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A Research Investor’s Visa Would Spur U.S. Economic and Employment Growth

As ITIF documents in 25 Policy Recommendations for the 2013 America COMPETES Reauthorization, Congress is currently considering a wide range of options for reforming U.S. high-skill immigration policy. The Senate Gang of Eight’s immigration reform legislation would create an additional 25,000 visas for foreign students graduating from U.S. universities with a Masters or Ph.D. in science, technology, engineering, and mathematics (STEM) fields. And the Startup Act 3.0 would make it 50,000 such visas for STEM graduates and introduce a “startup visa” for qualified immigrant entrepreneurs. As the Kauffman Foundation finds in Give me Your Entrepreneurs, Your Innovators: Estimating the Employment Impact of a Startup Visa, immigrant-entrepreneur founded startups could generate as many as 1.6 million new jobs after ten years (assuming that 75,000 visas are granted and that half the startups are technology or engineering companies).

To be sure, a startup visa could have a beneficial impact on U.S. economic and employment growth, but why limit this dynamic only to foreign entrepreneurs looking to invest in starting new businesses? Why not extend visas to foreign individuals investing substantially into ongoing federally funded research and development (R&D) activities at U.S. universities or federal laboratories? Indeed, a research investor’s visa, a novel approach proposed by Representative Rush Holt (D-NJ), could also make important contributions to U.S. economic and employment growth.

As ITIF writes in “Stim-Novation”: Investing in Research to Spur Innovation and Boost Jobs, investment in R&D impacts the U.S. economy and employment through multiple channels, including first in the short-term through multiplier effects and then in the longer-term by fostering the development of new technologies and ultimately innovative new products and processes that enable American enterprises to successfully compete in a fiercely competitive global economy. Let’s take the employment and economic impacts of investment in R&D in turn.

First, from a standard Keynesian perspective, investment in U.S. R&D activities by an immigrant would directly create new jobs through increased spending, such as hiring new researchers in federal laboratories or hiring con­tractors to renovate existing facilities. Further, given the job multiplier effect, such investment would also create both “indirect jobs”—those created to supply the materials and other inputs to production, such as the manufacture of compo­nents for scientific equipment—and “induced jobs”—those created when newly employed (or retained) workers spend their paychecks, thus creating jobs in establishments such as restaurants and retail stores. ITIF has estimated that a $10 billion investment in research would create approximately 200,000 Ameri­can jobs for one year. If a research investor’s visa were created that permitted 10,000 foreign individuals to receive visas when making an investment of at least $1 million in ongoing federally funded R&D, this would generate at least $10 billion of new investment in U.S. R&D and thus support over 200,000 American jobs for one year.

Increased R&D investment would further boost employment through the “Schumpeterian” effect; that is, the jobs that arise over the longer term to manufacture and to service the products and technologies developed as a result of the enhanced R&D investments. As Bogliacino and Vivarelli find in The Job Creation Effects of R&D Expenditures, R&D expenditures have “positive and highly significant job-creating effects” in both manufacturing and services sectors. They find that a 1 percent increase in the R&D stock would lead to a .025 percent increase in employment. Given that the U.S. R&D capital stock is $3.2 trillion, an increase in R&D of $10 billion would increase U.S. capital stock by 0.3 percent, and thus lead to a .008 percent increase in employment. With 155 million Americans in the civilian labor force, this dynamic could lead to the creation of an additional 15,000 jobs.

And increased R&D investment will lead to increased U.S. economic growth. In fact, economists estimate that a 1 percent change in the R&D capital stock will cause a 0.13 percent change in GDP, meaning that the 0.3 percent increase in R&D capital stock that could result from a research investor’s visa would increase U.S. GDP by 0.039 percent.

As ITIF writes in Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth, investments in R&D provide the foundation for new technologies and ultimately innovative products that drive the growth of the U.S. economy. America’s competitive niche in the modern global economy is in high-technology, knowledge- and IP-intensive industries such as life sciences, information and communications technology (ICT), and advanced manufacturing, and these are exactly the types of R&D-intensive industries that would benefit from increased R&D investment.

For example, taking the U.S. ICT sector alone, without the initial discoveries made by public R&D, over $80 billion in output per year would not exist today. Federally funded R&D has been instrumental in spawning a range of breakthroughs in the U.S. ICT sector, everything from the integrated circuit and relational databases to the graphical user interface and search engines. Those investments helped spawn a robust ICT sector that is one of our nation’s most dynamic industries. For instance, in the 2011 Inc. 5000 rankings of the 5,000 fastest growing companies in the United States, almost one-quarter (1,140) hail from the ICT industry, with a three-year average growth rate of 302 percent and revenues totaling nearly $54 billion.

One reason a research investor’s visa could have a particularly powerful economic effect is that it would specifically support the competitiveness of U.S. traded sector industries, for the most R&D-intensive sectors of the U.S. economy tend to be found in traded sectors (as evidenced by the fact that the U.S. manufacturing sector accounts for 72 percent of all private sector R&D spending). As ITIF explains in Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy, the U.S. traded sector comprises those industries and establishments which compete in international marketplaces and whose output is sold at least in part to nonresidents of the nation. Establishments in traded sector industries—such as manufacturing, software, or engineering services—are the core engine of U.S. economic growth and vitality. While non-traded domestic-serving sectors are important, the reality is that the economy will only support as many grocers, dry cleaners, and mom-and-pop pizza parlors as local demand requires.

This is in fact a potential weakness of the immigrant entrepreneurs visa. The startup visa’s impact will be determined by the extent that entrepreneurs are starting businesses in traded vs. non-traded sectors. An entrepreneur using a startup visa to launch a business with a $1 million investment in a non-traded sector such as food service (i.e., groceries or restaurants), dry cleaning, or even accounting is unlikely to have a significant impact in growing U.S. employment because the maximum number of jobs in those sectors will be determined by local demand, and so the effect will merely be to shift employment among local producers, not expand net employment. (This is why the Kauffman Foundation’s report finds that a startup visa program not focused on supporting high-technology or engineering startups would create significantly fewer jobs, perhaps only one-third of their high-end estimate for job creation.) And this is why a research investor’s visa would be so powerful, because its effects would be concentrated almost entirely on the traded sectors of the U.S. economy.

As the Partnership for a New American Economy notes in its report Not Coming to America: Why the U.S Is Falling Behind in the Global Race for Talent, at least nine competitor nations—Australia, Canada, Chile, China, Germany, Ireland, Israel, Singapore, and the United Kingdom—have implemented innovative policies to attract foreign entrepreneurs and investors to their countries as part of a concerted effort to design their nations’ immigration strategies in ways that drive economic and employment growth. These countries “see immigration as an integral part of their national economic strategy—a factor in their prosperity as significant as education and infrastructure.” It’s time the United States does the same. A research investor’s visa would represent an innovative path to U.S. citizenship that at the same time boosts R&D investment and the competitiveness of the U.S. economy.

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