018.
VoxEU. “The IT Revolution and the Globalization of R&D.” 21 August 2018.
CIO Dive. “Demand is driving companies to push IT, software R&D overseas.”
“The Weighty Manufacturing Sector: Transforming Raw Materials into Physical Goods.”
- with Erica R.H. Fuchs, Christophe Combemale, and Kate S. Whitefoot
The manufacturing sector encompasses a diverse set of industries that are involved in the transformation of raw materials into physical goods. Over the last two decades, the U.S.’s manufacturing value added (MVA) has slightly grown, however, the U.S.’s percentage of global MVA has declined due to China’s exponential rise. Likewise, in contrast to net employment in the U.S. economy, which has increased, net employment in manufacturing (while growing slightly since 2010) is significantly lower than in the 1980s. As a whole, the manufacturing sector involves higher value added per capita employed, a greater proportion of the labor force with education at the high school level or below while having on average higher wages for that labor force, higher industry spending on R&D, and fewer private equity/ venture capital deals financing new ventures than non-manufacturing industries such as services (including software). The U.S.’s relatively high R&D spending on manufacturing (66% of industrial R&D) and comparatively low manufacturing value added (14%) is at least in part due to the globalization of manufacturing facilities in the last decade. The above said, drawing implications from sector-wide trends can be misleading because of the variation in these indicators across sub-sectors. At the five-digit NAICS code level, the top sources of employment are animal processing, aerospace products, and printing (on various materials including textile, metal, plastics); the top sources of revenue are petroleum refineries and automotive; and the top source of R&D spending is pharmaceuticals. Considering the sector’s diversity will be critical to understanding productivity and labor outcome effects, and appropriate policy responses, if any.
“The New Global Invention Machine: A Look Inside the R&D Networks of U.S. Multinationals”
- with Lee Branstetter and J. Bradford Jensen
We present evidence showing that US multinational firms are creating a global division of R&D labor akin to global value chains in goods production, where activities are located in regions where production is most efficient. We argue that this system, properly managed, brings global benefits by increasing the innovative capacity of the global economy.
- with Lee Branstetter and J. Bradford Jensen. Chapter 10 in Posen, A. and Ha, J., (eds.), U.S.-China Cooperation in a Changing Global Economy, Peterson Institute Policy Brief 17-1, January 2017.
- with Lee Branstetter and J. Bradford Jensen. Peterson Institute Policy Brief 19-9, June 2019.