The United States is Starved for Talent

By Alex Tabarrok

The US offers a limited number of H1-B visas annually, these are temporary 3-6 year visas that allow firms to hire high-skill workers. In many years, the demand exceeds the supply which is capped at 85,000 and in these years USCIS randomly selects which visas to approve. The random selection is key to a new NBER paper by Dimmock, Huang and Weisbenner. What’s the effect on a firm of getting lucky and wining the lottery?

We find that a firm’s win rate in the H-1B visa lottery is strongly related to the firm’s outcomes over the following three years. Relative to ex ante similar firms that also applied for H-1B visas, firms with higher win rates in the lottery are more likely to receive additional external funding and have an IPO or be acquired. Firms with higher win rates also become more likely to secure funding from high-reputation VCs, and receive more patents and more patent citations. Overall, the results show that access to skilled foreign workers has a strong positive effect on firm-level measures of success.

Overall, getting (approximately) one extra high-skilled worker causes a 23% increase in the probability of a successful IPO within five years (a 1.5 percentage point increase in the baseline probability of 6.6%). That’s a huge effect. Remember, these startups have access to a labor pool of 160 million workers. For most firms, the next best worker can’t be appreciably different than the first-best worker. But for the 2000 or so tech-startups the authors examine, the difference between the world’s best and the US best is huge. Put differently on some margins the US is starved for talent.

Of course, if we play our cards right the world’s best can be the US best.