Research Economic Seminar: Labor market tightness and recruitment of foreign skilled workers

While recruiting foreign skilled workers in the United States is costly in time and money, firms’ demand for foreign workers has largely increased over the last decade. This paper explores the determinants of this increasing demand and documents the role played by labor market tightness and by the increasing number of international students graduated from US universities. We investigate employers’ preferences between native and foreign-born workers by estimating the elasticity between the share of new international graduates and the share of newly recruited foreign skilled workers. We combine the American Community Survey with university administrative data. Therefore, we observe labor markets cells defined by city and major of education on each year between 2010 and 2019.  We adopt a new instrumental variable approach where we predict variations in the supply of newly graduated international students with variations in college tuitions and fees. Despite the increasing demand of firms for foreign workers, first results indicate that employers still favor native over foreign newly graduated workers. More importantly, this preference increases in occupations where native have a comparative advantage with respect to international graduates but decreases in tight labor markets.