By Connor O’Brien and Adam Ozimek
Key Findings
- Strategic industries are increasingly reliant on highly skilled workers. The share of the strategic industry workforce with a graduate degree has grown from 12.4 to 19.6 percent since 2000.
- Foreign-born workers make up a disproportionate share of highly-skilled workers in strategic industries, accounting for 36 percent of those with a graduate degree, up from 26 percent in 2000.
- In another sign that foreign-born workers play key roles in strategic industries, the average foreign-born worker in such industries earns $106,000, compared with $91,000 for native-born workers.
- India and China are the largest sources of skilled foreign-born workers in strategic industries, accounting for a combined 41 percent of foreign-born workers with a BA or more. Green card caps threaten both these indispensable talent sources.
Introduction
In recent years, U.S. industrial and competitiveness policy has increasingly focused on the health of industries deemed “strategically significant.” There are a variety of reasons an industry can be thought of as strategically significant: some produce goods or services that are crucial to national defense, while others make goods like computer chips that are indispensable to modern life but whose supply chains are concentrated in a few countries. For other emerging technologies, global leadership—and the ability to set the rules of the road—may still be up for grabs. Getting policy right today could therefore have long-run strategic benefits.
To date, policy has disproportionately focused on expanding these industries domestically through subsidizing output (like the Inflation Reduction Act’s electric vehicle subsidies) or the construction of new facilities (like CHIPS and Science Act grants). However, strategically important industries are reliant on innovation and knowledge work, making a skilled workforce a crucial ingredient for nurturing, sustaining, or revitalizing particular industries whose strength has national or economic security implications. Fiscal or financial support may solve for just one of multiple constraints holding back strategic industries’ expansion.
For the U.S., there is a tremendous opportunity to more fully reap the benefits of our competitive advantage. While the U.S. may not have the lowest labor costs or most flexible regulatory or permitting regimes in strategic industries, it remains the most desired destination for top talent around the world. At the same time, our ability to integrate the best and brightest into our companies, labs, and research centers is without parallel. How we should harness this advantage should be thought of as at least as central to industrial policy discussions as incentives or grants.
In this report, we examine the importance of high-skilled immigration for industrial policy by showing that foreign-born talent plays a substantial and growing role in a broadly defined set of strategically significant industries. Foreign-born workers not only hold an outsized share of jobs in such industries, but they make up an even larger share of workers with advanced degrees. Opening easier-to-use pathways for skilled talent—and embracing new proposals for strategic sectors like EIG’s proposed Chipmaker’s Visa—should be central to any industrial policy agenda whose goal is to improve the health of America’s strategic industries.
Defining strategic industries
Identifying which industries are strategically significant against those that are not is challenging. Policy analysts across the ideological spectrum will disagree on which sectors merit active policy support and which should be encouraged to grow, contract, or evolve as global markets demand. For example, some may see little inherent strategic value in the United States maintaining a strong household appliance manufacturing industry domestically, instead preferring a focus on software and digital technologies. Conversely, others place further emphasis on the strength of domestic manufacturing.
Further, while there may be agreement that the strength of some particular domestic industries serves key economic and national security interests of the United States, there may still be disagreement over what policy, if any, is appropriate to advance those interests. If an industry is indeed strategically significant, there may be additional disagreement over whether the production of key goods and services must happen within the United States to meet certain security objectives, or whether sourcing from strategically aligned economies is sufficient.
With all these caveats in mind, we opt for a broad definition of strategically significant industries, one which encompasses many advanced manufacturing industries, software, energy, and health industries. The full list can be found in the Appendix.
We identify Census-defined industries as strategically significant if they intersect with Brookings Metro’s Advanced Industries definition, using the Census Bureau’s NAICS crosswalk. Brookings defines advanced industries as those that are both in the top fifth of industries by R&D spending per worker and are above average in their use of STEM workers. We then examine the workforces of these industries using 2018-2022 five-year American Community Survey (ACS) microdata.
The industries identified encompass nearly 20 million workers and range from software to shipbuilding. Strategic industries are disproportionately in manufacturing and professional services, which combine for 83 percent of employment. In non-strategic sectors, these two categories combined employ only nine percent of workers.
The largest individual strategic industry is Computer Systems Design, with 3.5 million workers, or 17.9 percent of all strategic industry workers. Motor Vehicles and Parts manufacturing is the largest manufacturing industry in the sector, employing just under 1.5 million people across the country. Other major component industries include Scientific R&D Services (797,000), Aircraft and Parts manufacturing (790,000), and Electric Power Generation and Transmission (730,000).
Strategic industries’ demand for high-skilled talent is growing.
Over the last two decades, strategic industries’ demand for highly-skilled workers has grown substantially. To take one indicator, the share of the workforce with a graduate degree in strategic industries—native or foreign-born—has grown from 12.4 to 19.6 percent since 2000. Outside strategic sectors, only 12.7 percent of workers have graduate degrees.
Explosive growth in strategic industries like scientific R&D and software, in which very high shares of workers have graduate degrees, accounts for a major portion of this growth. Nearly one-quarter of the non-manufacturing strategic industry workforce has a graduate degree, again well above the rate in 2000.
Yet it is not just the rise of credential-heavy service industries that is driving the strategic sector’s growing demand for skilled workers. Domestic manufacturing has also undergone a major shift towards employing more workers with bachelor’s and graduate degrees, especially in strategic industries.
In 2000, 26.2 percent of workers in strategic manufacturing industries had a BA or more; in manufacturing overall, just 18.7 percent did. By the 2018-2022 period, the share of workers with at least a college degree had grown to 38.3 percent in strategic manufacturing and 29.4 percent in manufacturing overall.
In some strategic manufacturing industries, changes in workforce composition have been dramatic. In Aircraft and Parts manufacturing, the share of workers with a BA or more jumped from 29.7 percent in 2000 to 49 percent today. In Medical Equipment and Supplies, the share increased from 29.1 percent to 47.3 percent in two decades.
Foreign-born workers make up a disproportionate share of workers in strategic industries.
We find a total of 19.9 million workers in the 2022 five-year ACS in our identified strategic industries. Just over 4 million, or 20.3 percent, of such workers are foreign-born, compared with 18.4 percent of workers overall.
The share of foreign-born workers varies significantly between component industries. In Electric Components and Products, for example, 35 percent of the workforce is foreign-born, while immigrants account for just 9.4 percent of workers in Metal Ore Mining. Overall, workers in 15 of the 43 industries identified as strategically significant are disproportionately foreign-born.
Foreign-born workers account for even larger shares of highly-skilled workers in strategic industries.
The importance of immigrants becomes even starker when we look at the highest-skilled workers. Foreign-born workers make up a highly disproportionate share of the strategic industry workforce with advanced degrees.
Across all strategic industries, foreign-born workers account for 18.5 percent of workers with a bachelor’s degree and 36 percent of those with a graduate degree. Combining these two categories together, 24.9 percent of workers in strategic industries with a bachelor’s or higher are foreign-born, compared with 17.2 percent in non-strategic industries.
In some of the largest individual strategically significant industries, high-skilled immigrants are even more important. In Computer System Design and Related Services, the largest strategic industry, fully half of those with a graduate degree were born outside the United States.
While these figures suggest immigrants play particularly important roles in strategic industries, it is possible that their high credential rates merely reflect incentives in the existing immigration system. It is easier to acquire a work visa if you are already studying in the United States. With ever-dwindling odds in the H-1B lottery, foreign-born workers may face a strong incentive to earn an additional, unnecessary graduate degree, for instance, to have a few extra chances to win the visa lottery. If that were the case, while there might be educational differences between native and non-native workers in strategic industries, labor market outcomes should look similar.
Instead, wage data refutes this story. We find that the average immigrant working in a strategically significant industry earns $15,000—or 17 percent—more than the average native.
Foreign-born talent is becoming more important to strategic industries over time.
The foreign-born share of the workforce in strategically significant industries has grown over time, particularly among the highest-skilled workers.
Overall, the share of foreign-born workers in such industries rose from 14.1 percent in 2000 to 20.3 percent in the 2018-2022 ACS. The foreign-born share of those with a BA or more grew similarly, jumping from 18.5 percent to 24.9 percent.
Among workers with graduate degrees, however, the foreign-born share jumped from 26.1 percent in 2000 to 36 percent today. America’s relative openness to skilled talent, though still insufficient, has allowed firms in strategic industries to meet their growing need for high-skilled workers by tapping into both domestic and international talent pools.
India and China are major sources of talent in strategic industries, which could be undermined by dysfunctional green card caps.
Across strategic industries, India (20 percent), Mexico (12 percent), and China (nine percent) are the three largest sources of foreign-born talent. For those with a college degree or more, India and China are even more important sources of foreign-born talent, accounting together for more than 41 percent of all foreign-born workers in strategically significant industries.
But these two countries’ status as large sources of key talent in strategic industries is threatened by long wait times for green cards caused by annual per-country employment-based green card caps. According to an analysis from last August, Indian workers applying for two categories of employment-based permanent residency visas (EB-2 and EB-3) face an estimated backlog of 134 years to receive them. For Chinese workers, that wait is an estimated 17 years. Even for EB-1 green cards—reserved for applicants of “extraordinary ability” or outstanding researchers—Indian and Chinese applicants can expect to wait five years.
As applicants from nationals of both countries continue to come in, these wait times will only grow further. Dysfunctional, outdated immigration policy therefore threatens to undermine the industries critical to economic and strategic competition with China and other geopolitical adversaries.
Conclusion
Strategic industries are increasingly demanding high-skilled talent both from across the world and domestically.
The attractiveness of employment-based immigration pathways is therefore just as crucial to the health and productivity of strategic industries as trade or fiscal supports typically synonymous with industrial policy. If we fail to pair ambitious public investments with similarly ambitious workforce and human capital policies, we will fail to take full advantage of one of our biggest competitive advantages in strategic industries.
Appendix
