Key Takeaways
- When the United States tightened skilled immigration rules in 2017, many high-skilled migrants moved to Canada instead, boosting Canadian firms’ production and exports.
- Although the policy reduced direct job competition for some US workers, international trade weakened these gains by enabling foreign firms to compete more effectively with American companies.
High-skill immigration has become one of the most debated economic policy issues in the United States. Supporters of tighter immigration rules argue that limiting visas protects American workers from foreign competition and raises domestic wages. Critics counter that restricting immigration may push talented workers to other countries, weakening US competitiveness in a global economy.
An examination of what happened when the United States imposed restrictions on high-skill immigration in 2017 can provide some answers. When the United States tightened the rules, many high-skilled migrants redirected their migration to other advanced economies—most notably Canada. This shift had large effects on Canadian firms and workers.
However, these effects did not stop at the Canadian border. Canadian firms—strengthened by skilled migrants—were able to sell cheaper goods and services, increasing competitive pressure on US firms and thereby limiting how much American workers ultimately benefited from the immigration restrictions that were meant to protect them.
High-Skill Immigration Restrictions in 2017
In 2017, the United States tightened eligibility criteria for college-educated H-1B visa applicants, and by the end of 2018 approvals were about 140,000 below the prevailing trend. Meanwhile, denial rates rose sharply, from roughly 6 percent in 2016 to 16 percent in 2018. Immediately following this policy change, Canada experienced a surge in the number of admissions for skilled immigrants. Between 2018 and 2019, Canada admitted approximately seventy-six thousand additional skilled immigrants, about 2 percent of all workers in the high-skill service sector. This episode provides a unique opportunity to study how US immigration policy affects other economies and American workers.
Effects of US Restrictions on High-Skill Immigration to Canada
The increase in US visa denials led many skilled workers to seek opportunities elsewhere. The redirection toward Canada was particularly strong among occupations that traditionally rely heavily on H-1B visas, such as computer science, and among nationalities that frequently apply to work in the United States.
The result was a sizable inflow of highly educated workers into the Canadian labor market within a very short period: Canadian visa applications in 2018 were about 30 percent higher than they would have been in the absence of the US policy change. This influx expanded the number of college-educated workers available to Canadian firms, especially in high-skill service sectors.
Effects of Increased High-Skill Immigration on Canadian Firms
Firms operating in high-skill service sectors—especially those that needed the expertise these immigrants brought—experienced the strongest growth. These firms increased production and sales, with exports accounting for approximately 40 percent of this growth. For instance, for the median-sized firm in the skilled service sector, an additional immigrant hired in 2017‒18 translated into 3.2 percent higher sales in 2018. The rise in production was likely driven by lower labor costs, as workers—both overall and native-born—earned less on average at firms most exposed to the increased number of skilled migrants.
Importantly, this expansion did not come at the expense of native-born employment. A firm hired, on average, about half an additional Canadian-born worker for each new immigrant hire.
Effects of Increased High-Skill Immigration on Canadian Native-Born Workers
The spike in US visa denial rates increased immigration to Canada, especially among computer scientists. The inflow reduced the welfare of Canadian computer scientists, because the arrival of many similarly skilled workers increased competition for the same jobs. In contrast, workers in other occupations benefited as expanding firms needed more employees, improving job opportunities in those roles. When these effects are combined, the overall outcome for Canadian workers was positive: The gains to workers in expanding sectors outweighed the losses among closely competing occupations.
Effects of US Restrictions on American Workers: Winners and Losers
The US immigration restrictions also produced winners and losers among American workers. Occupations that rely heavily on H-1B visas, particularly computer scientists, benefited from reduced competition for jobs. These workers were presumably the American workers targeted for protection by the restrictions. However, some sectors contracted due to the reduction in immigrant labor. American workers in those sectors and in occupations not targeted for protection were negatively impacted. Once these opposing forces are taken into account, the overall effect on American workers’ economic well-being was close to zero.
International Trade Mitigates the Intended Effects of US Immigration Restrictions
International trade plays a crucial role in determining the extent to which immigration restrictions achieve their intended goal. When skilled workers move abroad, they help foreign firms become more productive and competitive. If these firms then export more goods and services to markets that the US tends to serve, this additional competitive pressure harms American companies and workers. As a result, immigration restrictions provide less protection to American workers than they would if the US were not actively engaged in international trade.
In particular, we find that gains for the US workers targeted for protection would have been up to 25 percent larger in the absence of trade. This result indicates that the restrictions may reduce competition between immigrants and American workers in some segments of the US labor market, but competition may still arise through international trade in goods and services produced using immigrant labor.
Note: This research brief is based on the working paper “Third-Country Effects of US Immigration Policy,” by Agostina Brinatti and Xing Guo.
Agostina Brinatti is the Saieh Family Fellow at the Becker Friedman Institute at the University of Chicago.
