Competitiveness

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The Leaky STEM Pipeline Can’t Be Patched with Higher Wages

Even with the economic recovery, recent graduates have it rough. Unemployment among young people remains high and wages remain depressed. Frequently, graduates accept low-wage positions that do not utilize their degrees.

However, one group of recent graduates—those in STEM fields—has it easier than their peers. For these graduates with degrees in fields such as computer science and engineering, high-paying jobs are plentiful. Eighty-one percent of STEM grads hold jobs closely related to their degrees, compared to 72.5 percent among all graduates. Median starting salaries for computer science and engineering are estimated at around $67,300 and $64,400 respectively, 80 percent higher than starting salaries for humanities and liberal arts majors. Moreover, most sectors of today’s economy rely on STEM skills, so graduates have a plethora of career paths to choose from. In addition, compensation is high because companies face an acute shortage of qualified STEM workers.

Economics 101 tells us that the laws of supply and demand should fix this problem as high wages motivate more students to pursue computer and engineering degrees. Instead, exactly the opposite has occurred. We currently have fewer computer science graduates than we did

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Time for America to Throw in the Competitiveness Towel

In 1871, America became the largest economy in the world. 144 years later we need to admit that while we’ve had a good run, it’s time to let other countries have their turn. China just overtook us as the largest economy last year. And other nations, like India, are on their way up.

So I say, let’s stop being selfish. We can get used to being number 2, or even number 20. We’re America after all, we can do anything, including lose gracefully.

Besides we don’t want to hurt other nations, especially those poor ones. We have lots more money than the Chinese and Indians. Why then are we trying to compete with them and not letting them have our high wage industries that they need more than us. If they want to take our aerospace, machinery, heavy equipment, computers, software and life sciences industries, who are we to say no, even if they use unfair methods to win. After all they are poor, so it’s okay for them to cheat.

Now it is true, as China specialist Michael Pillsbury writes in The Hundred Year Marathon, that China has

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Ellis island

What Creates Jobs? Welcoming STEM Workers

Politicians talk frequently about job creation. But what actually creates jobs is a subject of intense debate. Do we need more public spending? Less? Fewer regulations? Smarter regulations? The answer usually depends on the audience and ignores the deeper questions. What kind of jobs are we creating? Do other jobs get destroyed? Would high-skill immigrants take a job from an American or create a new one for him or herself?

A recent report, Technology Works: High-Tech Employment and Wages in the United States, from the Bay Area Council Economic Institute, a trade organization from an area that knows a thing or two about facilitating economic growth, sheds light on these questions by highlighting a tried and true method for creating jobs: attracting and employing technology workers. When a city, community, or region employs a technology worker, this engenders a multiplier effect on employment in the local economy. In fact, the Bay Area Council’s study finds that every one job in the high-tech sector—defined as those most closely related to science, technology, engineering, and math (STEM) fields—leads directly to 4.3 jobs in local goods and services industries across all

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R&D Credits Essential for Competitiveness: New Evidence

A new SSRN paper finds that research and development (R&D) helps manufacturers keep ahead of competition from imports. U.S. manufacturing firms in industries with strong import competition from China fared better 50 percent better when they had larger stocks of capital used for R&D. While this finding is intuitive, it provides an important piece of evidence that reiterates a critical point about the U.S. economy: international competitiveness is extremely important and smart R&D policy (including tax credits) is a key method of maintaining it.

The authors Johan Hombert and Adrien Matray use granular industry-level data on imports from China and show that these imports have a significant impact on the performance of U.S. manufacturing firms. They then examine whether this impact changes depending on how much R&D capital firms have. In order to make sure the R&D capital isn’t related to other factors, they use state-level changes in R&D credit policy during the 1980s.

Their results here show that firms that had access to cheaper R&D and were thus more likely to acquire more R&D capital had an easier time “climbing the quality ladder” and staying competitive in the face

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Think the Trade Deficit Couldn’t Get Any Worse? Think Again

For a country that has not run a trade surplus since Gerald Ford was in office 40 years ago, the United States is surprisingly optimistic in its widespread belief that the trade deficit is going to eventually correct itself. After all, as tidy macroeconomic models of international trade show, a nation’s trade deficit should lower the value of its currency, lowering the cost of exports and raising  the cost of imports, thereby gradually reversing the deficit. After all, the models show that in the long term, current accounts must balance.

As Martin Feldstein, former Chairman of the Reagan administration Council of Economic Advisors, predicts:

“The United States cannot continue to have annual trade deficits of more than $100 billion, financed by an ever-increasing inflow of foreign capital. The U.S. trade deficit will therefore soon have to shrink and, as it does, the other countries of the world will experience a corresponding reduction in their trade surpluses. Indeed, within the next decade the United States will undoubtedly exchange its trade deficit for a trade surplus.”

Unfortunately, Feldstein wrote this in 1987.

Far from his predictions coming true, the U.S. trade

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Immigrant STEM Workers Increase Everyone’s Wages

We’ve posted recently about how our current immigration policy is hurting Silicon Valley. But when the United States lets in more immigrants, what happens? Often it’s not what you would expect.

A new NBER paper by economists at the University of California Davis and Colgate University studies the effect of skilled H1-B immigrants in STEM occupations on more than 200 cities across the country. In cities with more STEM immigrants, wages for college-educated workers went up 7-8 percentage points, wages for non-college-educated workers went up about half as much, and there was no significant effect on employment.

Why this counterintuitive result? Economics 101 says that when the supply of something grows, the price should decrease, not increase. As is too often true, however, Economics 101 in this case tells us very little about the real world. Figuring out cause and effect in many types of markets, particularly labor markets, is tough because economies are not as simple as the textbook models might have you believe.

What actually happens is that when immigrants enter an economy, they do more than just offer their labor at a (potentially) lower price. They increase

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The Creative Cost of Piracy

Proponents of effective intellectual property (IP) rights have long argued that weak IP protections will lead to less intellectual property creation.  The logic appears clear: if content creators and other innovators know that a significant share of their work will be pirated or otherwise stolen they will have both less incentive and less revenue to create new ideas, creative goods, and innovations.

But how strong is this effect? To find out, we compared IP protection data from the World Economic Forum’s 2014-2015 Global Competitiveness Report, which incorporates the strength of IP laws and the stringency and effectiveness of anti-counterfeiting laws, and creative outputs scores from the 2014 Global Innovation Index, a report from Cornell, Insead and WIPO.

Put simply, countries that score higher on IP protection also score higher on creative outputs relative to the size of their economy. Over a sample of 136 countries there is a strong positive correlation of 0.72 between the strength of IP protections and score on creative outputs.

The Global Innovation Index has three distinct measures of creativity in an economy. First, “intangible assets” combines measures of domestic and international trademark applications

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How Immigration Policy has Walled Off Silicon Valley

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

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A Modi Administration Report Card on the Eve of His Visit to the United States

Indian Prime Minister Narendra Modi’s historic election was viewed with a great deal of optimism by much of the world, including here in the United States. His campaign platform—putting economic growth front and center—championed the kinds of policies needed to get India’s economy back on track. With the Modi Administration having been in office for just about four months now, and as he embarks on his first official visit to the United States, it’s a good moment to take stock of the Modi Administration’s accomplishments to date—and areas where we hope to see continued progress toward improving the state of U.S.-India economic and trade relations.

On the positive side, the Modi Administration has announced a number of promising economic reforms. In particular, it has:

  • Retired India’s Planning Commission, a vestige of centralized state planning;
  • Eased some restrictions and limitations on foreign direct investment (FDI), notably in the defense and railway sectors (with the FDI ceiling in the former raised to 49 percent and in the latter to 100 percent);
  • Committed to renewed infrastructure investment in power generation and transportation networks;
  • Set a year-end target to complete long-pending implementation of a

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Will the next Silicon Valley be located in the United States?

In 1956, an American engineer, William Shockley, had an idea that silicon could be used to make transistors, and founded a company in Mountain View, California. The rest is history. The area experienced explosive growth after the invention of the silicon semiconductor sparked waves of innovation. Other firms developed around the Shockley’s first company, also developing and improving on the invention. Continual support from nearby Stanford University, along with collaboration between local firms, created an innovative environment ideal for fostering growth. By the 1960s, 31 semiconductor firms had been established in the country, of which only five were located outside the region. Smaller firms providing research, specialized services, and other inputs located nearby the larger companies. Innovation thrived, the local economy boomed, the center of high-tech innovation shifted from the east coast to the west, and the Silicon Valley was born.

The Silicon Valley is a prime example of how advanced R&D tends to focus in clusters- geographically concentrated industries that maximize spillovers from firm to firm and between public and private researchers. Once research concentrates in an area, it is hard to displace, which is why DOE and other

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