High skilled immigration aids innovation.

Effect on firm outcomes within borders. A burgeoning literature has linked high-skilled immigration to various dimensions of innovation. Some of this work has been done at the individual level; for example, documenting the higher propensity of immigrants to patent (Bernstein et al. 2022; Hunt 2011; Hunt and Gauthier-Loiselle 2010) or the positive impact of skilled immigrants on the innovativeness of their peers (Borjas and Doran 2012; Ganguli 2015; Hunt and Gauthier-Loiselle 2010; Moser, Voena, and Waldinger 2014). Other work has been done at the regional level, like the positive effect of skilled immigrants on local innovation (Akcigit, Grigsby, and Nicholas 2017; Burchardi et al. 2020; Kerr and Lincoln 2010). Less work, until recently, has examined whether these linkages translate to the firm setting: does hiring more skilled immigrants improve firm-level innovation, productivity, and performance?

It is not immediately apparent that, despite immigrant-innovation linkages at the individual and regional levels, hiring more skilled immigrants would lead to positive effects on firm innovation. For example, if skilled immigrants and natives are perfect substitutes and skilled immigrants simply replace the skilled natives within the firm, then the outcomes for the firm will remain the same—indeed, this explanation has been proposed for the null effect of H-1Bs on firm patenting found in Doran, Gelber, and Isen (2022). Hiring skilled immigrants could even have a negative impact on performance if an increase in the immigrant workforce creates conflict and coordination frictions that lower performance or if it reduces knowledge transfer among workers due to language and cultural barriers (Page 2011; Parrotta; Pozzoli, and Pytlikova 2014).

On the other hand, skilled immigrants might improve firm-level innovation and productivity for a variety of reasons. First, if there are shortages of skilled workers, then greater access to skilled immigrants allows firms to increase their stock of human capital at the firm to the optimal level, thus stimulating innovation and productivity, particularly among those firms that were facing skilled labor shortages. Some empirical evidence supports this channel. For example, Beerli et al. (2021) look at labor reforms which allowed more skilled workers to enter Switzerland, and found an increase in the size, productivity, and innovation of these firms, leading to an increase in wages for native-born Swiss skilled workers. Brinatti et al. (2023) find that skill-intensive and high-paying US firms that won the H-1B lottery in 2007 were more likely to expand their scale and productivity, with limited evidence of any negative effects for skilled native-born workers. Ghosh, Mayda, and Ortega (2014) study the effects of a sharp reduction in the gap for H-1B visas in 2004 and find that relaxing the cap would allow a subgroup of firms with intensive research and development to achieve higher scale and productivity. This explanation could explain firm productivity gains to hiring more skilled immigrants regardless of whether such immigrants are the same as or different from skilled natives.

A second explanation, in contrast, posits that skilled immigrants are unique, with different talents, and this difference leads to improved firm innovation. Countries specialize in different technology areas; there is no global pool of technology (Keller 2004). As a result, immigrants are likely to bring a different set of knowledge than their native counterparts. As an illustration of this pattern, Bahar, Choudhury, and Rapoport (2020) find that when migrant inventors come from a country that specializes in certain technologies, they are more likely to patent in the same technology areas in the receiving country. Because the creation of new technical knowledge often involves the novel recombination of known knowledge elements (Fleming 2001; Henderson and Clark 1990), the combination of the knowledge of natives and that of different immigrants could lead to more innovation. Indeed, immigrants can increase the variety of novel ideas and know-how, thus allowing firms to innovate and engage in a greater variety of actions themselves, as illustrated by Choudhury and Kim (2019) in the context of herbal patents; Glennon et al. (2021) in the context of European football; and Moser, Voena, and Waldinger (2014) in the context of Jewish emigres fleeing Nazi Germany.

Third, skilled immigrants may also differ in being generally more talented, having been drawn from the right tail of the talent distribution because of the frictions involved in moving across borders (Borjas 1987; Glennon et al. 2021), or specialized according to their comparative advantages (Mayda, Orefice, and Santoni 2022; Peri and Sparber 2009). Finally, as will be discussed more in the next subsection, skilled immigrants could improve firm productivity through either prompting a change in adopted production techniques or through complementarities between skilled immigrants and technology.