interview with Paola Sapienza
Research Team: J-P Conte Initiative on Immigration , Hoover Prosperity Program

Senior Fellow Paola Sapienza is co-director of the J-P Conte Initiative on Immigration. Here she discusses research into the economic benefits of immigration, how migration fosters prosperity, and what is lost in the current immigration debate in the United States.

Chris Herhalt: It’s no accident that the J-P Conte Immigration Initiative has been placed under the new Hoover Prosperity Program. What is associating immigration with prosperity trying to convey?

Paola Sapienza: The recently launched Hoover Prosperity Program focuses on understanding the laws, policies, and regulations that can foster economic prosperity. Placing the J-P Conte Immigration Initiative within this program reflects the fundamental connection between immigration and economic growth. Consider this striking statistic: over the past quarter century, immigrants have accounted for approximately 95 percent of US prime-age labor force growth since the mid-1990s.

Economic growth occurs through two primary channels: expanding the labor force and increasing productivity. Immigrants contribute significantly to both. This is particularly crucial now, as US fertility rates have declined dramatically. The question of how America will continue to grow cannot be answered by simply encouraging higher birth rates—immigration plays a vital role in addressing our demographic challenges.

The impact of immigrants on innovation is equally remarkable. Immigrants are 40 to 80 percent more likely to file patents than native-born Americans, and in many cases, their patents receive more citations. Immigrant-owned firms generate more patents per worker and demonstrate higher rates of bringing new technologies to market.

To put this in perspective, 55 percent of current American startup companies valued at $1 billion or more have at least one immigrant founder. This statistic underscores the powerful link between immigration and innovation. Importantly, these economic benefits stem not just from high-skilled immigration—immigration broadly serves as a crucial demographic force driving US economic growth.

Herhalt: Immigration was a key issue for voters in the 2024 presidential election. The inaugural conference of the J-P Conte Initiative on Immigration looked at a paper studying the Chinese Exclusion Act of 1882. How is that historic example relevant to today?

Sapienza: As an economist, I believe academic research can provide crucial insights into complex policy issues like immigration. While it might seem intuitive that excluding migrants would increase employment for US-born workers, we need to analyze these situations through what economists call a “general equilibrium” lens—considering all interconnected effects on an economy.

The Chinese Exclusion Act of 1882 offers a revealing case study. At the time, Chinese immigrants represented the largest immigrant group in the Western United States. The assumption was that their exclusion would create more jobs for US-born workers.

However, the actual outcome was quite unexpected. Cities with significant Chinese immigrant populations had been thriving because of their presence. When the Exclusion Act took effect, businesses began leaving these areas—not only had they lost workers, but they had also lost consumers. The research demonstrates through extensive longitudinal data that these cities experienced lasting economic consequences, remaining less developed compared to similar cities for many years afterward.

Similar research examining restrictions on Mexican immigration found comparable results. These studies underscore a crucial lesson: immigration policies can have far-reaching and often unexpected economic impacts that persist long after their implementation.

Herhalt: You mentioned that the J-P Conte Initiative will take a long-term approach in looking at the data about the impact of migration. Why is that important?

Sapienza: The distinction between short-term and long-term analysis is crucial for understanding immigration’s true economic impact. When we focus only on immediate effects, we tend to view the economy as a static system—like taking a snapshot of a moving picture. In this static view, the economy appears to be a fixed pie, leading to the assumption that allowing more immigrants necessarily means fewer resources or jobs for American workers and families.

However, economies are dynamic systems that evolve and grow over time. When firms can hire the best workers for their specific needs, regardless of origin, they become more innovative and productive. This dynamism creates what economists call a “multiplier effect”—initial gains in productivity lead to business expansion, which in turn generates more opportunities for everyone in the economy.

A compelling study of H-1B visa lotteries illustrates this principle perfectly. By comparing otherwise identical firms—some that won the lottery to hire foreign workers and others that didn’t—researchers could isolate the long-term impact of high-skilled immigration. The results found that the firms that secured H-1B workers ended up hiring significantly more US-born workers, both college and non-college graduates. This outcome demonstrates how initial immigration can catalyze broader economic growth and job creation.

Long-term analysis also helps us identify unintended consequences of immigration policies. For instance, conventional wisdom might suggest that restricting foreign workers would increase wages for domestic workers by making their skills scarcer. However, when rigorous academic research examined cases like the 2017 H-1B visa restrictions, a different picture emerged. Rather than significantly boosting domestic wages (which rose only 3 percent), the policy prompted companies to relocate positions to Canada. The United States lost not only tax revenue but also the potential for those workers to contribute to domestic innovation and growth.

These examples show why taking a long-term view is essential for effective policy making. Short-term, static analysis might suggest simple solutions, but it fails to capture the complex ways immigration shapes economic growth and prosperity over time. By studying these dynamic effects, we can better understand how immigration policies ripple through the economy and develop more effective approaches based on evidence rather than assumptions

Herhalt: Some of the scholarship talks about migration lifting all boats—that it raises wages, boosts innovation, and increases global collaboration of scholars and mentors. Do you think this theme is getting a fair hearing in the immigration discourse today?

Sapienza: The current immigration debate is suffering from severe conflation of legal and illegal immigration, largely because of the recent crisis at the southern border. When millions cross the border illegally, it provokes justifiable frustration among both legal immigrants and native-born citizens, leading many Americans to oppose immigration broadly without distinguishing between legal and illegal pathways.

This crisis creates two significant challenges for evidence-based policy making. First, we lack reliable research on the economic impacts of such massive undocumented immigration. My own research on how US domestic students are affected by the presence of immigrant children in schools, for instance, found generally positive effects under normal conditions, but these findings cannot be automatically extended to scenarios with unprecedented influxes of students. Second, allowing large-scale illegal immigration undermines the fairness of the system, particularly for those who are patiently following legal immigration procedures.

Today, the risk is that this crisis might push policy too far in the opposite direction, ignoring the substantial evidence about immigration’s benefits under regulated conditions. Research consistently shows that immigration increases US GDP, and high-skilled immigrants particularly drive innovation and economic growth. The more complex and nuanced question concerns GDP per capita, especially regarding low-skilled immigration. In sectors like agriculture and construction, the arrival of low-skilled immigrants can indeed pressure wages downward, creating a dynamic where businesses benefit while some domestic workers face challenges. Two important nuances deserve attention here. First, wage depression is more pronounced with undocumented workers, as their status makes them vulnerable to exploitation, also affecting wages for similarly skilled domestic workers. This underscores why legal pathways are crucial—they help prevent such abuses and protect both immigrant and domestic workers. Second, historical patterns show that when immigrants enter the workforce, native workers often move up to better positions, suggesting that immigration can catalyze economic diversification and advancement.

These effects, however, are averages, and localized impacts can vary significantly, particularly for workers with fewer skills. We need to carefully study these micro-level effects in relation to both the type and scale of immigration. This complexity demands that we move beyond simplistic open-or-closed-border narratives and focus instead on designing policies that benefit both US workers and businesses.

The question isn’t whether to have immigration, but how to structure it to maximize its positive impacts while protecting vulnerable workers.

Herhalt: If you could change one part of the US immigration system by the stroke of a pen, what would it be?

Sapienza: While it’s tempting to propose sweeping changes to our immigration system, I’m cautious about “stroke of a pen” solutions. Immigration policy requires careful evaluation of complex trade-offs and potential unintended consequences. That said, we can identify areas where our current system clearly needs modernization.

Despite clear evidence of immigration’s economic benefits, our current system often works against our economic interests. The framework has remained largely unchanged since 1990, even as our economy and labor market needs have transformed dramatically.

One weakness is the rigid, centralized nature of our visa quotas, which fail to respond to dynamic economic conditions and regional variations in labor demand. Consider the stark differences in workforce needs between states like California and Maine. The seasonal hospitality industry in coastal regions or ski resorts, agricultural demands in farming states, and tech-sector requirements in innovation hubs all present distinct challenges. Yet our current system offers no mechanism for states to influence immigration policies based on their specific economic requirements.

Several proposals have emerged in Congress to address this rigidity by creating state-sponsored visa programs. Under such frameworks, states could establish their own visa needs, subject to approval by state legislatures and the Department of Homeland Security. While the federal government would maintain its critical role in vetting applicants and enforcing immigration laws, states could tailor their criteria to local economic demands.

This approach recognizes that decisions about workforce needs—whether for high-skilled tech workers or agricultural laborers—might be more efficiently made at the local level and incorporate business leaders’ inputs. By acknowledging America’s geographical diversity and the many faces of immigration, such reforms could help create a more responsive and economically beneficial immigration system. Moving in this direction, even incrementally, would represent meaningful progress toward aligning our immigration policies with actual economic needs while maintaining necessary security protocols.

Herhalt: Do policy makers grasp the opportunity cost of this issue and how it relates to innovation?

Sapienza: Most policy makers don’t fully grasp the profound opportunity costs of our current immigration system, though these costs are strikingly evident in how businesses have adapted. American companies, facing barriers to hiring international talent domestically, increasingly establish headquarters in cities like Toronto and Vancouver to access workers who cannot navigate the US immigration system. While this represents an innovative business solution, it creates significant inefficiencies and lost opportunities for the American economy.

The United States possesses an unparalleled business ecosystem, combining world-class universities, sophisticated financial markets, established innovation networks, and deep pools of experienced talent. When companies are forced to locate their operations elsewhere, we lose not just the immediate economic activity but also the potential synergies and innovations that arise from geographical proximity within this ecosystem. Each worker who could have contributed to American innovation but instead works in Canada represents a missed opportunity for spontaneous collaboration, knowledge sharing, and the generation of new ideas.

Moreover, these workarounds mean that while American companies still benefit from international talent, the broader economic advantages—from tax revenue to local spending to the creation of auxiliary businesses—flow to other countries.

The disconnect between policy makers’ understanding and business realities suggests we need to refocus the immigration debate away from border politics and toward creating a system that aligns with economic needs while ensuring robust labor standards for all workers. Until policy makers better recognize these opportunity costs, we risk continuing to deflect, rather than harness, the economic potential of global talent.

Source: Hoover Institution