Hutchins Roundup: H-1B visas, financial crises predictors, and more

Studies in this week’s Hutchins Roundup find that capping H-1B visas does not increase native employment and reduces the inflow of the most productive and innovative workers; income inequality is a better predictor of financial crises than credit booms, and more.

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Capping H-1B visas does not increase native employment and reduces the inflow of the most productive workers

In 2004, the annual quota on H-1B visas, visas that allow skilled foreign-born individuals to work in the United States, fell from 195,000 to 65,000. The quota only applied to new applicants and for-profit firms. Using this natural experiment, Anna Maria Mayda of Georgetown and co-authors estimate the effects of the H-1B cap. They find that the quotas significantly decreased new H-1B workers at for-profit firms, but did not increase the employment of similarly skilled native workers at those firms, suggesting that foreign-born workers and native workers are not very interchangeable. They also find that the quota led to a decline in H-1B recipients at the top of the wage distribution, indicating that the cap reduced the flow of the most productive and innovative workers, they say.

Increased income inequality and sluggish productivity growth are strong predictors of financial crises

Existing research suggests that credit growth is a strong predictor of financial crises, but less is known about the effects of other macroeconomic conditions. Using historical data for 17 advanced countries, Pascal Paul of the San Francisco Fed finds that, in addition to credit booms, increases in the share of income held by those at the top of the income distribution and slowdowns in productivity growth are strong predictors of financial crises. Of the three variables, he shows that rising income inequality is the most important predictor of financial crises. Further, recessions that are preceded by large increases in income inequality or low productivity growth are associated with deeper and slower recoveries, he finds.

With non-monetary outcomes, lower-ability individuals benefit more from education than high-ability individuals

Using data from the 1979 National Longitudinal Survey of Youth, James Heckman of the University of Chicago, John Humphries of Yale, and Gregory Veramendi from Arizona State estimate the benefits of education on various non-monetary outcomes. They find that education decreases incarceration rates, lowers welfare participation, and improves psychological outcomes—for example, lower depression levels and greater self-esteem. In contrast to the monetary benefits of education, these non-monetary benefits are greater for individuals with lower cognitive and socioemotional abilities.

Chart of the week: The elderly have gained the most with rising household income

Quote of the week:

“With inflation, it has been puzzling for sure. We were starting to see some turnaround in some parts of the marketplace. And I think this last jobs report showed pretty healthy wage gains, which is interesting, and could suggest we’re starting to see some of the tightening. In terms of the why, we went through a significant economic disruption. A lot of people checked out of the economy, and they’re starting to come back. The labor-force participation rate among prime-age people is rebounding,” says Atlanta Fed President Raphael Bostic.

“One thing that’s very interesting is that a lot of the take up now is women with less than a college education. That group is usually the hardest hit in the recession and the last to come back. So when we start to see take up in that segment, that suggests we’re getting to the end of being able to fill with workers who are going to just accept wages. So I think we’ll start to see wages pick up in the next six to 12 months, which suggests that inflation will follow.”