Regulating High-Skilled Immigration and the Market for Medical Residents

The availability and flows of immigrant labor can have profound effects on local and national economies. The United States (US), in particular, has long been accustomed to foreign workers, and many argue its global reach for labor has generated broad financial and productivity gains. Much of the contemporary political discourse and research has focused on the quantities and consequences of low-skilled labor immigration to the US. However, high-skilled immigration is also occurring and may be key within specific industries. One US industry of interest due to its size and extensive prevalence of foreign educated workers is health care.

To help satisfy demand for medical services, immigrant clinicians are recruited and relied upon to supplement the native supply of health care personnel. The availability of foreign clinicians ultimately allows medical markets to better equilibrate supply and demand and generates an opportunity for these individuals to earn greater returns on their educational investments.

Within this paper, we use a recent introduction of stronger and targeted regulations toward foreign workers (H1B visa holders) in order to identify the labor demand response of teaching hospitals. These hospitals recruit and clinically train medical school graduates (both domestic and international) and are therefore responsible for producing the next generation of physicians via their “residency” programs. Following the recent economic downturn, employers faced a heavier regulatory burden when seeking out new H1B employees; yet, it is unknown if and how actual labor markets responded to these policy changes. Teaching hospitals, in particular, often rely on multiple sources of immigrant labor, so they may be sensitive to an implicit tax on their marginal hires.

Using difference-in-differences (DD) and triple differences (DDD) techniques, we use data from the largest residency training state to empirically demonstrate a 25% fall in demand for H1B residents and subsequent replacement with US citizens receiving their medical education abroad. The changes are sharp and attributable to the sudden regulatory shift. We also show that this compositional change in residency cohorts negatively affects the supply of physicians to underserved areas. In ongoing supplementary analyses using hospital-level data, we are exploring the effects of the labor substitution on care quality.

Our paper demonstrates the consequences of a misalignment between teaching hospitals’ short-run interests and long-run social welfare objectives. Both theory and empirical observation imply that health care quality and equitable provider allocation can suffer following the policy change. Our work also highlights the influence – and unintended consequences – broad immigration rules can have on unique labor markets. The findings are then relevant to discussions on immigration regulation as well as the future health care provider supply.