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How Immigration Policy Has Walled Off Silicon Valley

Santiago

In today’s fast-paced, globalized world, knowledge workers can choose to work anywhere. In fact, being an appealing place for people to locate, especially those with advanced skills, is a valuable national resource. Highly skilled workers earn high wages, spend those wages locally, pay domestic taxes, and contribute to spill-over effects that benefit everyone in the area. Most engineers will tell you that the most appealing location for tech workers is located right here in the United States. Some countries strike oil. Others find diamonds. The United States hit it rich with Silicon Valley.

However, Silicon Valley has a weakness that threatens this preeminence: the lack of enough skilled workers to promote expansion and innovation by existing firms and industries and the development of new ones. One of the chief causes of this problem is America’s growth-stymying, restrictive immigration policies toward high-skill, foreign-born talent. For example, for the first time in American history, there are fewer startups founded by immigrants than there were 10 years ago. The effect is especially apparent in Silicon Valley, where immigrant-founded startups dropped from 52.4 percent to 43.9 percent from 2005 to 2012. And unfortunately for the U.S. innovation economy, other nations are taking advantage.

For instance, Chile, a nation whose economy has traditionally been mining-based, is successfully poaching innovative startups from more advanced nations by offering $40,000 in seed funding and expedited visas for entrepreneurs. Since its launch in 2010, the incentive program Startup Chile has attracted 687 firms from 35 countries around the world, with 59 percent of award recipients now having established operations in Chile. Last year, the program selected 100 startups from 28 countries out of an application pool of over 1,500. In short, Chile is rapidly becoming a destination for startups, even those whose products and technologies were dreamed up in America’s top universities. To be sure, almost all these foreign startups would rather be in Silicon Valley, the most established hub of innovators, venture capitalists, and entrepreneurial support (especially in tech fields) in the world. However, the promise of access to visas and equity-free capital tips the scales. As Chile’s startup community grows, entrepreneurs will seek out the nation as a desirable location and take advantage of the localized knowledge and entrepreneur-friendly institutions that have already been established. When this happens, the “Chile-con Valley” could develop into a legitimate hub for innovative, high-tech industries that otherwise would have located in the United States.

It’s not just Chile. Other countries are also welcoming high-tech firms and the highly skilled employees they bring to their shores. For example, in the heart of Silicon Valley, a billboard splayed with a large maple leaf appeals to beleaguered CEOs: “H-1B problems? Pivot to Canada,” referring to the limited and convoluted H-1B visas needed to bring in foreign talent or hire recent foreign graduates in advanced fields. In sharp relief to the H-1B program, recent Canadian legislation has focused on providing easy immigration for entrepreneurs, hoping to draw companies to Canada from the high-tech American Northwest. Unfortunately, it’s working. Seattle giant Microsoft just opened up a new development center in Vancouver, the Microsoft Canada Excellence Centre, citing in part more flexible immigration rules as a reason for opening the facility there. Employing engineers in Canada is much less expensive, a result of a less-restrictive environment for immigration, which allows wages to reflect global, not localized, supply and demand for engineering talent. Of course, Microsoft should not be vilified for this action; you cannot blame a business for making decisions that makes itself more competitive internationally. Instead, the U.S. should have worked with Microsoft to encourage the company to keep this facility domestic instead of unnecessarily constraining its ability to create jobs in the United States with restrictive immigration policies.

Why does Silicon Valley and the U.S. need more engineers? Consider an Indian engineering firm that decides it would rather locate elsewhere and so obtains visas and moves its entire operation to Santiago. In this scenario, the firm still serves the same foreign clientele and hires no Chilean workers. Does the move benefit Chile? Of course it does. Incoming highly skilled immigrants raise levels of creativity and innovation and create knowledge spillovers between themselves and existing Chilean engineering firms. That’s not to mention the tax dollars that the firm and its employees now pay in Chile, not India, or the localized spending on Chilean goods and services by the new immigrants. The new residents are not taking jobs from locals, but creating a whole new firm in a whole new industry, and the money they spend locally has a powerful multiplier effect. Chile considers the firm’s desire to locate in Santiago as a significant economic windfall (indeed, Startup Chile is in fact paying to attract these young firms). Many countries that have experienced brain drain know exactly how valuable domestically located knowledge workers can be. In fact, much international competition in the coming years will be contests to see which nations can build the most innovative, high-skill workforces, in part by attracting foreign talent to become part of it

It’s shortsighted that the United States—still arguably the most attractive locale on the planet for knowledge workers—is shutting people out. Not only is America eliminating hopes of expanding its base of knowledge workers, immigration restrictions are choking Silicon Valley technology hubs by denying companies access to top talent. Given the severe and well-documented STEM skills shortage in our workforce, it is unsurprising that companies are forced to pay inflated wages for engineers and computer scientists, leading to a loss of competitiveness.

Even students graduating from STEM programs in the Valley, from top universities such as Stanford and UC Berkeley, are not necessarily welcome to stay. Foreign graduates must compete for scarce visas, and the result is that many who would like to remain in the U.S. and use their degrees are unable to stay. This could be resolved with legislation to allow foreign STEM graduates to automatically qualify for green cards or the creation of an entrepreneurialism visa.

Silicon Valley is a tremendous national resource. And the source of its strength is the sheer number of innovators and STEM workers who have chosen to make the region their home. The Valley’s advantage lies in its concentration of startup resources, existing high-tech firms, and its culture of creativity. Allowing more knowledge workers to enter would not displace American workers but create new jobs for the influx of high-skilled workers. The world’s most talented innovators want to move here. Why not let them?

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About the author

Adams Nager is an economic policy analyst at ITIF. He researches and writes on innovation economics, manufacturing policy, and the importance of STEM education and high-skilled immigration. Nager holds an M.A. in political economy and public policy and a B.A. in economics, both from Washington University in St. Louis.