10/31/2025
US H-1B Tax Could Help Competing Nations Grab More Talent
The U.S. is one of the most innovative countries in the world, and its productivity growth has outpaced that of other developed economies.
This could change thanks to new policies designed to reduce high-skilled immigration into the United States. Research from Harvard University Professor Rebecca Diamond has shown that without high-skilled immigration, the U.S. would be nearly one-third less innovative. Human capital is not the only key factor in U.S. innovation prowess, but by narrowing access to high-skilled talent from around the world, the U.S. could see slower productivity growth in the years ahead.
Other countries could gain major ground in the global battle for high-skilled talent thanks to the U.S.’s changing policies. America attracts the best and brightest workers from around the world, but now other countries are moving to open more doors for superstar talent, just as the U.S. tightens its pathways.
Source: Haver Analytics, Author Calculations
What’s changed?
On September 19th, the Trump Administration issued a presidential proclamation imposing a new $100,000 H-1B application fee. Prior to the proclamation, H-1B fees to the government ranged from $2,000 to over $6,000. The H-1B is a temporary work visa that requires at least a bachelor’s degree and allows U.S. employers to hire foreign workers in specialty occupations such as technology, engineering, healthcare, and finance. The new fee would not apply to other visas, including for example, student visas. U.S. Citizenship and Immigration Services has since released guidance clarifying that the new fee will not apply to currently valid H-1B visas or to petitions requesting a change of status, amendment, or extension of stay for a beneficiary inside the United States. But the impact of the change is certain, with the cost of using the H-1B program set to rise drastically.
Supporters of the new policy say that the H-1B program reduces opportunities for American workers seeking highly paid jobs. However, this new fee is a blow to certain industries who will face much higher costs to sponsor prospective hires and might deter overseas talent from coming to the U.S. For example, some tech companies have tens of thousands of staff on H-1B visas. Even if only a fraction of these companies’ new hires require sponsorship, a $100,000 fee per petition adds up to many millions of dollars.
“The new fee will certainly have major impacts on the use of the H-1B program as a way to fill critical high-skilled workforce gaps,” said Bo Cooper, Executive Director of the Fragomen Center for Strategy and Applied Insights. “The United States is certainly still open for business for top international students and professionals, but employers will be monitoring carefully the aggregated impacts of these changes and the possible effects on their global talent strategies.”
Supporters of the new policy say that the H-1B program reduces opportunities for American workers seeking highly paid jobs. However, this new fee is a blow to certain industries who will face much higher costs to sponsor prospective hires and might deter overseas talent from coming to the U.S. For example, some tech companies have tens of thousands of staff on H-1B visas. Even if only a fraction of these companies’ new hires require sponsorship, a $100,000 fee per petition adds up to many millions of dollars.
“The new fee will certainly have major impacts on the use of the H-1B program as a way to fill critical high-skilled workforce gaps,” said Bo Cooper, Executive Director of the Fragomen Center for Strategy and Applied Insights. “The United States is certainly still open for business for top international students and professionals, but employers will be monitoring carefully the aggregated impacts of these changes and the possible effects on their global talent strategies.”
What does this mean for US innovation?
Estimates put the total number of H-1B workers in the U.S. at around seven hundred thousand workers although there is no official data. That amounts to less than 0.5 percent of U.S. employees. Congress has limited the number of new H-1B visas to 85,000 per year. While H-1B workers are a small share of the U.S. workforce, policies aimed at reducing high-skilled immigration into the U.S. could have outsized economic impacts.
The study by Diamond and her co-authors found that while immigrants account for 16 percent of inventors, they authored 23 percent of patents, indicating that immigrants contribute an outsized share to innovation. (Diamond is an Andersen Institute Advisory Board member.)
Not only did immigrants author more patents, but Diamond’s study also found that immigrants improved innovation for U.S.-born collaborators, pushing them to be more creative.
In total, Diamond’s study found that immigrants account for 32 percent of aggregate innovation, about half of which comes from improving the human capital of their native-born collaborators.
The study by Diamond and her co-authors found that while immigrants account for 16 percent of inventors, they authored 23 percent of patents, indicating that immigrants contribute an outsized share to innovation. (Diamond is an Andersen Institute Advisory Board member.)
Not only did immigrants author more patents, but Diamond’s study also found that immigrants improved innovation for U.S.-born collaborators, pushing them to be more creative.
In total, Diamond’s study found that immigrants account for 32 percent of aggregate innovation, about half of which comes from improving the human capital of their native-born collaborators.
Source: Bernstein, Diamond, McQuade, and Pousada (2021)
Non-US labor force and innovation prospects will rise thanks to the US policy changes
If businesses aren’t willing or able to pay the additional fees to bring skilled workers to the U.S., then those candidates may look for opportunities elsewhere. Considering the vital role high-skilled immigrants play in driving innovation, if other countries can capitalize on this moment and attract a larger share of high-skilled talent from around the world, the implications could be profound. U.S. innovation exceptionalism, economic outperformance, and even the faster earnings growth of U.S. public companies compared to oversees peers could all be threatened.
Policymakers around the world have already signaled they see the U.S. policy change as a golden opportunity to repatriate or attract superstar talent. Here are two examples:
United Kingdom: In response to the hike in price for U.S. H-1B visas, British Prime Minister Keir Starmer is said to be exploring proposals to abolish visa fees for skilled foreign workers, including scientists, academics, and digital experts, in a bid to drive growth.
Canada: Canadian Prime Minister Mark Carney announced that his country would introduce new proposals to welcome skilled foreign workers. “Not as many H-1B visa holders will get visas in the U.S.,’’ he said Sept. 27. “These people are skilled, and this is an opportunity for Canada.” Other Canadian policymakers have signaled that they would like to use the U.S. changes to power Canada’s efforts to capture talent.
British Columbia Jobs Minister Ravi Kahlon responded to Trump’s policy by calling on workers to move north. “We’re inviting tech talent, innovators, and scientists to come to B.C. and be part of building the economic engine of Canada’s new economy!” he said on the social media platform X.
A version of this blog first appeared on Marketwatch
