What's wrong with this number?

"In the 2006-7 school year ... international students’ net contribution to the United States economy was nearly $14.5 billion," reports the New York Times, citing a just-released study by the Institute of International Education. The IIE report itself states: "International students contribute approximately $14.5 billion dollars to the U.S. economy, through their expenditure on tuition and living expenses." Apparently, two-thirds of this spending is financed by students' own families and their home governments. 

As anyone with a modicum of economics training should understand, this number represents a net contribution to the U.S. economy only in the absurd limiting case in which the opportunity cost of resources used in providing U.S. education services to foreign students is ZERO.  I bet my Dean at Harvard--which is ranked #9 among top hosts of foreign students--can vouch that he pays me real money.

And I won't even get into the complications raised by the presence of foreign faculty and teaching assistants providing these services...

This kind of confusion--essentially the mercantilist fallacy that takes exports as good in and of themselves--is as common as it is infuriating. Last week a student in my trade course told me that he was going to write a paper that analyzed the impact of some free-trade agreement on the exports of his country. When I asked him why this is an interesting and important question, he replied "exports are good, as they raise income."  After a whole year of economics and a half-semester of my trade course, we economics faculty had still not managed to purge this fallacy from the student's mind.

Here are some of the questions an economist would ask in thinking about the net contribution of foreign students to the U.S. economy. Do they allow universities to charge higher prices for their services (a terms of trade benefit)? Do they generate knowledge spillovers for American students? Do they enable the U.S. economy to free ride on the costs of the primary and secondary education these students receive in their home economies?

None of these questions are answered by the $14.5 billion figure.

Comments

[Minivet]

Imagine if we could do the same with immigration! Imagine the hundreds of billions of dollars illegal immigrants spend on rent, food, goods. The case for more immigration would look impregnable then.

[Peter]

I understand why it is an error to look at only one side of the ledger, but the popular view is nevertheless based on an insight -- the Keynesian insight of effective demand. Without foreign student enrollment in your program, Dani, you might not have a job. (OK, not you, but maybe the marginal lecturer.)

The fact is, there has yet to be a fully worked-out Keynesian model of international trade, the sort of model hinted at by Joan Robinson. And in the meantime, trade theory sidesteps considerations of effective demand. (Note: I am not referring to open economy macro, which does take this up, but to micro-based trade theory.)

[Per Kurowski]

Another question an economist would make is of course… do the foreign students get their money worth for those $14.5 billion?

Of course Dani Rodrick would give us an unqualified YES… but then he has a conflict of interest. Ask me and I would have to say…I haven’t the foggiest!

[OS]

The anecdote about the confused student raises the issue of pedagogical techniques. With many students (especially those who self-selected not to do a PhD), you may have more success hammering a point home using a case study approach rather than plowing through Dixit/Norman.

[robertdfeinman]

Talk to the profs in the physics department and see what their take on foreign students is.

As for students missing the forest and seeing the trees, Robert H. Frank discussed this in his recent book: "The Economic Naturalist". Perhaps you can adapt some of his pedagogical ideas to your situation.

[John V]

Dr. Rodrik,

After a whole year of economics and a half-semester of my trade course, we economics faculty had still not managed to purge this fallacy from the student's mind.

I will humbly suggest that the reason for this is because the protectionist mind set is alive and well in the human mind.

As much as you may think otherwise, I think economists are far from united in making "the process of trade" as unequivocally clear as possible.

When any of you not pick free trade, the message is not taken by the anti-trade groups as you intend.

Your "minor concerns" or specific quibbles" get inflated into "Even economists know trade has serious problems and can't work right!".

My advice is for economists to save their little trade spats for private conversation and make your main position very, very clear.

One way is to not argue "Free traders"....those heartless fundies who you quietly agree with about 90-95%.

[paine]

peter :

come on
even homer slept
thru a verse or three
eh ??

so maybe dani
might have relied
too much
on a full employment assumption here
and
maybe missed
a "real " multiplier
or two

big diff !!!!

the points well taken
if not flawlesly executed

if you ain't
ultimately a one worlder
then i say
the burden of proof
oughta be on you
why you ain't

[paine]

john v

you're confusing me

are you suggesting dani turn policy analysis
into fast track
full court press
open trade agit prop ???

for the better
long run good
of the unwashed
and unthinking
or at least
the better good
of the plebs
childrens' children

[John V]

Paine,

First of all, why do you write like you're writing a poem or something?

Secondly, sorry if I'm being vague.

My point is just that well-meaning economists who have very specific concerns about free trade should be very careful with how they convey those concerns.

People who are predisposed to mistrust free trade are very quick to reinforce their own biases when economists share concerns. They feel vindicated. Little do they know, the economists they're looking to affirm their beliefs do not really agree with them in the final analysis.

Someone like Rodrik is very quick to find possible porblems with free trade. Fine. But what he isn't making abundantly clear is that he is an unabashed free-trading fundy compared to the average voter.

The difference in details and specifics he would have with his more libertarian colleagues is then overly magnified while the enormously vast gulf between him and the anti-free trade crowd is minimized.

[Peter]

I should probably clarify my view, since it is open to misunderstanding:

I am not an economic nationalist, much less a supporter of mercantilism. I don't put any greater weight on the welfare of the people of one country over another. Pointing out the Keynesian side of trade is a positive, not normative, enterprise.

The competition over demand stimulus from trade is a major constituent of its political economy. Mercantilist policy, as much as we may dislike it, is not simply a big cognitive error. And this is also the competition that can generate a race to the bottom in social standards under some circumstances. (A bias to the bottom would be more descriptive.)

It doesn't help to pretend that trade is only positive sum and to ignore the real conflict over global demand.

[paine]

peter

i share your perspective
and agree completely

"Mercantilist policy
... is not simply a big cognitive error "

unfettered trade
guided by private profits
and
abetted by "sponsoring state "policy leads to
a race to the bottom
in tax rates
green regulations
and most of all
'umble folks wage rates

not to mention
the accelerated removal
of most traditional means of subsistence
for those pre no skill types
we reds call
the toiling masses

[paine]

john v

its all about
"specific concerns"
that's just the problem
specific private gain thru trade concerns

not global betterment

and there is a very ugly
bunch of invisible hands
at work here

no
cloaking device
should be allowed to go unchallenged
we oughta uncover the harm
to the earthly majority
is involved
when we let these
covered up hands
run the deals according to their "specific concerns "

no one need not be
a bloody lunatic
lkie comrade pol pot
to believe
no cross border trade at all
might sometimes
be better for
certain parts of the earth
then
cross border trade
conducted by the "wrong " hands
governed by the wrong specific concerns

two examples

where's our
world improving
utter fairness enhancing
post civil war
pre great war
glorious
lady liberty
60 year all out immigration policy gone ???

i'd like it back

i'd like 200 million more american citizens in 60 years

that would
DIRECTLY
help little folks everywhere right ??
ask dani

ya like u
i'm no nationalist

and as to
the wage rates
of my
beloved
"native" wage classers
they need to fight the real
source of low wages
and it ain't immigrants

scared of job loss ??

unemployment
is a function
of macro management

there is no
maximum lump of
job hours ...right ???

on the other hand

why are we de industrialize amerika
at a policy induced accelerated rate ???

as much as anything
thru a very easily rectified
too high
north v south dollar

simple two ball drop answer

we exported
the jobs instead
of importing the workers
and either way wage rates
here drop from otherwise

but
my way

the immigrants capture
the bigger hunch of the gain
not the interborder profiteer jumpers

[mik]

"I don't put any greater weight on the welfare of the people of one country over another. "

Why not ask people of those other countries to help to pay for your police department and local hospital?

Why not ask politicians you find sympatico to declare honestly and openly that they don't give a flying intercourse if a US worker gets a raise or a Chinese one.

Perhaps your ideas will win in open and honest debate.

[alex]

John V: "One way is to not argue "Free traders"....those heartless fundies who you quietly agree with about 90-95%."

In other words you favor indoctrination over education, with only an inner circle privy to the dirty details. Perhaps a loyalty oath should be required before anyone is permitted to study said details, lest the great unwashed masses hurt their little heads trying to understand what the elite (such as yourself) tell them is good for them.

[John V]

No alex,

god for bid you attempt to read what I wrote in its intended spirit and not respond with some over-the-top bombastic straw man.

And even though I think you know what I meant but are pretending you didn't for ideological reasons, I'll try and explain:

If the opinion of Free Trade by "Free Traders" can be qualified as a "9.5", them someone like Rodrik lies somewhere around "8.5". That "1.0" differential is overplayed and misunderstood as a huge gap by those whose estimation of Free Trade is probably more around "3.5" or "5.0" at best.

The problem is that so much fuss is made between Rodrik's 8.5 and, say, Tyler Cowen's 9.5 that many in the 3 to 5 range look for some vindication through Rodrik in this detailed little fuss with someone like Cowen. In doing so, the huge gap between Rodrik and those who seek vindication in his criticisms fail to see how much agreement and uniformity there actually is between Rodrik and Cowen.

An end result of this, I posit, is an emboldening by a "3.5" protectionist-minded activist or journalist to give anti-trade arguments more validation than they have.

And why? Again, because Rodrik's 1 point differential with Cowen is interpreted as significant while the truly significant gap between both of these economists and those in the 3.5 range is overlooked and minimized or maybe misunderstood.

Therefore, I think Rodrik should make his 5 point gap with these "unwashed masses", as you say, abundantly clear before devoting so much energy to his much smaller gap with the likes of Cowen.

This way, this disagreement would seen in its proper context and proportion to the vast amount of agreement that totally and utterly dwarfs it.

Then maybe Rodrik won't wonder why he can't teach trade fallacies out of some his students like he explains in his blog post.

[John V]

No alex,

god for bid you attempt to read what I wrote in its intended spirit and not respond with some over-the-top bombastic straw man.

And even though I think you know what I meant but are pretending you didn't for ideological reasons, I'll try and explain:

If the opinion of Free Trade by "Free Traders" can be qualified as a "9.5", them someone like Rodrik lies somewhere around "8.5". That "1.0" differential is overplayed and misunderstood as a huge gap by those whose estimation of Free Trade is probably more around "3.5" or "5.0" at best.

The problem is that so much fuss is made between Rodrik's 8.5 and, say, Tyler Cowen's 9.5 that many in the 3 to 5 range look for some vindication through Rodrik in this detailed little fuss with someone like Cowen. In doing so, the huge gap between Rodrik and those who seek vindication in his criticisms fail to see how much agreement and uniformity there actually is between Rodrik and Cowen.

An end result of this, I posit, is an emboldening by a "3.5" protectionist-minded activist or journalist to give anti-trade arguments more validation than they have.

And why? Again, because Rodrik's 1 point differential with Cowen is interpreted as significant while the truly significant gap between both of these economists and those in the 3.5 range is overlooked and minimized or maybe misunderstood.

Therefore, I think Rodrik should make his 5 point gap with these "unwashed masses", as you say, abundantly clear before devoting so much energy to his much smaller gap with the likes of Cowen.

This way, this disagreement would seen in its proper context and proportion to the vast amount of agreement that totally and utterly dwarfs it.

Then maybe Rodrik won't wonder why he can't teach trade fallacies out of some his students like he explains in his blog post.

[Dani Rodrik]

John V

Please read this post from some time back: http://rodrik.typepad.com/dani_rodriks_weblog/2007/05/are_there_barba.html

[John V]

Dr. Rodrik,

Thank you for the link. Actually, I feel a little better knowing my general stance is shared by non-libertarian economists who know far more than me who basically said the same thing.

I do appreciate your nuanced position. It's one of the reasons I make it a point to read your blog along with the likes of MR and others.

That said, I can't help but feel that the matter you discuss in that link still falls within that "1.0 differential" I mentioned above. The arguments and objections of the "barbarians", as that unnamed economist called them, are nowhere near as thoughtful and specific and within the realm of plausibilty as yours.

[paine]

"anyone who thinks that "free-trade arguments do not get occasionally hijacked by what I call market-access rent-seekers must have been asleep during the past quarter century."

these words of dani's
bring out
the barbarian in me

"occasionally hijacked "
of course morphs
in my slathering drippy
mere brain stem of a mind
into

" demiurgically sponsored "

[paine]

" The arguments and objections of the "barbarians"... are nowhere near as thoughtful and specific and within the realm of plausibilty as yours. "

i resemble that remark
herr V

[paine]

"have you senator paine
at long last become
a mere troll ???"

[StevenT]

I'm an international student studying at a public U in Cali and i must say that we do contribute greatly to the higher education in california. Other than all the expenses listed in the article, we helped in the subsidy of local students owing to us paying a lot more than the local students. I once talked to one professor who was incharged of the enrollment, and was informed that for every two international student present, one local student's education was subsidized. Furthurmore, a big portion of international students pick a technical field as their major. With schools strapped on cash and tech companies not having enough qualified locals to hire, we do indeed bring much more than just the $14.5 billion dollars.

[alex]

StevenT: "tech companies not having enough qualified locals to hire"

What objective evidence is there for this statement?

[StevenT]

It meant that less and less Americans are going into technology fields and they need students with that knowledge to fill the gap. Till now there are about 10% vacancy positions that are needed to be filled. Owing to the redistribution of labor in the United States from manufactoring to service and trade, more and more locals are going into finance, accounting, economics, law etc; the hiring gap for tech workers gets widen. Technology is an asset to the United States and the country is slowly losing it with the lack of skilled workers. This is where international students fill the gap.

[alex]

StevenT: It meant that less and less Americans are going into technology fields and they need students with that knowledge to fill the gap.

There is no gap. Fewer Americans are going into those fields because there are fewer jobs. American students are simply making rational decisions.

"Till now there are about 10% vacancy positions that are needed to be filled."

According to whom, the employers? It's best to be skeptical of such unverifiable claims from parties that have a vested interest in increasing the supply in order to reduce prices.

"Technology is an asset to the United States and the country is slowly losing it with the lack of skilled workers."

I agree that technology is an asset, but the reason we're loosing skilled workers is a lack of demand.

The sign of a shortage is increasing price. As Ben Bernanke observed the other day, the pay in such fields has not been rising faster than the pay in other professions, ergo there is no shortage. In contrast to the self-serving and unverifiable claims of employers, the salary data can be verified from objective sources such as BLS data.

[StevenT]

This is where i disagree with you Alex. There are no fewer jobs in the tech sector. Just fewer choices of workers. Take a look at Silicon Valley and you'll see job opportunities everywhere. Companies are hiring like crazy for skilled workers. If you actually meet students from India, they are investing everything they got so that they would have a chance to study and work here because the job is there; just need to right individual to fill the gap.

The 10% vacancy has been a problem in the tech sector these past few years. This is one reason why the tech companies are urging Congress to permit more H1B visa so they could hire more international students. The demand is there, just not the right supply.

It's a cultural difference, and that's where microeconomic takes place. Working in the tech sector means studying something much tougher, a choice that majority of americans refuse to take. Proficiency of science and math in this country has been dropping drastically, so how could anyone expect those job vacancy to be filled up. Take a look at the survey for engineering classes, the dropout/major change rate is high.

The pay in the tech sector has always been consistent. About an average of 80-100k annually and 60-70k as your starting pay after the trial period. The CEO of Intel once said, "Why would anyone wants to go into engineering when you have to double your work for half the salary and half the chance to get promoted?"

Technology is a irreplaceble asset. What makes America to be a super power is due to the many innovations from technology. But that has changed at other countries has offered better incentives for R&D. This is the reason why you don't see a payhike in the tech field which distort reality. The federal government pays for pharmaceutical research and those companies charged the public for the research, the federal government gives exxon mobil 4 billion to discover new oil sourcesand those funds turned to dividends, when finance companies lose money (hedge fund crises), the government bail them out ; meanwhile no such incentives are offered to tech companies. If a research failed, then too bad. So you should understand why there's no 'payhike' despite the lack of supply.

[alex]

StevenT: "There are no fewer jobs in the tech sector. Just fewer choices of workers."

Unchanged demand + decreased supply = price increase. Hasn't happened, hence no shortage.

"The CEO of Intel once said, 'Why would anyone wants to go into engineering when you have to double your work for half the salary and half the chance to get promoted?'"

What was his point? Was he using it to explain the supposed shortage of engineers?

Let me make an assumption: the CEO of an enormous for-profit corporation would at least claim to believe in a market based economic system. He also knows enough business and economics to realize that supply curves slope upwards and demand curves slope downwards. Hence an actual shortage would be accompanied by a price increase. Hasn't happened.

Perhaps the CEO is pleading that, due to the dire circumstances of his company and its unique value to America, it should be exempted from the market based system for paying its employees. One wonders what his reaction would be if at the next board meeting such special considerations were used to justify reducing his compensation.

[Winston]

Alex, perhaps you are right and the notion that there is shortage of qualified tech workers in the United States is a myth. But I refuse to believe that Bill Gates is pushing for an infinite number of H1-B visas simply because foreign workers are cheaper. In an industry in which the most innovative employees produce the greatest profits, why would Bill Gates hire a foreign worker just because he is cheaper rather than the domestic alternative?

By hiring foreign workers, Bill Gates is not "racing to the bottom"; he is following the talent -- or at least the perceived talent, which is just as important. And one's perceived talent depends very much on the reputation of the university one graduated from. Only a minority of American bachelors of science obtained their degrees from universities of international repute: the majority of them attended mediocre state universities that are little known to anyone outside the United States. For the average high school student who is denied admission to or who can't afford one of the private, public, or "hidden" Ivies, there are not many reputable alternatives. The state universities these students must rely on generally do not have good international reputations, and even they are too expensive for some families.

In Ontario, a student with a mere 85% average (equivalent to a 3.00 GPA) in his Advanced Functions, Calculus and Vectors, Chemistry, English, and Physics courses (not too hard a feat) has a good chance of matriculating into one of the engineering or computer science programs at the University of Waterloo, the closest thing Canada has to MIT. And tuition is low enough to be wholly covered by the government's bursaries and interest-free loans. Waterloo might not compare to MIT in the eyes of graduate schools, but, for multinational tech companies, a B.Sc. from Waterloo is hard to beat. Bill Gates, for example, says that "Waterloo has a special relationship with [Microsoft]. Most years, we hire more students out of Waterloo than any university in the world" (University of Waterloo Admissions Guide, 2008). The University of Toronto, the University of Western Ontario, Queen's University, Guelph University, the University of Ottawa, and York University (all in Ontario) also have good reputations, as well as similarly lax admission standards and low tuition fees. Their accessibility is the product of steady federal-provincial funding to create more spaces and to increase financial aid. Their reputation probably has something to do with the practice of housing super-talented students and average students in the same universities, something which is unheard of in the United States.

I mention this to illustrate that, in developed countries other than the United States, a high school student does not need to establish an AIDS clinic in Africa, write a poetic account of his triumph over adversity, have his parents take out a mortgage on their home, or be designated as "gifted and talented" to gain access to reputable, internationally recognized instruction. All he has to do is fill out a few simple application forms and get a quality, affordable public education. Although his Bachelor of Science might not allow him to pursue a Ph.D. at MIT, it will certainly allow him to get a good job with one of the big tech companies.

The prevailing response to the import of skilled workers (or students) seems to be to blame greedy multinationals (or universities) for betraying qualified natives just to make a quick buck (think Lou Dobbs), when in fact these people should be blaming the government (or even themselves) for creating a situation in which (a) public universities must rely on the tuition of foreign students to subsidize domestic students and (b) multinationals are unwilling to hire graduates from the average public university.

[alex]

Winston: "I refuse to believe that Bill Gates is pushing for an infinite number of H1-B visas simply because foreign workers are cheaper."

Why? Any business person wants to get his "factors of production" cheaper. I don't blame Gates and his ilk for promoting their vested interests. I blame congress and the president for undermining the interests of the majority of their constituents in exchange for bribes (oops, I mean campaign contributions). I also blame the news media for their lazy parroting of whatever line Gates, et al, wish to promote, and not tempering it with opposing viewpoints or even (gasp) objective data.

"In an industry in which the most innovative employees produce the greatest profits, why would Bill Gates hire a foreign worker just because he is cheaper rather than the domestic alternative?"

Most employees are not superstars that can name their price. Most are simply competent people, and Gates, et al, like government policies that lower their price.

"By hiring foreign workers, Bill Gates is not "racing to the bottom"; he is following the talent -- or at least the perceived talent, which is just as important."

Perceived talent is not important in terms of business success - actual talent is. Often the "perception" is the result of prejudice.

More importantly, the objective data show that H-1B's are not more skilled than American workers (a term I use to include LPR's as well as native-born and naturalized citizens).

The most extensive study done of it is here:

http://heather.cs.ucdavis.edu/Mich.pdf

It shows that the reason for using H-1B's is to get competent (not superstar) employees who are both cheaper and have little opportunity to leave their jobs for a better offer (the indentured servitude effect).

"University of Waterloo, the closest thing Canada has to MIT. And tuition is low enough to be wholly covered by the government's bursaries and interest-free loans. "

I fully agree that Waterloo is a good school, and that Canada's (and most countries) methods of financing university education is better than the American "have your parents mortgage the house while the student mortgages his future" approach.

None of that changes my argument. Despite the absurdities of US style financing, we have plenty of students going into accounting, law, etc. We also have plenty going into engineering and computer science. To the extent that it's dropped off, it's because students aren't dumb or self-sacrificing enough to enter a field with poor job prospects, and where jobs can be wiped out by outsourcing or yet another increase in the H-1B visa cap.

"multinationals are unwilling to hire graduates from the average public university"

No, they're not. That's the sort of place that many H-1B's graduate from. Most of them do not graduate from the most prestigious universities, anymore than most American students do. In fact, at least in technical fields, the more prestigious universities actually have a larger percentage of American grad students than the less prestigious ones.

Occam was right: the simplest explanation, and the only one backed by objective data, is that the H-1B program exists to provide cheaper labor to hi-tech companies.

[Winston]

Microsoft is hiring many students from the University of Waterloo at salaries comparable the Canadian average. (Most Waterloo alumni have completed at least one year of coop with a Canadian tech company; they would not abandon a virtually guaranteed job with that company for a less certain one with a lower salary.) So there is a willingness among tech companies to pay a little extra for "superstars," or innovative workers.

The problem is that the state university system which educates the majority of American engineering students is not perceived as producing innovative workers. That is why Microsoft would rather hire those who graduated from public universities in India, Europe, East Asia, and Canada.

More investment in public universities = better academic reputations = improved job prospects for the average American B.Sc. = a more competitive workforce. I admit that my conclusion is nothing profound, but I think it is valid nonetheless. Reducing the number of H1-B visas alone will not cause multinational tech companies to hire more domestic workers. The image of the average American B.Sc. must be improved.

[alex]

Winston: "Microsoft is hiring many students from the University of Waterloo at salaries comparable the Canadian average."

In other words, they're hiring many of them to work in Canada. It's not surprising that they would hire Canadians to work in Canada.

BTW, in a good year Microsoft may hire 50 people from U-Waterloo - a whopping 0.07% of Microsoft's 70,000+ employees.

"That is why Microsoft would rather hire those who graduated from public universities in India, Europe, East Asia, and Canada."

Yeah, they wouldn't want to hire people from US public universities like UC Berkeley or U-Illinois Champaign-Urbana. And certainly they wouldn't hire people from private American diploma mills like MIT or Stanford.

While (as I've enthusiastically agreed above) financing of university education in the US may be awful, the US still has many of the world's best schools for CompSci. Your "improve the public universities" is a red herring.

Of course the Berkeley, MIT and Stanford grads may not want to work at Microsoft. If you think that Microsoft is still a hot place to land a job, you're at least ten years behind the times.

"Reducing the number of H1-B visas alone will not cause multinational tech companies to hire more domestic workers."

In other words, the entire theory of supply and demand is wrong.

BTW, talking about one university and one company is not very illuminating, As the old saying goes, data is not the plural of anecdote. Look at some hard statistics (as in the study I cited above) and tell me where the flaw in the argument is.

[StevenT]

Alex, H1B visa is not only used to hire engineers for tech companies. It's also for many other professions. As long as an outsider without phd wants to work in the US, they need the H1B visa. A portion of H1B visa goes to political consultants for both the Democrat and the Republican companies. Another large portion goes those at Wall St and the list strecthes on. When a American firm hires an engineer with H1B visa, that engineer is not getting a lower salary. In fact the firm got to spend an additional 3-6k just to apply for the visa without a sure guarantee. I have listed the salary of a tech person in my previous post and you can see that the pay is not the problem there as it's already above average.

If you ever have a conversation with an engineering prof or other technical majors, you'll find the quote "If you want technicians, hire those from the State Unis, if you want engineers hire those from the Ivy Leagues!" That's because everyone of us in the technology field knows how underfunded non top tier Unis are in the engineering field. Fabrication, a simple yet must know skill (It's like putting clothes on a circuit), could only be performed by the top tiers Uni as they have the tools. And yet the lower half of the top tier Unis have those machines which are like 20 years old. A machine like that cost tens of millions. Fiber optics, the engineering of the future, can only be afforded by <5 universities in this country. A technical field is different from other fields as you need to upgrade your gadgets periodically. Without heavy goverment subsidy on R&D, America will surely lose it's technology advantage.

"Yeah, they wouldn't want to hire people from US public universities like UC Berkeley or U-Illinois Champaign-Urbana. And certainly they wouldn't hire people from private American diploma mills like MIT or Stanford."

You have to realized that it's not only Microsoft hiring but Google, EMC, Oracle etc. And graduating from top tier Unis doesn't mean that you have the necessary skills. You have to go through interviews to make sure that you have the right knowledge. These firms will have a list of IQ questions during your interview and you have to score enough points to get hired. Have you heard of the group of EE graduates from Princeton who couldn't not differentiate circuit symbols? Unlike Wall St., there is no ambiguity as you are dealing with concreate facts.

"Reducing the number of H1-B visas alone will not cause multinational tech companies to hire more domestic workers."

"In other words, the entire theory of supply and demand is wrong."

The supply and demand theory is not wrong. It's just that there're not enough qualified 'supply' in the field. Reports have already shown how weak Americans are in their Maths and Sciences. That should tell you a lot. And that's where international students fill the gap. We have more intrinsic value than the $14.5 billion figure as we are the ones that kept the tech sector in this country running.

[alex]

StevenT: "H1B visa is not only used to hire engineers for tech companies. It's also for many other professions."

Over half the H-1B's are used for computer related work, another 5% for EE's. Those are the two largest categories.

Besides, just because government manipulation of the labor market is used to the detriment of professions other than programmers and EE's, doesn't make it acceptable.

"As long as an outsider without phd wants to work in the US, they need the H1B visa."

The other possibility is to immigrate to the US (the H-1B is a guest worker, not and immigration visa). If you're truly one of the best and brightest, you can even get an O-series visa.

"When a American firm hires an engineer with H1B visa, that engineer is not getting a lower salary."

Yes they are. Depending on which study you use, H-1B's get 15-33% less than comparably qualified immigrants or citizens. The employer also benefits from the fact that an H-1B cannot easily switch jobs without loosing their visa, and so is unlikely to leave due to poor pay or working conditions. In centuries gone past that was called indentured servitude.

"I have listed the salary of a tech person in my previous post"

No, you pulled a number out of thin air. Look at the hard statistics (such as in my link above) - H-1B's get paid less.

"if you want engineers hire those from the Ivy Leagues"

Ok, that leaves out MIT, Stanford and UC Berkeley.

"Fabrication, a simple yet must know skill (It's like putting clothes on a circuit)"

What type of fab - chip, board, what?

"A machine like that cost tens of millions."

A machine like what? If you mean simple board fab or assy, I hope you're not paying that much. Better yet just contract out to the board house down the street.

Chip fab, tens of millions? Maybe 20 years ago. Today a new fab costs several billion dollars, and becomes obsolete in a few years. No university has anything like that. In fact for many years there have been fabless chip companies (eg Xilinx). Only the likes of Intel, TI, TSMC, etc. have fabs.

"Fiber optics, the engineering of the future, can only be afforded by <5 universities in this country."

What do you mean afford fiber optics? You can buy fiber optics at Radio Shack. Test equipment? Try tens of thousands. Making fibers? Better call Corning.

"The supply and demand theory is not wrong. It's just that there're not enough qualified 'supply' in the field."

What do you mean "not enough"? In a market it's a meaningless term. Buyers always want greater supply to reduce the price, and sellers always want a lesser supply to raise the price.

"Reports have already shown how weak Americans are in their Maths and Sciences."

Reports have shown that the _average_ American is weaker than the _average_ student in some foreign countries that we're compared against. Interestingly, China and India refuse to participate in these comparisons.

Moreover it's ironic to complain about poor math skills, and yet insist on looking at mean scores. There's a high variance in the US (some states do as well as any foreign country that we're compared against), and technical people come from a pool of people that are better than average. Obviously the right thing to do is to look at the top percentiles, not the means.

"We have more intrinsic value than the $14.5 billion figure as we are the ones that kept the tech sector in this country running."

Now you're making the same mistake that Prof. Rodrik was complaining about. Increasing the supply, and hence reducing the cost, of technical labor in the US benefits the owners and management of hi-tech companies. But it also works to the detriment of the existing and potential domestic pool of technical labor. You can argue endlessly about the net effect, but it clearly has cons as well as pros, in terms of both GDP and (perhaps more importantly) distributional effects.

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