The IT Boom and Other Unintended Consequences of Chasing the American Dream

Abstract

We study how US immigration policy coupled with the Internet boom affected not just the US economy, but also led to a tech boom in India. Indian students enrolled in engineering schools to gain employment in the rapidly growing US IT industry, via the H-1B visa program. Those who could not join the US workforce, due to the H-1B cap, remained in India, enabling the growth of an Indian IT sector. Those who returned with acquired human capital and technology after the expiration of their visas also contributed to the growing tech-workforce in India. The increase in IT productivity allowed India to eventually surpass the US in software exports. Our general equilibrium model captures firm-hiring across various occupations, innovation and technology diffusion, and dynamic worker decisions to choose occupations and fields of major in both countries. We identify key elasticities using an instrumental variables strategy, and show that we capture levels and trends of key variables in validation tests. In counterfactual exercises, we find that on average, workers in each country are better off because of high-skill migration. The H-1B program induced Indians to switch to computer science (CS) occupations, increasing the CS workforce and overall IT production in India by 15%. It also induced US workers to switch to non-CS occupations, reducing the US native CS workforce by 4.7%

Keywords: High-Skill Immigration, H-1B Visas, India, Computer Scientists, IT Sector

JEL Classification: I25, J30, J61