Skilled Immigration, R&D Concentration, and Industry Consolidation

Abstract

Abstract: We demonstrate a novel link between skilled immigration restrictions and corporate innovation and industry consolidation. Binding restrictions on H1B visas are a shock to firms’ R&D labor supply, leading firms to shift R&D expenditures and employees overseas. Organizationally and financially constrained firms are less able to adjust to the restrictions. They reduce basic research and patenting, are less able to acquire other firms for intellectual property, and are more likely to exit. Industry concentration and firm level markups increase when firms are better able to adjust. This increase in market power is an unintended consequence of skilled immigration restrictions.

Keywords: Innovation, R&D, Patent, H1B, Immigration, Industry consolidation, Organizational constrain, Financial constrain, Acquisition

JEL Classification: G30, G34, G38