Human Capital, Skilled Immigrants, and Innovation
Posted: 7 Aug 2017
Date Written: July 31, 2017
We design a performance-on-structure experiment, where performance is measured by innovation outcomes and structure is defined as corporate investment policy, specifically, how firms acquire, assess, and retain human capital. We use patents, patents normalized by R&D intensity, patent citations, and citations per patent to measure innovation outcomes. A firm’s investment policy determines 1) how a firm allocates resources to obtain human capital from the domestic and international labor market or to develop the human capital of existing employees and 2) how it adjusts capital investment in innovation to match the available skilled labor. We focus on the innovative abilities of skilled immigrants authorized to work in the U.S. and the innovation outcomes of the firms that rely on the human capital of such workers. We exploit an exogenous supply shock to skilled immigrant workers due to a change in the U.S. immigration policy and quasi-random assignment of firms into groups of treatment or immigrant dependent and control or non-dependent firms. Firm-level innovation outcomes – both the level and the quality – decline when fewer skilled immigrant workers are hired by the immigrant-dependent firms. When fewer immigrant workers are hired, we observe a preemptive and contemporaneous reduction of investment in R&D and a preemptive decline in the overall firm-level employment. These effects are not observed in the product market performance of these firms nor are they penalized by the capital market. After the immigration policy shock real wages declined for both the immigrant and host-country workers.
Keywords: human capital, investment, patent, R&D, skilled immigration
JEL Classification: G31, J24, J61, O31, O32
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