US labor productivity is growing at its lowest rate, over an extended period, since 1948. In the face of this multifaceted decline, the Trump Administration’s “New Foundationfor American Greatness” has explicitly targeted GDP growth rates of 3% by 2021 based on a raft of trade, budgetary and investment measures. It has also championed an attempt to “Buy American, Hire American.” Yet any sustained and material increase in US growth rates will need to come from having either more people in the US or greater output per worker, and with promises of tightening both illegal and legal immigration, as well as international foreign student enrollments, accelerated population growth of skilled labor isn’t likely to happen.
That leaves productivity. But as Figure 1 indicates, productivity has been particularly weak post-2007, where it has averaged around 1.2% for almost a decade and well below the average cycle 2.3% rate.
Figure 1: Annual Growth Rates – Productivity, Output and Hours, 1948 to 2016
Moreover, future challenges to sustain high-growth in the US are set to accelerate. As Figure 2 illustrates, annual changes in the resident US population have just begun their decreasing growth trajectory through 2050, when the population will increase by less than 0.5% per year. So unless American resident families suddenly begin to show higher fertility rates and super-size their households, this demographic is locked in. Either immigration is going to fill the gap with more people, or the ability for the US economy to grow will have to depend on currently undiscovered sources of productivity.
Figure 2: Percentage change in US resident population
Compounding this problem is that the US population is aging and estimated to experience declining employment participation rates for both men and women from now through 2060–and will dip below 60% as early as 2030 as the Boomer and X Generations retire in droves. Driving this change will be declining levels of non-hispanic workers in the US economy since the hispanic population proportion of working age in the US actually rises through 2060 owing to its younger demographic profile.
US Employment Participation Rates, Projected through 2060
To say the least, this puts America in a dilemma with respect to immigration and skills. And “Hire American” is not the answer. Some may think that foreign workers are taking American jobs, and that is true and must be addressed in certain pockets of the economy. But the aggregate math is indisputable: we will need foreign workers to occupy, drive and create more jobs, as well as boost US competitiveness in the years ahead.
What kind of high-skilled foreign workers do we need and where do we find them? Part of the answer is staring us in the face: the pool of roughly 1.04 million students currently studying in the US, and future generations who will follow.
A Modest Proposal
What would be the impact on US economic productivity if every foreign student with a Bachelor’s and advanced degree were handed a green card after graduation to either work for a US employer or start a company? And if all the OPT (Optional Practical Training) workers working toward or having US degrees (F1 visa holders) who are contributing to the economy on short-term visas were allowed to convert to permanent work status?
Here are a few things to consider.
First, the size and quality of the foreign student talent pool is non-trivial. In 2016, there were 1.04 million foreign students in the US (5.2% of total enrollments), of which 427,313 are undergraduate and 383,935 are postgraduate. Within the OPT category (eg. foreign students with more the 9 months of college and working in an training or internship structure) there are another 147,498 students. Clearly not all foreign students are stellar academics but many come with superb qualifications which are at least on par with if not exceeding American applicants.
For the sake of argument, let’s assume that 75% of foreign students can add meaningful value to the American economy after graduation and don’t wish to return home. If 300,00 foreign students matriculate every year and we add the 147,000 OPT class workers, this amounts to a mere 372,000 new workers per year to a total US workforce of 89.2 million (defined as workers over 25 years of age). How difficult will this cohort be to absorb? Not very. Moreover many of these workers will be working in start-ups or SMEs, and some creating their own companies and future jobs for others , as had been typical in Silicon Valley and many other cities around the country.
Second, a heavy concentration of STEM majors among foreign students can help narrow high-end skills gaps in the sciences, from industry to applied research, without outsourcing. American industry constantly fumes about the lack of STEM skills, particularly at advanced levels and compared to global competitors. If indeed there is a STEM skills gap–and this is not a settled issue across all industries–tapping foreign students for permanent work could yield immediate and direct results. More pointedly, employing foreign graduates obviates the need to outsource such labor overseas in the first place and retains local economic benefits.
Consider that in 2016 over 20.5% of all foreign students were studying engineering and computer science, and 13.6% studied math, exceeding US student rates. If there is a rational argument that supports sending these foreign students home to work and for the US to give up their first-rate, American-trained skills–those we claim are in shortage and which would benefit the US economy and future productivity–I have yet to read it.
Third, naturalizing foreign graduates to work for US entities would immediately deepen linkages to emerging market consumers which enhance America’s global competitiveness. I’ve written in the past about America’s foreign language crisis across industry and government, and have seen these limitations first hand in many developing countries. American business is global by nature but often lacks the local acumen, networks and language capabilities to penetrate emerging markets across Asia, Latin America and Africa. In this sense, foreign students can provide the “source code” for enhancing US competitiveness in these regions and open new markets. They can also jump-start the application of technologies overseas, particularly within start-ups and early stage companies which often lack global resources.
Fourth, a study-to-immigration program could replace the need for H1Bs over the long-term and create a more stable labor market with predictable pathways. It is axiomatic that short-term, unpredictable talent acquisition is bad for both companies and countries. Establishing pathways to work for highly skilled foreign students would be (a) a fillip for US higher education which could then offer both a world-class education and a pathway to immediate economic participation (and perhaps citizenship); and (b) create opportunities for US companies to plan ahead and reduce their need of H1Bs applications year after year. Why use H1Bs if there is the ability for all foreign students to obtain permanent work visas?
In today’s environment, many would like to take a pitchfork to immigration (but fewer for highly skilled immigration) and legitimate fears exist among workers being replaced by robots, competitors, technologies and foreigners. But at an estimated 0.4% of the US adult labor force, and with 6 million people quitting their jobs every month in the US, a foreign student graduating class integrated immediately into the US labor market would hardly be a negative displacement factor. On the contrary, their quality, background, and skills can enhance US economic and productivity growth with a positive impact on workers across the US. One thing is clear: “Hiring American” will restrict this talent pool and in the maw of US demographic, skills, competitive and productivity pressures, will not at all help the US economy reach its growth aspirations.