The Gift of Global Talent

William R. Kerr

256 pages, Stanford Business Books, 2018

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America’s ability to attract talented people from around the world is unmatched. In 1975, 1 in every 12 patents was invented by an immigrant. Today, that figure is 1 in every 3.5. This influx has transformed U.S. innovation, leading to many breakthrough discoveries and economic growth, with benefits flowing to natives and immigrants alike.

Yet, America stands on the precipice of giving away the gift that is high-skill immigration. Demographic trends and education advances are already propelling countries like China and India into ever more powerful roles for the 21st century knowledge economy. Rather than raising its own game, the U.S. refuses to fix its broken immigration system, which inefficiently allocates scarce visas and becomes an obstacle to the talented migrants that we depend upon.

Policymakers and business leaders have yet to make the positive, fact-based case for high-skill immigration that assuages the wider public’s concern about letting more people into the country. Moreover, simple reforms can produce greater economic gains and distribute them more fairly across society.

The Gift of Global Talent: How Migration Shapes Business, Economy & Society explores the data underlying these issues and the ideas that should inform the next wave of business practice and government policy around high-skill immigration. We confront the critical question facing America today: Will the U.S. continue to be the world leader in attracting talent, or will it relinquish this role?

This excerpt that follows begins not with a wonderful example of how global talent impacts America, but instead a challenge that we face. Global talent has been an enormous gift to the country, but there are people whose careers and lives are disrupted. It is only by shining light on these challenges that we can improve our system. The second excerpt samples the larger challenges ahead.—William R. Kerr

Leo Perrero, a senior IT worker with 20 years of experience, could not believe what he was hearing. It was October 2014, and his employer, Disney, was hitting record company profits. But Mr. Perrero would be unemployed in 90 days, despite receiving good performance reviews and a recent pay raise. Disney was replacing 250 IT jobs in an Orlando data center with outsourcing contracts. While half of the laid-off workers ultimately found other jobs at Disney, Mr. Perrero had a harder time, going through six months of unemployment before leaving the IT industry to start a new career. Another Disney worker, a 57-year-old with extensive IT experience, was forced into early retirement. The timing was “horrible,” he later said, because his wife had recently had a medical emergency with expensive bills.

Many became outraged that the laid-off workers were forced to train their replacements as a condition for receiving severance pay. The New York Times quoted a worker as saying, “I just couldn’t believe they could fly people in to sit at our desks and take over our jobs exactly.” Worsening the public relations disaster, presidential candidates soon began outdoing each other in condemnation. During one speech, Donald Trump said: “Can you believe that? You get laid off and then they won’t give you your severance pay unless you train the people that are replacing you. I mean, that’s actually demeaning maybe more than anything else.”

The Disney experience is one of many examples connecting global talent flows to the offshore outsourcing of routine technical work from America. Half or more of the largest H-1B employers are foreign outsourcing companies, whose clients include well-known U.S. businesses like Fossil, Pfizer, Harley-Davidson, and Cargill. Infosys alone sponsored four times as many visas as Microsoft and Google combined in 2016. H-1B visas are so important to these outsourcing firms that their stock prices declined as campaign rhetoric intensified and President Trump ultimately took office.

Pulling back temporarily, it is important to build from the ground up on this topic, starting with clear definitions. “Offshoring” refers to transferring work from domestic facilities to an overseas location, while “outsourcing” is defined as a company contracting with a vendor to perform certain tasks. Neither are necessarily evil, and in fact, often can be quite helpful. Many companies rely on outside vendors to provide the food in the cafeteria and clean the building, as specialized vendors can provide better services and lower costs. This division of labor sometimes accomplishes more work with fewer people and can be an important step toward greater productivity. Yet the Disney case also shows the darker side. Disney’s IT workers did not have a say when their bosses made the outsourcing decision, and workers in skilled and technical occupations tend to experience prolonged transitions due to the specialized nature of their work. 

In addition, many of these IT jobs are ultimately going overseas. The economic implications of offshoring are quite debated. One might argue that it makes American firms like Disney more competitive through lower IT costs, which could potentially lead to firm growth. Some policy advocates further contend that even more IT offshore outsourcing is necessary for U.S. competitiveness in the era of digitization. Yet, if corporations simply stockpile the cash savings, it is unlikely that jobs will be restored any time soon. Either way, Mr. Perrero, and others like him, suffer painful dislocation.

Outsourcing and offshoring likely scare American workers more than any other job-related threat. In a 2016 Pew Center poll, more than 80% of respondents thought that overseas outsourcing hurt U.S. workers. The level of concern was similar for trade, with other factors like automation scoring much lower.  Studies also estimate that 25%–50% of current U.S. jobs could be moved abroad in years to come. This fear routinely surfaces in Presidential races, such as Barack Obama’s attacks on Mitt Romney’s career at Bain Capital or John Kerry’s accusations that George W. Bush was weak on offshore outsourcing.

Global talent flows are not “along for the ride” on this one. Indian outsourcing companies make easy targets for H-1B critics, and their staffing practices have landed them the undesirable moniker “body shops.” However, while reforms can better allocate H-1B visas, they won’t push back the offshoring tide. The root incentives to move routine IT tasks abroad are driven by cheap overseas technical workers and reliable data networks. The H-1B visa is a catalyst for the transition, but offshore outsourcing would continue in its absence.

A rather weird story about “Bob” (not his real name) at Verizon illustrates this global pressure. Bob was a computer programmer, seen daily staring diligently at his computer monitor. Then, in 2013, Verizon discovered that Bob was mostly just surfing the Internet. How was he able to do his work, which the company consistently described as the “best in the building?” It turned out that Bob had outsourced his own job to a Chinese firm, paying them less than a fifth of his six-figure Verizon salary. Bob was quickly terminated, and it appears he used the same scam with other employers. You may celebrate or hate Bob, but either way, his story shows how global wage differentials for technical work will pervade corporate decisions, with or without H-1Bs. In some cases, global outsourcing is also just a stepping stone to automation—such as overseas call centers segueing into interactive voice response systems—making the jobs even harder to hold on to.

Scary polls aside, job losses from offshore outsourcing are lower than that from automation or Chinese imports. Exposure mostly shifts American workers into weaker occupations with modest wage declines. The more alarming result is an increase in the likelihood of unemployment by 1%, from a baseline of around 4%. Much like the Disney case, the pain is especially acute for workers who struggle to find jobs, while others adjust with minor consequences.

Beyond IT outsourcing, an ongoing debate centers on the degree to which America should leverage global connections. Commentators, including Intel co-founder Andy Grove, have decried the offshoring of key parts of production, as short-term cost savings may inadvertently weaken the country’s capacity for innovation and scaling new products. Others instead highlight how global production chains allow leading U.S. centers to focus on creative and design work. As this debate continues, it is important to consider the nuanced role of global talent, which both contributes to U.S. capabilities and enables the foreign operations of American companies.

There is no tidy way to close this section. Offshore outsourcing causes pain to displaced workers, including lost homes and broken careers, and global talent helps enable it. But it also yields cheaper products and higher share prices. Unfortunately, the next factor is just as messy, and requires us to first rewind the tape a bit.


Restoring U.S. Leadership

There is a dubious professor tactic of posing “walk-away questions” at the end of class to present big issues that one does not yet have good answers to—dubious because no one is tricked. Many such opportunities abound for global talent flows. To begin, the gains from high-skilled immigration to America mostly go to sponsoring firms, and these paydays can be profound. Eight of the ten most valuable public companies at the start of 2018 are American firms, with Apple, Alphabet/Google, Amazon, and Microsoft leading the list. Facebook is sixth, and the two non-U.S. companies are Alibaba and Tencent. Twenty years ago, in 1997, only six of the top ten companies were American, and the tech presence consisted of just Microsoft and Intel.

Global talent has played an important role in this astonishing ascent of the West Coast tech industry. Surely some of this surplus can be shared more broadly without dampening incentives for new entrepreneurs and innovation. Although individual taxes are painful to pay, having a modestly higher marginal tax rate when earning millions and millions of dollars annually does not seem too awful of a price. And while being careful to avoid the perils of socialism, ideas like creating passive national mutual funds to share market gains deserve consideration. As a thought experiment, what if the hiring of an H-1B worker came with the contribution of 0.0001 percent of the firm’s stock returns over the ensuing five to ten years to a fund for restoring America’s community colleges?

You can add or subtract a zero after the decimal point as you wish, but make the trade-off meaningful. America is awfully good at granting stock options to executives, and claiming a small share of the upside generated from global talent for national use seems reasonable. America’s key national resource—preferential access to new immigrant talent—is currently being handed out for free.

If this comes across as wild-eyed crazy talk to tech executives, then the challenge to them is to provide a more compelling case for global talent flows. Simple statistics like the share of Silicon Valley entrepreneurs or inventors who are immigrants are music to the ears of many of us living in talent clusters, but they are not as convincing in Olathe or Orlando. Middle America holds a decisive vote in much of U.S. policy, and convincing them requires a more extensive playbook than one-sided calls for unlimited H-1B visas. If the tech industry engages in a battle of extremes, “steamroll or be steamrolled,” as one person described it to me, I fear it will often lose the electoral math. The Valley celebrates building products with massive scale that touch millions, and its future depends on “denting the universe” here, too.

More broadly, many workers are being left behind in today’s economy, from those with weaker starting jobs or limited salary growth to those with poor pathways for reengagement when turbulence strikes. While the construction of new educational, labor, and social institutions for the twenty-first century goes well beyond high-skilled immigration—including quick expansions of earned-income tax credits or calls for universal basic income—these issues should be considered together. Superstar firms dominate the Fortune valuation rankings, but they don’t provide the jobs that the major companies of the previous century did, and most jobs at Walmart and Uber are not a foundation for a middle-class life. While heavy labor regulations are not the answer, we face a world where profits often take priority, skills become obsolete quickly, and people are living longer. This environment is rife for class- and age-based struggle, and the economic and political turbulence ahead will be rougher than what we have just experienced. The pace of Moore’s law means that the cumulative computing technology that was in place on November 8, 2016, when Donald Trump won the U.S. presidency, will account for only 25 percent or so of what will exist on November 3, 2020, when the next election occurs.

Although the future of work is quite uncertain, the solution is not to squash the trends that appear to threaten today’s jobs. One story highlights the Luddite fallacy in focusing just on job counts:

Milton Friedman, a Nobel Prize winner in economic sciences, observed a canal project in Asia and asked why the workers had shovels instead of modern tractors and earthmovers. The government bureaucrat responded: “You don’t understand. This is a jobs program.” Friedman remarked: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

How will we manage the future of work? It’s a great walk-away question that deserves our utmost attention and goes well beyond this book. While prior fears of jobless futures have proved unfounded, perhaps this time is different. But even if we don’t know exactly what the jobs of tomorrow will be, I believe they will be found nearby to the talented people leading these advances. We should welcome and harness global talent, not push it away.