“The Supply Side of Innovation: H1-B Visa Reforms and US Ethnic Innovation,” W. Kerr & W. Lincoln (2010)

(A note: Posting has been light lately, but hopefully returning to normal as of today. The reason is simple: I only post here about papers I like, and I haven’t really liked the last few I’ve read! Let’s hope for better luck starting with this one, on innovation.)

The spatial distribution of innovation is at the heart of a number of open questions in economics. Agglomeration effects are considered huge for innovation work – the era of the “lone genius” inventor is essentially over – and for various reasons, such as first mover advantage, the location of innovation affects national growth (though here you should pretend this blog is a David Kreps book and put an asterisk, in pencil please, because I want to return to this point).

Kerr and Lincoln examine the H1-B temporary work visa program and its impact on innovation in the US, as measured by patents. They divide the country into urban areas, create rankings of which areas are most “reliant” on H1-B visas (the most interesting such ranking simply measures latent demand, in that when H1-B is oversubscribed, the visas are given in a lottery), and examine patents by Indian and Chinese named inventors versus traditional English named inventors. Without going into the economics, they find that for particularly reliant cities, loosening the H1-B cap by 10% would increase Chinese and Indian invention by roughly 10% – nothing surprising here. More importantly, they suggest that total invention by non-immigrants would not be harmed by that increase in H1-B; that is, there is no crowding-out.

Work on innovation is near-impossible: often, the only data we have are patents, and using patents to mean “innovation” has obvious problems which have been discussed on this blog many times – results as clean as the authors’ are rare indeed. That said, I think the way the paper is being played is a bit disingenuous. As the authors note in the conclusion, H1-B workers include very few workers doing frontier research. Indeed, I think those workers are the least politically controversial: certainly no one in Washington seems to care that us lowly American economists might lose out on an academic job to be a foreigner, and rightly so! So if the question is, what should be done with the H1-B cap?, then I don’t really see why finding zero crowding-out among native inventors is important. Indeed, from a social welfare perspective (of any sort!), I don’t see why policymakers would be bothered even if native patenting were crowded out as long as native wages and native employment were unaffected! That is, if a million Chinese biologists moved here and won the race for invention for the majority of new pharmaceuticals, then presumably US pharma firms would be booming, increasing demand in non-frontier research positions for native biologists. On a related point, returning to the asterisk you noted above, this paper (like many, many others) uses terms like “US innovation” in a way that makes me uncomfortable from a theoretical standpoint. In the abstract, we don’t really care where things are invented, but rather just care that they are invented and that the knowledge flows somehow to our firms. If these patent results somehow represent the fact that not only the good was invented here, but that the human capital also remains here (or spreads here in the standard agglomeration fashion), then I understand, but there is, at the policy level, much confusion about whether it is important to “maintain our technological lead”, and economics would do well to avoid terminology that might increase such confusion.

http://www.hbs.edu/research/pdf/09-005.pdf (Final WP – recently published in JLE)

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