Human Capital, Innovation and High-Skilled Immigration – A Discussion with Economics Professor Giovanni Peri

By TAP Staff Blogger

Posted on June 20, 2013


TAP recently sat down with Giovanni Peri, professor of economics at the University of California, Davis, to discuss his interest in economic growth, how the United States’ stance on technological innovation compares abroad, and his thoughts on the U.S. Senate’s pending high-skilled immigration bill.

TAP: How did you end up as a professor of economics at the University of California, Davis?

GIOVANNI PERI: I earned my Ph.D. in Economics at UC Berkeley. As a graduate student I became intrigued and fascinated by some of the big questions facing modern economies and societies: What drives economic development of countries? What explains the success of cities? What are the engines of innovation and growth? I loved the pragmatic and data-based approach of applied growth economists to analyze these very important issues. I also loved California and the incredible diversity of its academic environment, its stimulating universities, and the open and diverse perspective of its people. Most of all, I was fascinated by its ability to continuously reinvent itself. I loved the fact that a large share of innovation in science, technology, academia, entertainment, agriculture, was (and is) happening in this state. And I also met my wife here! As soon as I had an opportunity to be a faculty member at UC Davis (it happened in 2001), I took it immediately. I am still in love with California, its people, and the great environment of the University of California.

TAP: What originally sparked your interest in economic growth and innovation as it relates to human capital?

PERI: Economic growth is a fundamentally important and fascinating field. What makes countries and their citizens economically successful over the years and the decades? Why are some countries able to set in motion mechanisms for economic growth and other countries are stuck for very long periods (and some still are) in underdevelopment? When one begins thinking about these issues, as Nobel Laureate Robert Lucas said, it is hard to think about anything else. When I was a graduate student, the powerful and influential theories of “endogenous economic growth,” were spreading among economists. Paul Romer (now at Stanford), one of the main catalysts of these theories was my advisor at UC Berkeley. Researchers were beginning to understand how innovation, spurred by ingenuity and human capital, was possibly the main driver of economic growth in the U.S. and in the world. My interest was particularly in how agglomeration of human capital, such as those in metropolitan areas, might generate self-sustaining growth and may be drivers of productivity and further productive agglomerations.

TAP: As a dual citizen of the U.S. and Italy, what is the biggest contrast you see in each country’s stance on technological innovation?

PERI: For a person who studies innovation and the role higher education plays in the growing economy, the U.S. is an unparalleled model in the world. The U.S. produces the largest share of innovation in the world, has one of the most educated labor forces of any country, has the top universities, and attracts the largest number of international scientists and engineers. The only country vaguely comparable is the U.K. Continental Europe is certainly lagging behind. The U.S. system’s strength comes from a combination of factors. The main factors are its large network of excellent universities, its reliance on meritocracy and competition in science and in academia, the close interaction between private and public research, and its openness to good ideas, whoever is bringing them. In Europe, and even more in Italy, things are different; and in this field they are lagging behind. Most universities are public and not very connected with private research; scientific and academic careers rely less on merit and more on seniority; companies and laboratories are less open to outsiders; and, the mentality is more hierarchical and less open to diversity. While Europeans often pay lip service to the importance of innovation, and certainly they boast niches of excellence especially in some theoretical fields, they do not have the dynamic and competitive system of public and private innovation that the U.S. has.

TAP: Earlier this year you published a study with Chad Sparber (Colgate University) and Kevin Shih (UC, Davis) called “STEM Workers, H1B Visas and Productivity in U.S. Cities.” What was your main takeaway about the effect of foreign-born workers on productivity in the U.S.?

PERI: The U.S. has the extraordinary ability of attracting the best and brightest scientists and engineers from all over the world. Strict quotas of immigration laws (especially on the H-1B visas) have limited this capability. Using Census data from 1990 to 2010 and relative to 219 U.S. metropolitan areas, our study analyzes the impact of the inflow of foreign scientists and engineers on these metropolitan economies. In particular, we study the effects on the wage and employment of native workers and on their overall productivity. By using difference in the inflows across cities, driven by differences in nationality of the H-1B visa workers, we find that foreign scientists and engineers contributed very significantly to the wage and productivity growth of native workers. With their role in innovation and in high tech local firms, foreign scientists and engineers contributed about one fourth of the overall productivity growth in U.S. cities over the two decades that we studied. All American workers, and especially ones who have been college educated are more productive and wealthier as a consequence of the contributions of foreign scientists. This is a very important long-term effect of high-skilled immigration.

TAP: What has been your most important finding as a research associate for the National Bureau of Economic Research (NBER)?

PERI: My most relevant contribution while doing research as an NBER associate has been a sequence of papers written with several coauthors and published between 2006 and 2013. In these papers, I analyze the effect of immigrants on the receiving economies, taking a new perspective. In these applied studies, based on U.S. census data, and also on European data, I move beyond the perspective that immigrants are simply an increase in the “supply” of workers. I analyze how their contribution, their skills and abilities differ from those of natives, and how this affects the response of firms to more immigrants, how it changes their productivity, and the perspectives for U.S. workers.

In this line of research I found evidence that immigrants, both those with manual skills/low education and the highly educated scientists and engineers, generate a response of U.S. firms that consists in expanding and investing more to take advantage of their abilities. At the same time, native workers are stimulated to take jobs that complement immigrant abilities. As a consequence, immigrants do not pose a threat of “taking jobs away” because they encourage specialization, job upgrading of natives. They help firms cut their costs and stimulate investment and growth and are usually associated with higher productivity and more jobs. Thinking of immigrants and their different skills as creating options and opportunities for firms, stimulating mobility and careers of natives, and encouraging innovation implies that immigration can be an important engine of economic growth. This line of analysis, together with the availability of new datasets on individual and firms, are providing an important understanding of the dynamic mechanisms through which local and national economies absorb immigrants and grow as a consequence.

TAP: What are your thoughts on the Senate’s current proposed legislation on immigration reform – and how would passing this legislation particularly affect high-skilled workers?

PERI: The bill is not perfect, and it is certainly the result of compromises among very different views. Nevertheless, it takes some very important steps in the right direction, and it is worth our support. It brings immigration laws more in line with the economic reality of immigration. It allows a path to legal status to undocumented immigrants who have been, for the most part, working and living in the U.S. for the last ten years. It is, by no means, an amnesty as it requires payment of fees and taxes and it puts the undocumented on a track that will take at least 12 years before they can become a resident. Still, the bill allows them to work, improve their labor market situation and it brings them out of the shadows. The bill also increases the number of highly-skilled temporary immigrants (H-1B) with a likely positive effect on high tech and productivity. It also allows a new visa for workers in less skilled jobs (W visa). This would allow an inflow of legal foreign labor in (mainly manual) jobs in sectors such as construction, agriculture and hospitality for which demand is high and supply from natives, at current wages, is low. Finally, the bill allows the number of immigrants to increase when the economy is in a boom and to decrease in recession, allowing economic conditions to affect labor immigration. These changes would serve the U.S. economy, its companies and its workers, much better than the current system.

TAP: What will be the topic of your next research paper and why?

PERI: I have recently started working with some graduate students on the importance of the choice of major in college, as determinant of long-run labor market outcomes of individuals (wages and career). In particular I have started analyzing the interesting fact that while women out-perform men in high schools test scores, in completion rates and in their college enrollment rates, they choose science, engineering and math majors in college much less frequently than men. This fact alone explains one third of the wage differential between men and women in the labor market. Understanding the reasons for these different choices can be very important in understanding and reducing the gender gap in wages. Is it due to different preferences? Is it because non-science majors allow access to more flexible jobs? Is it because of peer pressure? Do women follow their abilities? Or do they follow gender stereotypes? In the past two years we have collected and organized a large dataset on high school performance, college performance and choice, labor market performances and family background of 30,000 Italian students. These data allow us to follow students over 20 years from high school to labor markets and we will use those to test how academic quality, family pressures, gender stereotypes, peer pressure and other characteristics affect the college major choice of these individuals.

TAP: What movie are you most excited to see this summer and why?

PERI: My three kids and I are looking forward to “Despicable Me 2.” I loved the first one. The story of “Gru” (the main character and villain) whose heart is softened by three adorable orphans who he adopts is funny and endearing. In particular, I found those little yellow minions who work for Gru to be hysterical. I am looking forward to their gigs and their antics. While they are supposed to be workers for an evil master, they really are goofy, funny and sometimes even affectionate and caring. I laughed a lot at their obscure (but oddly understandable) language and my children sometimes imitate them just to be funny.