By: John Dearie and Douglas Holtz-Eakin
On August 2nd, President Trump, along with Senators Tom Cotton (R-AK) and David Purdue (R-GA), released a revised draft of the Reforming American Immigration for a Strong Economy (“RAISE”) Act. The United States needs economic-based immigration reform, but the RAISE Act does not deliver.
Purportedly modelled on the immigration systems of Canada and Australia, the legislation would change the nation’s permanent residency or “green card” system to favor highly-skilled immigrants over reuniting families and granting political asylum. President Trump declared that the new “competitive application process will favor applicants who can speak English, financially support themselves and their families, and demonstrate skills that will contribute to our economy.” Senators Cotton and Purdue insisted the bill will enhance America’s economic competitiveness.
But, as drafted, the legislation is little more than an attempt to dramatically cut legal immigration. The RAISE Act would not increase the number of high-skilled immigrants and, therefore, would do nothing to enhance America’s competitiveness. And by slashing legal immigration, the legislation would imperil U.S. economic growth – and, therefore, the prospects for American workers.
The bill would establish a points-based system for awarding green cards to skilled applicants, but retains the current cap of 140,000 annually. The bill would also dramatically reduce family-based green cards and eliminate the diversity lottery. The net effect, according to Senator Cotton, is that overall immigration would be slashed from the current 1.1 million entrants annually to 600,000 in the first year after enactment, and eventually to just 500,000 annually.
The halving of legal immigration would have a decidedly negative impact on the U.S. economy at a time when the Administration has correctly targeted faster economic growth as its principal domestic policy objective. After expanding at an average annual pace of 3.4 percent for most of the post-World War II era, the U.S. economy has not grown at 3 percent or better on an annual basis since 2005. According to the Congressional Budget Office, U.S. economic growth will likely remain an anemic 2 percent without policy changes.
Economic growth comes from growth in the labor force and/or gains in productivity. In recent years productivity growth has been half the historical average, making population growth especially important to economic growth. And given demographic realities like the retirement of the baby-boom generation and historically low birth rates, immigration has accounted for half of labor force growth in recent years. Were it not for immigration, the United States would be Japan – shrinking in population, economically stagnant, waning in global importance.
According to economic forecasting firm Macroeconomic Advisers, the reduction in immigration mandated by the RAISE Act would reduce economic growth by two to three tenths of a percentage point every year over the next decade. Slower growth means fewer jobs, less opportunity, and stagnant wages – none of which benefits the American worker.
The benefits of robust immigration reach far beyond the impact of simply more people working and consuming. Research shows immigrants to be highly entrepreneurial. To immigrate requires a willingness to pick up one’s life and move, often at great personal and financial risk, to a different country, with a different culture, and often a different language – a profoundly entrepreneurial act.
It should be no surprise, then, that immigrants are twice as likely as native-born Americans to start a business. Though just 15 percent of the population, immigrants account for a quarter of all small businesses. A study by the Partnership for a New American Economy found that 40 percent of Fortune 500 companies were founded by foreign-born entrepreneurs or a child of immigrants. Iconic American companies founded by foreign-born entrepreneurs – and employing millions of Americans – include Intel, Google, Yahoo, eBay, Tesla, YouTube, PayPal, Nvidia, Pfizer, LinkedIn, Levi Strauss, Sun Microsystems, Dow, AT&T, DuPont, and Anheuser-Busch.
Immigrants are also highly innovative – again, a reality that should not surprise. A 2012 study found that foreign-born researchers were involved in more than 75 percent of the nearly 1,500 patents awarded at the nation’s top 10 research universities.
The net result of immigrants’ innovation and entrepreneurship is job creation. This effect is most pronounced for immigrants with advanced degrees from U.S. universities working in science and technology fields. According to a study by the American Enterprise Institute, between 2000 and 2007 each group of 100 foreign-born workers with such backgrounds was associated with 262 additional American jobs.
Senators Cotton and Purdue are correct in asserting that current immigration policy falls far short in attracting immigrants with such backgrounds. Only 15 percent of green cards are issued based on the economic skills of the applicants. Other nations issue as much as 80 percent of their visas for economic reasons, and we favor a shift toward such a framework. Among other strategies necessary to compete in the 21st century, America’s visa system should favor those skills in short supply. Meaningful reform would include:
A new green card category should be created to attract foreign-born graduates in science and technology based on a points system focused on skills, level of education and training, and other key metrics.
Green cards should be granted to foreign-born students who complete a degree from an American college or university who wish to remain in the United States and who meet national security requirements. Under current policy, foreign-born graduates are required to return home, taking their U.S.-acquired human capital with them.
A start-up visa should be created for foreign-born entrepreneurs who want to launch new businesses in America – the United States is the only industrialized nation that does not have such a visa category. A 2013 study by the Ewing Marion Kauffman Foundation concluded that a start-up visa would create between 500,000 and 1.6 million new American jobs over 10 years.
In introducing the RAISE Act, President Trump declared: “[S]truggling American families deserve an immigration system that puts their needs first and that puts America first.”
We agree. An immigration system that truly serves the needs of America and its workers must include a clear and specific effort to attract and retain the right talent, coupled with robust immigration that entails generous and uniquely American acceptance of family members, political refugees, and asylum seekers.
America’s economic future depends on both.
Mr. Dearie is the founder and president of the Center for American Entrepreneurship. Mr. Holtz-Eakin is president of the American Action Forum.