The Trouble with State-by-State Analyses of H-1B

A number of researchers on H-1B and related issues rely on state-by-state, or city-by-city, comparisons.  Notable in the genre are my UCD colleague Giovanni Peri, HBS’ Bill Kerr (and his coauthors) and Madeline Zavodny.  The latter, who wrote on H-1B as a member of the Dallas and Atlanta Feds, is currently a professor at Agnes Scott College.

A couple of weeks ago, R. Davis, a Silicon Valley software developer, contacted me regarding Prof. Zavodny’s  2011 research, sponsored by industry groups.   She found:

The data comparing employment among the fifty states and the District of Columbia show that from 2000 to 2007, an additional 100 foreign-born workers in STEM fields with advanced degrees from US universities is associated with an additional 262 jobs among US natives.

Skeptical of those findings, Davis asked my opinion of the study, and exactly how Zavodny had done the analysis.  I’d been critical of the research in the past, but suggested that Davis write to Zavodny and interact with her.  He did so, and she replied instantly, sending him her data and Stata code.   This showed real class on her part, as most researchers would not send their code and data, unless required by law.

Davis set to work.  Stata is an expensive commercial product, but I steered him to the R language, which is both free and very high-quality.  R is the lingua franca of the statistics community, and I’m quite active in the R world.  Davis has now posted his analysis of the Zavodny research, replicating her numbers but also uncovering a fascinating story underlying the data, which I’ll explain shortly.

But first, I wish to emphasize quite strongly that I’ve never thought highly of the “H-1B creates x jobs” kind of analysis, as it suffers from a huge issue of causality.  Zavodny is careful to use the phrase “is associated with,” which is a lot better than Peri’s repeated claims of finding a “causal” relation in his April 2014 report, but let’s be real, folks:  The industry paid for Zavodny’s work, and are surely representing it as causal as they spread it around Capitol Hill.

Association is NOT causality.  Any decent undergraduate who’s worked with data knows that.  In Zavodny’s case, for instance, what would happen if employers were to hire 100 additional U.S. citizens and permanent residents instead of H-1Bs?  (See qualifier coming up.)  Would they not “cause” 262 jobs to be created?  Indeed, given the poorer average quality of the H-1Bs, wouldn’t hiring 100 more Americans produce MORE than 262 new jobs?  (The industry lobbyists, of course, claim there aren’t 100 more Americans available, but research by Salzman, Lowell, Kuehn, Costa,Teitelbaum and so on has pretty much laid those claims to rest, as even some pro-industry economists seem to concede.)   Actually, this was one of my major criticisms of a paper by the Kerrs and Wm. Lincoln.

Worse, region-by-region analyses are notorious for being unreliable and misleading.  For example, there have been numerous studies on capital punishment, both pro and con, based on comparing states that do and do not have capital punishment., in terms of murder rates and so on.  They can’t all be correct.

The other point I wish to make before turning to the Davis analysis is her use of the terms foreign-born and native-born.  In addition to objecting before to the industry lobbyists’ calculated, labored use of the term foreign-born instead of foreign, such an analysis is highly misleading.  There are many STEM students who are foreign-born but are either naturalized U.S. citizens or permanent residents.  So a lot of STEM workers in her “foreign-born” category are actually Americans, and were never H-1Bs or foreign university students.  Zavodny does not make this clear (and likely is unaware of it), and while she has a separate number for H-1Bs (183 instead of 262), again we all know that on the Hill and in the press, people will take “foreign-born” to mean “H-1B.”  Indeed, this is basically the thrust of Zavodny’s Recommendation 3:

Recommendation 1: Prioritize immigration by workers in STEM fields who hold advanced degrees from US institutions.

Well, then, what about the Davis analysis?  I was floored by his figure titled, “Foreign STEM Workers, 2000-2007.”  Look at the states with big H-1B usage, such as California, New York and New Jersey.  The data are basically flat!  Within states, an increase in the number of foreign-born STEM workers with advanced degrees is NOT associated with a trend of increasing STEM employment for natives.  On the contrary, Davis finds that the foreign-born are replacing the natives, something that even Giovanni has written (which may come as a surprise to those who cite his work).

So, basically we have a situation in which, within groups, the graph of mean Y vs. X is flat, yet after aggregation it appears that increases in X are associated with increases in mean Y — Simpson’s Paradox.   In other words, Davis has uncovered a fundamental flaw in Zavodny’s work, which may well apply upon closer inspection to other region-by-region research on H-1B and related issues.

One more point:  While she was in the immigration neighborhood, Zavodny threw in an analysis of the famous “They pay more in taxes than they take in services” claim so popular among advocates of expansive immigration policies:

Highly educated immigrants pay far more in taxes than they receive in benefits. In 2009, the average foreign-born adult with an advanced degree paid over $22,500 in federal, state, and Federal Insurance Contributions Act (FICA, or Social Security and Medicare) taxes, while their families received benefits one-tenth that size through government transfer programs like cash welfare, unemployment benefits, and Medicaid.

To begin with, the whole “net fiscal gain/loss” issue is a can of worms.  There are so many effects, effects of effects and so on, that it really is an impossible question to answer.  I wish Zavodny had not tried to do so.

But now that she has, let’s take a closer look.  First, the obvious problem — she hasn’t factored in the LOST tax revenue resulting from H-1B and related programs.  Cheaper workers pay less in taxes (some actually pay NO income taxes, due to U.S. tax treaties with their home countries); a glut of workers brings down overall wages, again reducing tax revenue; and the displaced American STEM workers are generally making less (after being forced to change fields) than they used to before displacement, and thus making smaller tax contributions as well.

But less obvious is that a large number of immigrant STEM workers consider one of the major benefits of naturalizing the ability to sponsor their elderly parents for immigration, and later put them on welfare — cash payments, Medicaid, subsizied senior housing and so on.  In Silicon Valley, this is absolutely standard among Chinese and Indian immigrants.  I and others have quantified this, such as in my 1996 Senate testimony.

But that’s a side issue.  I recommend that everyone read Davis’ analysis.  In the future, every time you hear about a state-by-state or city-by-city analysis of the wondrous benefits of H-1B, keep that Davis figure in mind.