Much of the current debate over immigration is about what kind of impact immigrants have on jobs and wages for workers born in the United States. Seldom does anyone talk about how immigration leads to a wider variety of better products for the American consumer. We recently conducted a study to shine more light on the matter.
We are economists with a keen interest in growth and innovation and how immigration affects the economy.
What we found is that the more companies hire certain highly skilled and mostly college-educated foreign workers, the more those businesses create new products. In fact, we found that hiring high-skill immigrants have a stronger association with innovation than spending money on research and development.
In other words, more highly educated immigrant workers means more and better products – such as more efficient laptops, TVs and other electronics – on the American marketplace.
The creation of newer, better products
We discovered this by taking a closer look at “product reallocation.”
Economists have long regarded product reallocation as a primary indicator of how innovation affects economic growth. Product reallocation is simply the entry of newer products and exit of older products. For instance, innovation will lead to incremental changes to electronic products like laptops and TVs, which will make them more efficient. When these changes are made, a new model of the product is introduced in the market, and the older, obsolete model is phased out. The Austrian economist Joseph Schumpeter referred to this type of innovation as “creative destruction.”
Creative destruction, like other forms of innovation, drives companies to grow and increases the productivity of the economy as a whole. In addition, other work has shown that immigration is also strongly associated with patenting.