Construction Literary Magazine

Fall 2019

No Immigrants, No Jobs

No Immigrants, No Jobs

Photograph via Flickr by Kalense Kid

By most measures, the past five years have been incredibly difficult for the U.S. economy. The recession that began in December 2007 and reached its crescendo in late 2008 and early 2009, with the collapse of financial institutions like Bears Stearns, Lehman Brothers, Washington Mutual, and Merrill Lynch, wiped out millions of jobs. While GDP has returned to and exceeded pre-crisis levels, unemployment has remained stubbornly high, especially for recent graduates.

Yet, there have also been some bright spots in the national economic climate, particularly when examining investment in, and growth of, startup technology companies. Despite the well-publicized problems with the Facebook IPO, and the frozen investment climate of 2008-9, venture capital funding, which allows startup technology firms to expand, has rebounded from its 2003 trough, when, in the wake of the massive economic losses of the dot com bubble, investors were leery of most technology-focused businesses. Even more promising is the rapid growth in the number of tech incubators, which function essentially as laboratories that provide infant technology companies with intensive mentorship, discounted office space, exposure to potential investors, and early-stage funding with which to grow. The 2012 JOBS Act, which allows for ordinary citizens, rather than just accredited investors like investment funds and wealthy, well-connected individuals, to invest in startup and small businesses, is currently being implemented by the SEC, and has the potential to open up a new source of funding for growing firms in technology as well as other sectors.

These are promising developments. Numerous studies show that newer, less established firms are one of the major drivers of job growth in the United States, and in particular are more likely to employ younger workers, which is especially crucial given chronic levels of youth unemployment.

Despite this burst of good news from the American technology sector, there is a looming roadblock to American economic competitiveness, which makes it increasingly likely that the transformative technology firms of the future will be founded in Bangalore or Shanghai rather than New York or Silicon Valley. American immigration policy makes it exceedingly difficult for the next generation of immigrant entrepreneurs to found companies that might assist in getting the nation out of the doldrums.

According to the Partnership for a New American Economy, more than 40 percent of Fortune 500 companies were founded by immigrants or their children. These firms have created more than 10 million jobs, and have generated revenue equal to nearly a third of the U.S. GDP.{{1}} Examples of tech firms with immigrant founders include Google (Sergei Brin), Yahoo (Jerry Yang), Ebay (Pierre Omidyar), Sun Microsystems (Vinod Khosla), and countless others. An examination of patent filings, another key barometer of innovation and technical progress, found that at the top 10 universities for patent filing (schools like MIT, UC Berkeley and Stanford), 76 percent of patents had at least one immigrant filer.

Yet, close scrutiny of data on immigrant entrepreneurship in the technology sector yields some rather troubling results: immigrant entrepreneurship is actually stagnating. A study from the Kaufman Foundation sheds further light on this problem. During the 1980s and ’90s, Silicon Valley saw a meteoric rise in the number of immigrant founders of technology businesses, such that just over half of Silicon Valley companies founded from 1995 to 2005 had at least one immigrant co-founder.{{2}} The role of highly skilled, entrepreneurial immigrants wasn’t just confined to Silicon Valley, however, as a quarter of technology and engineering companies nationwide had at least one immigrant cofounder. Yet, from 2005 to 2012, something rather troubling happened. The portion of technology companies founded, nationwide with at least one immigrant cofounder, fell by an entire percentage point{{3}}. At a minimum, the portion of immigrant-founded tech firms seems to have plateaued. In Silicon Valley, the drop is even more pronounced—a nearly ten percent drop in just a few years’ time.{{4}}

What could be causing a drop in immigrant technology entrepreneurship? Challenges in obtaining permanent immigration status appear to be a major culprit. For the first five years of the early aughts, nearly half of the master’s degrees in engineering, and more than half of the doctoral degrees were obtained by immigrants to the U.S. Many of these graduates founded technology firms.{{5}} But skilled immigrants have a hard time getting permanent visas—a necessity if you want to start your own business.{{6}} A huge hurdle, is that the number of permanent work visas is allocated by country, with no single nation receiving greater than seven percent of the total amount of visas. As a result, graduates and potential employees from China and India (the two countries with the greatest number of skilled workers and graduates in or seeking to enter the United States), are forced to wait the longest to obtain permanent immigrant status, as they compete with thousands of other individuals from their home nations.

Without permanent visas, immigrants find themselves in a state of limbo. Often they must obtain temporary worker visas, or H1-B visas. These are valid for three years, and renewable for up to another three years. In order to obtain them, immigrants must be sponsored by an employer. In the event that an immigrant either leaves a job or is terminated, he or she has a small window of time to find a new employer in the U.S., before a required return to his or her home country.  Such restrictions are crippling to career growth (how can one move forward, after all, if not allowed to flexibly pursue better opportunities with different companies or on one’s own?). They also hinder entrepreneurial endeavors, since it is particularly challenging, if not impossible, for entrepreneurs to work on H1-B visas, which typically need to be sponsored and employed by someone else—a Catch 22 for someone founding his or her own company (not to mention the skepticism with which immigration authorities view these unproven ventures).

The only other option is typically to apply for an EB-1 visa, which is granted to persons with “extraordinary abilities.” Typically, such individuals must be recognized as being “one of a small percentage who have risen to the very top” of their respective fields, and often requires accomplishments like an extensive record of publishing in major scientific journals, and winning major prizes and accolades. While some of these new entrepreneurs may well ascend to such status (witness the immigrant founders of Google and Yahoo), it is unrealistic to expect a student fresh out of graduate school, early in his or her scientific or entrepreneurial career, and seeking to develop an unproven concept under challenging conditions, to meet the extraordinarily high standards required for an EB-1 visa.

As a result of these highly restrictive policies, the United States closes a door to many highly skilled immigrants, educated in significant part with U.S. taxpayer dollars. After all, graduate level research in the sciences, at both public and private universities, is funded in major part thanks to grants from the National Institute of Health (NIH), National Science Foundation (NSF), and other government entities.  Leon Sandler of the Deshpande Center for Technical Innovation at MIT says that about 80 percent of graduate research at his institution is funded with U.S. taxpayer dollars—citizens are essentially subsidizing education for individuals who, due to immigration roadblocks, are increasingly likely to make their professional contributions outside the United States.

Take the story of Asaf Darash, founder of Regpack, a rapidly growing software company based in Silicon Valley, who faces a forced return to his Israeli homeland because of a small legal mistake he made while in incorporating his company, which led to the denial of his request for an H1-B visa. As of late 2012, Regpack had 19 employees and raised $1.5 million dollars in investment funds; simultaneously it was growing at a rapid pace, adding 30 new clients per week.

It is crucial for a company’s founder to be physically present during its growth, and if Mr. Darash is sent back to Israel, the progress he made will likely flounder. Mr. Darash, who holds a doctorate in computer networks from the University of Jerusalem, was partially educated in the United States, having earned a Fulbright Scholarship, which allowed him to complete much of his thesis research at UC Berkeley. Though American taxpayers footed the bill for this highly talented immigrant, the U.S. government wishes to deport him because of a technicality.

Anuraj Baypajee and Prakash Govindan, who both immigrated to the United States from India, earned doctorates in engineering from MIT. As part of their graduate research, Baypajee and Govindan have developed a technology that makes it far easier to dispose of the waste water byproduct generated by fracking, a technique for extracting natural gas and other energy liquids from reservoir rock formations. Their innovation has been so promising that Scientific American named it one of the top 10 world-changing ideas of 2012. Baypajee and Govindan, currently postdoctoral researchers at MIT, have been offered millions of dollars in venture capital funding, and expect to employ at least 100 people.

Yet, visa problems make it increasingly likely that Baypajee and Govindan will be forced to develop their promising ideas somewhere else. Baypajee initially came to the United States on a five-year student visa, which was renewed, but is set to expire again in 2013. Since he is now a postdoctoral researcher, he could also apply for an Optional Practical Training (OPT) student visa extension, which might grant him a bit more time. However, if he has to leave the U.S. for any reason—to visit family in India, or meet with investors and colleagues abroad—he will be denied reentry to the United States, and forced to re-apply. Baypajee’s other options are not much better, since, as the founder of his own company, obtaining an H1-B visa will be difficult, and, despite his considerable accomplishments, the EB-1 visa for individuals of “extraordinary ability” is still rather difficult to obtain. Thus, Govindan and Baypajee might be forced to develop their promising ideas outside of the United States.

Immigration hurdles for promising entrepreneurs might matter less if the United States were the only game in town, when it comes to building tech companies. However, an increasing number of developed and developing nations have begun offering a variety of incentives, from flexible immigration visas, to seed capital for launching ventures, in order to encourage entrepreneurs, many based in the United States, to resettle elsewhere. Chile has begun luring foreign entrepreneurs by offering a $40,000 grant, a one-year residency visa, and assistance in hiring new employees for startups. Canada is also implementing a program to lure talented foreign tech talent. It is now offering permanent residency to any foreign entrepreneurs who are able to secure funding from Canadian investors. The premise, according to officials from the Canadian government, is that if a Canadian investor is willing to invest money in a company, then it is preferable that this company be grown and built inside Canada. Providing visas to entrepreneurs makes this possible. China has also begun offering major financial incentives for top scientists and researchers, especially those originally from China, to relocate from Western nations. Additionally, China, Germany, Singapore, India, and other nations, have all begun developing their own versions of the Chilean and Canadian programs to attract foreign talent.

It is worth noting that at the moment, none of these nations has quite the entrepreneurial atmosphere and willingness to take risks that Silicon Valley offers today. However, as the disclaimer on numerous professional investment prospectuses forebodingly warns, “past performance is no indication of future results.” The reality is that Boston, especially the areas near its Route 128 highway, was once the software hub of the United States. Detroit was at one time the world’s auto manufacturing and development capital, but Japanese car makers eliminated this edge beginning in the 1970s. Silicon Valley, in the absence of an American immigration policy that encourages entrepreneurship and highly skilled immigrants to make this nation home, may well find itself at such a competitive disadvantage, that over the long run, its status as the world’s technology capital vanishes.

Fortunately, there appears to be light at the end of the tunnel. The Senate just passed a comprehensive immigration reform bill, which will nearly double the number of H1-B visas for highly skilled immigrants, allowing numerous tech companies to obtain the talent they need and overcome the shortage of skilled technology workers. This bill also takes the very positive step of exempting those who hold a Ph.D. (in any field) from the yearly H1-B visa caps, and allow them to obtain permanent residency after working in the United States for five years. Senate’s legislation also creates a category with 120,000 visas to be awarded based upon factors like educational achievements and job skills, thus affording more opportunities for highly talented individuals to make a life in and contribute to the nation. Closely tied to this provision is the “Startup Visa” program, which will provide 75,000 visas for immigrants who wish to start a business in the United States, or invest in American businesses. Additionally, the Senate bill also creates a “fast track” process for those who have been waiting for employment-based visas for at least three years.

Despite the numerous merits of the technology-focused and entrepreneur-friendly portions of the Senate immigration bill, it faces a potentially rocky road in the House, where some Republicans, most notably Judiciary Committee chairman Robert Goodlatte (R-VA), have expressed a desire to limit the ability of undocumented immigrants to eventually obtain citizenship, and others, like Speaker John Boehner, have warned that the House intends to write its own bill. While a massive lobbying program is expected to target House Republicans to secure their support for immigration reform, the eventual fate of immigration reform remains uncertain.

Asaf Darash, the Israeli entrepreneur who faces difficulties in obtaining a visa, noted that his company “isn’t going away. The question is, where will it grow?” Prakash Govindan, the Indian engineer whose work at MIT has the potential to revolutionize the energy industry, expressed similar sentiments. “If it doesn’t happen in the U.S., we will make it happen somewhere else.” The broader consequences of entrepreneurs like Darash and Govindan developing their businesses elsewhere should give every American pause. Our economic future will be shaped in large part by whether people like Darash and Govindan are allowed to stay in the United States, creating jobs and generating wealth here, or forced to call another nation home.

[[1]]30 percent[[1]]

[[2]]52 percent[[2]]

[[3]]From 24.3 to 23.4 percent[[3]]

[[4]]43.6 to 52.4[[4]]

[[5]] Around 74 percent of all the immigrants who founded technology firms hold masters or doctoral degrees, and 52 percent of immigrant tech founders obtained advanced degrees in the U.S. and then stayed after graduation, it is clear that there is significant overlap between the pool of those obtaining advanced engineering degrees, and the founders of tech companies.[[5]]

[[6]]In 2006, there were over 500,000 skilled (educated) immigrants waiting to earn permanent work visas to the United States, as well as nearly 260,000 graduate students, and 38,000 immigrants in postdoc training. This means that nearly 800,000 immigrants were competing for just 120,000 permanent visas for skilled workers.[[6]]