H1B Visas & American Innovation

Posted on December 15, 2008


Recently, the H1B visa issue has received significant media coverage. In the Wall Street Journal, Miriam Jordan wrote about this issue on March 31 and Shikha Dalmia wrote an editorial in Saturday’s edition.

As Milton Friedman free-marketeer, I share Bill Gates’ viewpoint (detailed in his testimony last year to the US Congress) that the current system should be scrapped to open the American borders to a more effective labor force populated by the best available human capital (labor) available.

Paul Romer, developer of “endogenous growth theory” (or “new growth theory”) showed that technological progress is a primary engine for an economy’s economic growth. The notion of “building a better mousetrap” is the key motivation for profit-maximizing firms in a competitive environment. In short, ideas are “nonrivalrous” – meaning that the developer of a new innovation or idea has a natural monopoly on that idea’s implementation and use. This leads to increasing returns to scale and firm profits. In the context of economic growth, creating an environment where new innovations and ideas are abound results in subsequent increases in an economy’s growth. (Romer’s complete academic article – “Endogenous Technological Change” – is available in The Journal of Political Economy, October 1990.)

The H1B visa system handicaps American firms from employing the world’s best and brightest minds where these individuals could be developing new innovations for these firms, providing increasing returns to its research and development investments.

For obvious national security reasons, developing and enforcing stringent background checks should certainly be required for all emigrants to the United States, but limiting the number of foreign workers solely to protect American jobs frankly sounds a bit socialistic to me. The competitive nature of the market, including the labor market, is a key ingredient to the ongoing success of the US economy during increased economic globalization. Why should we deliberlately disadvantage American companies?

What if the United States decided in 1933 that we had reached our quota of foreign workers, disallowing Albert Einstein’s entrance to the country?


Posted in: Labor Market