Future Directions for Research on Immigration
September 2010
Gordon Hanson, UC San Diego and NBER
Abstract. How does the international migration of talent affect the creation of knowledge, theorganization of work, and the rate of economic growth across nations? In recent decades, muchof the intellectual firepower in research on immigration has been aimed at estimating the impactof the inflow of low skilled foreign labor on the economic well being of native-born workers in
the United States and other high income countries. For the United States, at least, it is not at allclear that low skilled immigration matters very much for national welfare. In coming decades, it
is how the world allocates skilled labor that will help determine which countries advanceeconomically and which do not. Currently, policy makers are setting immigration policy
governing skilled labor flows largely in the dark. The literature is yet to produce compelling
empirical evidence on the costs and benefits of skilled migration for either origin or destination
countries. Future research on immigration should focus on the empirical analysis of how theinflow of skilled foreign labor affects productivity growth and innovation in receiving countries
and how the outflow of talent affects prospects for growth and development in sending countries.
Sound empirical analysis requires exploiting natural experiments or conducting experiments inthe field. Recent events suggest prospects are favorable on both fronts.

Challenge Question
How does the international migration of talent affect the creation of knowledge, the organizationof work, and the rate of economic growth across nations?
1. BackgroundA primary lesson of research on economic growth over the last several decades is that the pace ofeconomic progress in a country is strongly associated with its access to highly skilled labor.
Countries produce skilled labor through educating and training their own workers or byimporting talent from other nations. Virtually all major US corporations in technology fields
search for talent internationally, no longer viewing labor markets as defined by national borders.
American Universities, as well as educational institutions in other advanced countries, have longsought to attract the best and the brightest worldwide. Students see studying abroad as a way to
get their foot in the door of foreign labor markets. The United States, the dominant country inhigher education for the last half of the 20th century, is seeing is market lead erode as othercountries, including China, rapidly improve their educational institutions, introducing more1competition in the global search for skilled labor (Freeman, 2009). Governments, for their part,
often appear ambivalent about skilled immigration, being relatively generous in providing visas
to foreign students but stingy in granting work visas to these students upon graduation or to otherprospective skilled immigrants.
One would think that given the importance of skilled labor for economic growth, research on
immigration would have made skilled labor flows a central focus of study. Alas, this is not thecase. Over the last three decades, there has in fact been an outpouring of research on
immigration, motivated in part by the increase in labor inflows in high income countries. In theUnited States, for instance, the share of foreign born individuals in the population increased from
5% in 1970 to 13% in 2008. While the literature has covered a wide range of topics – including
immigrant assimilation, the education of foreign students, the causes of illegal immigration, andthe political economy of immigration policies – the bulk of intellectual firepower has been aimed
at estimating the impact of low skilled immigration on the economic well being of native-bornworkers in the United States and other high income countries (Hanson, 2010). To be sure, theconsequence of low skilled immigration for wages is an important issue. Because immigration
changes the national supply of labor, economists are predisposed to consider the impact of suchsupply shifts on prices. Since 1980, earnings inequality in the United States has increased
sharply, leading many economists to ask whether the arrival of large numbers of low skilled
foreign workers could be driving changes in the US wage structure. Despite the immense
volume of work, we are far from a consensus on how much immigration matters for the low end
US labor market. Reputable economists can be found on both sides of the issue, with someclaiming that immigration has significant negative effects on wages and others claiming that nosuch effects exist.
For the United States, at least, it is not at all clear that low skilled immigration matters very muchfor national welfare. Whether or not immigration hurts low skilled workers, most economists
agree that the aggregate effects – which involve summing gains to employers and losses toworkers – are small. The academic debate, then, has been primarily about the distributional
consequences of immigration. The impact of immigration on growth has been lost in the mix.
2. Immigration and economic growth
If immigration is going to transform an economy, it must be through its effect on innovation andtotal factor productivity. Once we raise the issue of productivity, the focus immediately shifts
from low skilled to high skilled immigration. Research on economic growth identifies therelative supply of high skilled workers – and in particular those in science and engineering – as akey factor underlying a country’s R&D capacity and thereby its growth rate (Jones, 1995). In theUnited States, foreign born students account for over 40 percent of PhDs awarded in science andengineering. While doubling the supply of illegal immigrants (currently 5% of US workers) in2

the US labor force would likely have at most second order effects on economic growth, doubling
the supply of high skilled immigrants could have a first order effect.
Of course, if the US absorbs more high skilled labor from the rest of the world, countries losing
these workers will be affected. If an engineer leaves, say, Pakistan to work in the United States,
the supply of engineers will change by a larger percentage amount in Pakistan than in the US,
owing to the fact that in Pakistan skilled labor is relatively scarce. That scarcity, however, isn’t
sufficient to yield high wages for Pakistani engineers. The paucity of physical capital, the use ofoutdated technology, and the persistence of weak legal and political institutions hold down theproductivity of high skilled labor in Pakistan, keeping wages low. The development economics
literature has devoted considerable attention to brain drain from developing countries, arriving ata conclusion that any two-handed economist would love. One possibility is that the exodus ofskilled labor hurts Pakistan by directly reducing the supply of human capital. Another possibility
is that the prospect of migrating to the United States is sufficiently attractive that capablestudents in Pakistan obtain more education than they would have absent the opportunity toemigrate, giving Pakistan more human capital on net with emigration than without it (yielding abrain gain). Whether high skilled emigration raises or lowers the stock of human capital indeveloping countries is therefore an empirical question, which the literature has failed to answer.
The literature has produced intriguing evidence in international cross sectional data in support ofthe brain gain hypothesis, but we have not yet seen convincing time series or panel data whichshows that increasing prospects for emigration causes students in a country to increase theirschooling by enough to offset the exodus of talent.
3. The future of immigration research
We are left then with two fundamental and interrelated questions about international labor flows:
if we move one skilled worker from a low income country to the United States, by how muchdoes US productivity growth change and by how much does the low income country’s stock ofhuman capital change? In coming decades, how the world allocates skilled labor will in part
determine which countries advance economically and which do not. Currently, policy makers
are setting immigration policy governing skilled labor flows largely in the dark. The literature is
yet to produce compelling empirical evidence on the costs and benefits of skilled migration for
either origin or destination countries.
How should we go about attempting to understand the impact of international migration ongrowth? Arguably, theory is well ahead of empirical analysis. We have well developed bodiesof theoretical work on how migration affects growth rates internationally. What we lack isempirical analysis that identifies the sign and magnitudes of these effects and the theoreticalmechanisms that account for them. Simply correlating the supply of immigrants or emigrants
with productivity growth or other outcomes is not informative, as the migration of labor is not3

random. Labor moves across borders in response to economic incentives, leaving countries withpoor growth and moving to ones with better prospects.
Rigorous empirical analysis requires sound experimental design, either by exploiting naturalexperiments in the data or by conducting experiments in the field. Regarding naturalexperiments, environmental shocks (eg, earthquakes in Haiti, tsunamis in Indonesia, floods inPakistan) and geopolitical events (eg, the events of 9/11) disrupt either the outflow of labor fromsending countries or the inflow of labor in receiving countries, providing opportunities for causal
identification of migration’s impacts on productivity growth in one set of countries or the other(the receiving countries in the first case; the sending countries in the second). One or two recent
papers exploit such an approach. Field experiments would require getting governments to agree
to randomize how they allocate visas across individuals, companies, countries, and/or time.
Such randomization may not be as farfetched as it sounds. Currently, the United States alreadyallocates about five percent of its permanent residence visas through an annual lottery. Andwhen applications for temporary work visas for high skilled labor (H-1B visas) exceed theallocated quota in a given year, the entire stock of visas is allocated through a lottery among
applicants (as occurred in 2007 and 2008). Simply giving researchers access to data on theserandomization episodes would advance migration research immensely. Further, given the desire
for knowledge among government officials regarding how immigration affects growth, one
would expect at least some high income countries to be willing to subject their immigration
policies to rigorous analysis involving at least some degree of randomization.
4. What disciplines would be involved?
Economists come first to mind, as scholars in the discipline have spent a great deal of time
thinking about the determinants of economic growth and the consequences of internationalmigration. However, the set of questions involved extends well beyond the economics disciplineand even beyond the social sciences. For political scientists, there are the questions of what
determines political support for high skilled immigration, why countries more open tointernational trade than to international labor flows (which has received some attention in therecent literature), and how the exodus of skilled labor affects decisions governing economic
policy in origin countries. For sociologists, the questions include how combining native andforeign workers within a business affects the organization of firms, how corporations manage
innovation across borders, how international labor markets are organized, and the manner inwhich migration affects the international transmission of ideas. And for engineers, there arequestions about how combining native-born and foreign workers, either in one country or in
multiple countries affects the optimal organization of production processes both within andacross firms.

4

5. Closing thoughts
The political debate on immigration in the United States, as in other advanced countries, remains
mired in tired invective about the adverse consequences of admitting individuals from poor
countries. While the popular discussion may occasionally make for entertaining political theatre,
it is poor guide for rigorous analysis of international migration. The literature has misallocatedtime and energy on the low skilled end of the spectrum, where the aggregate welfare
consequences for the United States are likely to be small. It is time that empirical researchshifted towards the consequences of skilled labor flows for economic growth.

References
Freeman, Richard. 2009. “What Does Global Expansion of Higher Education Mean for theUS?” NBER Working Paper No. 14962.
Hanson, Gordon. 2010. “The Economic Consequences of International Migraiton.” Annual
Review of Economics, 1: 179-208.
Jones, Charles. 1995. “R&D Based Models of Economic Growth.” Journal of PoliticalEconomy, 103(4): 759-784.

5