The IT Boom and Other Unintended Consequences of Chasing the American Dream
73 Pages Posted: 16 May 2017
Date Written: April 30, 2017
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. Specifically, we test the hypothesis that 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 H-1Bs also contributed to the growing tech-workforce in India. The increase in IT sector productivity allowed India to eventually surpass the US in IT 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 the US and India. Supported by a rich descriptive analysis of the changes in the 1990s and 2000s, we match data moments and perform counterfactual exercises. We find that the H-1B program induced Indians to switch to computer science (CS) occupations, increasing the CS workforce in India and raising overall IT output in India by 5%. It also induced US workers to switch to non-CS occupations, reducing the US native CS workforce by 9%. Consumers in both countries benefit as prices in IT are lower and overall IT output is larger. The combined income of both countries is higher by 0.36% because of this high-skilled migration.
Keywords: High-Skill Immigration, H-1B Visas, India, Computer Scientists, IT Sector
JEL Classification: I25, J30, J61
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