What happened in 2004?
By Scott Sumner
I’m sure that lots of things happened in 2004. For instance, the productivity surge that began in the 1990s ended about 2004.
Here’s something else that happened (from an NBER study):
In response to concerns that foreign workers were taking jobs from Americans, especially in high-technology fields, Congress cut the annual quota on new H-1B visas from 195,000 to 65,000, beginning with fiscal year 2004. A study by Anna Maria Mayda, Francesc Ortega, Giovanni Peri, Kevin Shih, and Chad Sparber, based on data for the fiscal years 2002-09, finds that the reduced cap did not increase the hiring of U.S. workers.
Could this have contributed to the productivity slowdown? Hard to say, but it certainly did not have the impact that Congress expected:
Since the cap was tightened in 2004, firms hired between 20 and 50 percent fewer new H-1B workers than they might have hired had it remained at 195,000 visas per year. The researchers find, however, that the reduced pool of foreign workers did not lead firms to hire more Americans, and conclude that this suggests “low substitutability between native-born and H-1B workers in the same skill groups.”
And here are some other side effects:
The cap led to an increased concentration of India-born workers in computer-related fields. The paper posits that Indians had a leg up on other foreign workers because of long-established labor networks in the software and semiconductor industries.
On the employer side, the lower cap favored larger firms with greater experience navigating the bureaucracy of the visa program and with in-house legal teams that could handle the paperwork.
We keep shooting ourselves in the foot.