First-Ever Analysis Reveals US Local Economies Not Maximizing Retention and Economic Potential of Foreign-Born Students

April 14, 2016
A new study from the Chicago Council on Global Affairs shows that a negligible percentage of F-1 student visa holders from other countries remain as employees in local state economies within five years of earning their degrees from U.S. higher education institutions. The report recommends that Congress consider immigration policies that would increase work opportunities in the U.S. for foreign-born students to turn the current squandering of millions of dollars into local tax revenues in many states.

The report, “Opportunity Lost: The Economic Benefit of Retaining Foreign-Born Students in Local Economies,” relies on a first-of-its-kind analysis comparing the percentage of three groups of foreign-born college students – F-1 student visa holders, lawful permanent residents and undocumented students – who stay for up to five years and work in the local economies where they graduated.

“What’s missing in our election-year discourse on immigration is the importance to economic vitality that foreign-born students bring to the U.S. and our local economies,” says study author Dr. Giovanni Peri, professor and chair of the Department of Economics at the University of California, Davis. “These students – many graduating in science, technology, engineering and math (STEM) fields – are the fastest growing immigrant population in the United States, and our analysis shows how much cities and states stand to gain if these students had the option to work in the U.S. after graduation.”

According to the new analysis, the 10 states with the most F-1 visa holders would collectively gain nearly $8.4 billion in wages and $238 million in state tax revenues if those students were employed in the local economies. Further, the 10 states with the most undocumented students stand to gain nearly $1.5 billion in wages and $40 million in state taxes if undocumented students had the same access to employment as documented students.

Estimated Loss of Wages and Income Tax by State, Due to Low Transition Rates of F-1 Visa Holders
Top 10 states in 2014 dollars
  State Wage income lost

 
State Income Tax lost
 
1 California 2,010,546,688 61,952,719
2 New York 1,617,664,000 77,433,201
3 Texas 887,849,600 0
4 Washington 702,837,504 0
5 Illinois 616,624,320 29,210,751
6 Massachusetts 613,043,328 27,460,444
7 Florida 560,862,976 0
8 Minnesota 464,424,416 20,465,232
9 Ohio 462,027,936 10,614,124
10 New Jersey
TOTALS
448,070,112
8,383,950,880
11,267,289
238,403,760
 
Note: For a full description of the analysis, see Giovanni Peri and Gaetano Basso, Foreign-Born College Students: How Much Could They Contribute to the US Economy, February 25, 2016: 10-11, http://giovanniperi.ucdavis.edu/foreign-born-college-students.html
 
Estimated Loss of Wages and Income Tax by State, Due to Low Transition Rates of Undocumented Students
Top 10 states in 2014 dollars
  State Wage income lost

 
State Income Tax lost
 
1 California 632,208,768 19,480,797
2 Texas 263,711,920 0
3 New York 228,584,080 10,941,702
4 Florida 120,121,448 0
5 New Jersey 91,624,832 2,304,022
6 Illinois 75,626,536 3,583,403
7 Arizona 41,419,256 973,249
8 Massachusetts 37,420,940 1,676,220
9 North Carolina 27,492,448 1,302,036
10 Washington
TOTALS
26,050,318
1,544,260,546
0
40,261,429
 
STEM graduates in particular have a strong impact on local economies: A previous study by Dr. Peri and coauthors shows that an increase in college-educated workers in STEM fields by one percentage point of the labor force increases the wages of other college-educated workers by 5 to 6 percent in metropolitan areas. As many as half of advanced STEM degrees in the U.S. are awarded to foreign-born students.

But Congress must expand immigration policies to allow states to employ these educated workers and boost local economies. Specifically, the report recommends that Congress consider:
  • Developing a provisional visa for STEM college graduates, allowing them three years of employment in the U.S. contingent upon job offers from U.S.-based employers after graduation. This would be renewable and could eventually lead to permanent residence status.
  • Allocating H-1B visas (which provide employer-sponsored residency) for STEM graduates by augmenting the current cap of 85,000 H-1B visas with a market-driven number based on employer demand for STEM graduates.
  • Allowing states to add work extensions for F-1 visa holders and incentives to remain in the state in which they receive their education.
  • Facilitating student access to investor visas. Immigrants are 30 percent more likely to form new businesses than their U.S.-born peers. Lowering capital requirements for investment visas would encourage more entrepreneurial graduates to remain and launch businesses in their local economies.
     
While the policy recommendations within the report are largely federal, Dr. Peri notes that “the implications are local.” With millions in revenues at stake, “this student issue has been on the margins of the immigration debate, but it should be in the center.” 

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*State-Specific Data Included: Alaska, Arizona, California, District of Columbia, Florida, Hawaii, Illinois, Kansas, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, Texas, Utah, Washington*
 
About the Authors
Giovanni Peri is professor and chair of the Department of Economics at the University of California, Davis, and research associate of the National Bureau of Economic Research in Cambridge, Massachusetts.  He is editor of the journal Regional Science and Urban Economics and is on the editorial board of several academic journals in economics.  He is the director of the UC Davis Temporary Migration Cluster, an interdisciplinary group doing research on international migrations. His research has focused on the impact of international migrations on labor markets and productivity of the receiving countries and on the determinants of international migrations.

Gaetano Basso is a PhD candidate in economics at University of California, Davis. His research interests are in the field of labor economics and migration. His current research investigates the local labor market effects of oil shocks in the U.S. He has contributed several articles on the Italian labor market and the liberalization of professional services to Italian economic watchdog websites.

Sara McElmurry joined The Chicago Council on Global Affairs in 2014 as assistant director of immigration, where she is responsible for developing and disseminating research related to the need for immigration reform for a strong Midwestern economy.