Send Us Your Techies
Financial Times
June 7, 2000

Productivity-enhancing technology and rapid employment growth have driven the U.S. economy in recent years. I’m optimistic that high tech will continue to be an engine of growth. But labor shortages threaten to curb it, especially in crucial high-tech industries.

Last year I made two proposals to ease the labor shortage. The first was to remove the penalty on Social Security recipients who work, which Congress recently did for those over 65. The other proposal was to liberalize immigration rules, especially those affecting high-tech industries. Congress is now considering immigration reform. The most liberal of the proposals capable of passing deserves our support.

If the Cowboys need key players to fill their roster, they’d be foolish to confine their search to Dallas or Texas. It’s just as foolish to limit our high-tech talent search to the United States. The rest of the world worries—and rightly so—about losing their best and brightest. But their brain drain is our brain gain. We should encourage it, not limit it.

An influx of foreign workers is a major reason for faster growth with less inflation. Over the past two decades, immigrants (legal and otherwise) have accounted for at least a quarter of U.S. labor force growth. Now, with unemployment at a 30-year low of 3.9 percent, we are running out of workers. We need immigration reform to help us fill the growing need for skilled high-tech workers.

Besides being a safety valve for our economy, helping check inflation, employment-based immigration compensates for domestic skill mismatches. It also relieves production bottlenecks that limit collateral job creation. A worse alternative for U.S. workers is to force U.S. firms to locate abroad to access key foreign talent. Research at the Dallas Fed shows that access to foreign talent has been particularly important to recent growth in Texas. International immigration to Texas has surpassed domestic in-migration in six of the past nine years.

Let’s put current trends into historical context. A century ago our industrializing economy, with its new mass production technologies, represented a paradigm shift, just as the microprocessor is creating a new paradigm in today’s economy. Back then, trade flowed increasingly between nations in what may have been the first true globalization. With few restrictions on the movement of labor and capital, the widened gaps between countries led to the mass migration of people as well as investment. The U.S. economy needed both to fully exploit the growth potential of the new technology.

Open immigration ended with World War I, which ushered in an era of restricted labor flows that has continued to this day. Today, our immigration policy is based largely on family reunification. We have yet to implement an immigration policy based on our need for workers and sustaining economic growth.

Under the current system, immigrants coming to the United States to work arrive either illegally or under a complicated array of permanent and temporary visas. The permanent-visa program for job-based immigration admits a mere 40,000 workers each year—less than 6 percent of total immigration. Costly barriers to both employers and immigrants prevent one-third of the allotted visas from being used. For example, the Dallas newspaper recently reported on complicated labor certification rules that are preventing the Dallas school district from getting permanent visas for dozens of talented Filipino teachers. Another troublesome restriction is an arbitrary country limit that forces visa applicants from large countries like China and India to wait years for admission even as thousands of visas remain unused.

The failure of the permanent employment visa program has forced employers to turn to temporary worker visas known as H1-Bs. These visas are currently subject to an annual cap of 115,000, far below the need. The Immigration and Naturalization Service hit their H1-B cap in March, more than six months before the end of the fiscal year. Employers must now wait until fiscal year 2001 to hire computer programmers, scientists, doctors and teachers from abroad.

The task at hand is to increase or eliminate the H1-B cap and to move toward permanent reform in our overall immigration policies. We should increase the number of job-based visas, broaden eligibility and simplify regulations, including scrapping unworkable labor certification rules. A better way to ensure both foreign and native workers competitive pay is to issue visas that don’t restrict the recipient to one employer. We should also scrap antiquated country quotas that discriminate against some Asian workers.

We have a unique opportunity to attract skilled labor from around the world—an opportunity that may not last long. Already, U.S. firms, faced with the difficulties of bringing in foreign workers, are exporting much of the work. Either they relocate operations abroad or rely on ‘virtual immigration’ through the Internet. Indian programmers is the usual example. Also, the aging countries of Western Europe face skill mismatches and declining populations. As Germany and Britain launch their own H1-B type programs, the United States will only face more competition for global labor.

Yes, let’s take the world’s tired and poor and huddled masses. They have served us well over the years. They are us. But let’s not reject its engineers, scientists, and programmers either. Closing the doors now would jeopardize America’s position as the global high-tech leader and American universities’ position as the premier research institutions they are today. America is at a crossroads. We can heed protectionists and withdraw. Or we can be open and free. We can let labor and capital flow more freely in pursuit of their most productive use. Our challenge is to remain the land of opportunity. Are we up to it?

About the Author McTeer is president and CEO at the Federal Reserve Bank of Dallas.