Future of work

Immigration restrictions are often framed as protecting local jobs. But what if they have the opposite effect? 

In Silicon Valley, 56% of science, technology, engineering, and math (STEM) workers and 70% of software engineers are foreign-born, illustrating the tech industry’s heavy reliance on international talent. 

A comprehensive study examining U.S.-based multinational companies from 1994 to 2014 reveals a significant unintended consequence of H-1B visa restrictions: when companies cannot hire skilled immigrants domestically, they respond by expanding employment at their foreign offices. The scale of this shift is substantial and challenges conventional assumptions about how effective these restrictions are. 

H-1B visas allow employers to hire foreign professionals in specialized jobs—typically in fields like technology, engineering, or science—when they can’t find qualified American workers. The visas are temporary (usually lasting up to six years) and subject to annual caps on the number issued. 

The policy shock and its measurement 

The research analyzed two major disruptions to skilled immigration. First, the H-1B visa cap was cut by 70% in fiscal year 2004—from a high of 195,000 in 1998–2000 to 65,000 visas (plus 20,000 for applicants with graduate degrees). Second, in 2007 and 2008, corporate demand for these visas was so high that visa lotteries distributed permits randomly, creating a natural experiment in which purely by chance, some companies received the workers they had requested while others did not. 

These two policy changes had immediate and measurable effects. The study tracked 2,263 U.S. multinational companies across 48 countries, linking comprehensive data from visa applications with detailed information about employment at foreign affiliates (offices). The dataset included more than 6.4 million labour condition applications from 2001 to 2016 and 3.3 million visa petitions from fiscal years 2004 to 2014. 

While the dataset covers 1994 to 2014, the dynamics it reveals—how limits on skilled immigration reshape global hiring—are relevant today as H-1B visa caps and talent shortages continue to challenge U.S. employers. 

The substitution effect: Numbers that tell the story 

For every H-1B visa rejection, the average multinational company hired 0.42 employees abroad—a partial substitution that, in aggregate, adds up to a substantial shift. Based on the typical size of a foreign affiliate (about 1,150 employees in 2001), this ratio translates to an estimated 35 to 90 additional employees per affiliate—a meaningful increase driven by visa restrictions. 

But this average masks dramatic variation. The most internationally experienced firms—those already operating in at least 15 countries (i.e., the 90th percentile of multinationality)—hired 0.93 foreign employees for every rejected visa. In other words, these companies achieved a nearly one-to-one substitution, meaning they were essentially unconstrained by the policy. They simply moved the work and the workers elsewhere. 

In contrast, companies with less international experience struggled to find alternative solutions. For these firms, the substitution rate was much lower, suggesting that immigration restrictions genuinely hampered their access to talent and their growth potential. These companies lacked the capabilities, infrastructure, and managerial experience needed to quickly establish or expand foreign operations in response to visa denials. 

Where the jobs went 

The geographic distribution of offshoring is particularly revealing. Expansion was concentrated in three countries: China, India, and Canada. This pattern illuminates two distinct pathways for companies looking to access global talent when domestic immigration is restricted. 

The concentration in China and India, which together account for 85% of H-1B petition filings, represents direct access to raw human capital. These countries have large populations of skilled STEM workers. According to data cited in the study, 10% of the world’s science and engineering university degrees are awarded to students in the United States, while 25% go to students in India, 22% to students in China, and 12% to students in the European Union. 

Canada represents a different strategy. With geographic proximity and less restrictive immigration policies than those of the United States, Canada became an attractive location for companies looking to hire the same international workers they had been seeking for U.S.-based positions. But rather than hiring Canadian nationals in the U.S., companies could establish Canadian offices and employ skilled immigrants from other countries under Canada’s more permissive visa regime. For Canada, this shift underscores how open immigration policies can attract investment and high-skilled jobs that might otherwise have gone to the United States. 

These three countries captured much of the immediate growth in overseas hiring. However, the research shows that Canada, India, and China were not the only destinations affected. Even when these three countries are excluded from the analysis, the relationship between visa restrictions and overseas job growth remained strong and statistically significant—showing that companies expanded abroad worldwide, not just in those three countries.  

Beyond R&D: The ripple effect across job types 

While research and development (R&D) positions were most affected by visa restrictions, the offshoring extended beyond these roles. According to the data, R&D and non-R&D employment increased at existing foreign affiliates (which hired more people) and through the creation of new offices in additional countries. 

This broader impact stems from complementarities between R&D and production activities—that is, when companies move their research capabilities abroad, production often follows. The process of developing a concept into a marketable product requires continuous collaboration and knowledge transfer between R&D and production personnel. Separating these functions geographically can be costly and inefficient. 

Consider that U.S. multinational companies conduct 85% of their global R&D in the United States. When visa restrictions push R&D activity abroad, the associated production, supply chain, and support functions may follow. This multiplier effect means that restricting one skilled worker visa can trigger the offshoring of multiple jobs across different skill levels. 

The study found that firms that were one percentage point more dependent on H-1B visas than average saw a 3% to 8% greater increase in foreign affiliate employment compared to the typical firm. The effect on R&D employment was particularly pronounced in benchmark survey years, with highly H-1B-dependent firms increasing their foreign affiliate R&D employment by 27% more than non-dependent firms did after the policy change. 

The capability advantage: Why some firms adapt better 

A key finding highlights how firms’ capabilities determine their ability to respond to immigration restrictions. Prior internationalization emerged as a key moderator determining which companies could effectively offshore in response to visa constraints. 

More globally experienced firms had already invested in the fixed costs of establishing foreign affiliates. They had developed managerial capabilities for coordinating across borders, transferring knowledge internationally, and operating in diverse regulatory environments. When visa restrictions hit, these firms could quickly scale up their existing operations or open new foreign offices with relatively low marginal costs. 

The study also found that firms with more international experience were more likely to open foreign affiliates in new countries in response to visa restrictions. Highly H-1B-dependent firms were 5% more likely to open a foreign affiliate in a new country and 10% more likely to start conducting R&D in a new country than non-dependent firms by 2013. 

Less international firms faced higher barriers. Without existing infrastructure abroad, they needed to navigate unfamiliar regulatory systems, establish supply chains, recruit local managers, and develop coordination mechanisms from scratch. These fixed costs made offshoring a riskier, pricier proposition. The result: immigration restrictions constrained these firms more severely, potentially affecting their competitiveness and growth trajectories. 

This divergence suggests that visa restrictions may inadvertently accelerate the concentration of skilled work among the largest, most global companies while hurting smaller or less international firms that lack the resources to easily establish foreign operations. 

Long-term implications for innovation and competitiveness 

The movement of skilled workers abroad carries implications beyond immediate job numbers. When talented researchers and engineers go to work at foreign affiliates rather than U.S. offices, the innovation spillovers they generate benefit other countries instead. 

Innovative spillovers are highly localized: patents cite nearby patents more frequently than distant ones. Knowledge transfer happens through face-to-face interactions, labour mobility within regions, and shared professional networks. When a company employs a skilled immigrant at a facility in Bangalore or Toronto instead of Silicon Valley, the resulting innovations and knowledge spillovers accrue to the Indian or Canadian innovation ecosystem. 

Over time, this geographic shift in knowledge work could erode U.S. innovative capacity relative to countries that maintain more open skilled immigration policies or that receive offshored R&D activity. The research notes that immigrants are often not equally innovative outside the United States, suggesting that restrictive H-1B policies could reduce not just where innovation happens, but its overall magnitude. 

Policy implications and unintended consequences 

The findings present a policy-making challenge: immigration restrictions designed to protect domestic jobs may instead accelerate their movement overseas. The policy creates a competitive disadvantage for U.S. companies relative to foreign competitors while simultaneously strengthening other countries’ innovation ecosystems. 

The study also reveals that firms view skilled labour as a global resource. When artificial constraints prevent multinational companies from accessing talent at home, they leverage their international presence to circumvent restrictions. The policy affects where jobs are located rather than whether they exist. 

For domestic firms that are less globally connected, the implications are more complex. These companies face genuine constraints from visa restrictions, but lack the capabilities to offshore easily. They may struggle to compete against more international rivals who can access global talent pools through their foreign affiliates.  

The research also highlights how firms’ responses to government policies can produce outcomes that circumvent policy-makers’ intentions. Visa limits meant to preserve U.S. jobs may actually result in their export—along with the tax revenue, innovation spillovers, and economic activity they generate. 

The future of work in a global talent market 

This research underscores a fundamental reality of contemporary work: the market for skilled talent is inherently global. Technology enables collaboration across borders. Universities train talented students worldwide. Companies compete internationally for the best researchers, engineers, and innovators. 

In other words, immigration policy is national, but the competition for talent is global. Restrictive policies do not stop companies from accessing international talent. They simply ensure that the jobs and economic activity associated with that talent occur elsewhere. 

For workers, this research emphasizes that employment security depends not just on domestic labour market conditions, but on employers’ ability to shift work locations globally. For companies, it illustrates how organizational capabilities, particularly international experience and infrastructure, provide strategic flexibility in the face of policy constraints. For countries, it reveals that immigration policy affects not just domestic labour markets, but national competitiveness in a global economy. And for Canada, the findings illustrate how differences in immigration policy can shape where global talent—and the innovation it drives—ultimately lands. 

The study provides evidence that multinational firms can circumvent artificial institutional constraints on resources through strategic responses (although the effectiveness of these responses depends heavily on firm-specific capabilities). Understanding these dynamics is crucial as governments worldwide revaluate their immigration policies.