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The topic of immigration policy has
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really heated up in the last few years,
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but we also know that it is having an
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impact on the labor force. In fact, a
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new paper looks at how it is impacting
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companies. The paper partly by Wharton
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professors Britta Glennon and Ezekiel
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Hernandez suggests that it is leading to
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a higher level of M&A activity using the
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corporate deal making as a way to
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mitigate maybe not being able to fill
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some of the labor gaps. Ezekiel
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Hernandez joins us right now. He is a
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professor of management here at the
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Wharton School. Ezekiel, great to talk
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to you again. How are you?
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>> Good, Dan. How are you? Thanks for
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having me on.
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>> I'm doing well. All right. So, I guess
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let's start. What was it that piqu your
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interest in looking at this connection
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between what we're seeing going on
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around immigration policy and how
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companies are having to react to it?
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>> Yeah. Yeah, I mean nothing could be more
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current, right, with everything that's
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in the headlines and all the politics
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around immigration and and you know, I
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think we can all agree we're in an
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environment where uh there's a a move to
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restrict uh the arrival of of foreignb
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born talent to the United States and and
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many other countries. We wanted to know
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how companies react. Uh what what are
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they going to do in the face of those
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shortages? That was really the the
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motivation is just to understand that
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this is not just an issue that affects
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the economy as a whole, but it affects
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companies very specifically.
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>> So, take us through the dynamics of what
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it is that companies are doing and why
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they see the move to go the M&A route to
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be able to clear up some of these issues
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around being able to have uh some very
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important labor components, people that
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would probably be coming in through the
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H-1B visa program.
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>> Yeah. Yeah. So that's important. This
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paper is specifically uh using data from
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the H-1B program. Uh and also I should
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emphasize that the data we looked at is
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from before sort of the current uh
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presidential administration, right? Uh
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the the unique feature of the H1B
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program, of course, is that there's a
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limit on how many visas are available to
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firms. That's 85,000 per year. uh and
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because firms demand a lot more than
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that number, these visas are allocated
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through a lottery. And so that gives us
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a unique opportunity to see what happens
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when firms either miss out on the
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lottery or you know uh several years ago
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when the number of visas available went
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down significantly. How did the firms
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most affected by that react? And what we
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found, as you noted, is that there
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really is a scarcity of of talent and
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and of skilled talent in this case in
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particular, that is firms make more
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acquisitions when they miss out on that
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talent. Uh now, this is a really notable
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finding for a lot of reasons. There's a
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lot of things that firms could do. One
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of them could be do nothing, right? Just
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wait it out. Uh, another one could be if
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you really believe that there's enough
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uh US-born talent or or other talent
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already in the labor market, you might
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think, well then firms don't have to
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find a workaround to this. And so what
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our results are saying is that there
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really is a shortage. That is firms are
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not crying wolf. Uh, and they're using
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acquisitions as a way to either get the
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talent that they wanted from a firm that
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already has it or get the result of what
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that talent was going to do, say build a
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certain technology or product. And so it
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makes it that much easier, at least with
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some of the dynamics in play right now,
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to kind of work around the concept of
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the H-1B visa program, the numbers as
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you alluded to, and just go ahead and
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buy the company that already maybe has
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that talent.
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>> Yeah. I mean, if you can't hire, you buy
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right now. Of course, I think it's very
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important to say that this is second
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best, right? This is not what firms
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wanted to do as their first option. they
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wanted to hire a set limited number of
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people, incorporate them into their
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current teams and maintain the workflow
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that they already had. So, you know,
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it's very possible that that uh firms
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might have chosen to do nothing because
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it's very disruptive to go out, buy a
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firm, go through the process of post
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merger integration, which just again
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highlights how very important this
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talent is for firms that they're willing
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to take on all the risks entailed in in
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a merger or acquisition. There are quite
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a few dynamics that that you and your
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cohorts uh look at. One that I wanted to
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bring up was the dynamic of the size of
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the company in terms of the acquisition,
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small versus large, and how that plays
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into maybe the decision to make that
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purchase, to make that M&A move.
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>> Yeah. And this is an important finding,
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right? Obviously, these acquisitions, if
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they're really a response to talent
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shortage or missing out on hiring,
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anywhere from a handful to maybe several
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dozen, maybe at most if it if you're a
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big firm, a few hundred workers. You
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know, these acquisitions have to be can
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measure it in size, right? You you know,
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like a talent shortage is not going to
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apply is not going to explain Disney
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buying Fox, right? That has a totally
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different strategic purpose. And so
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being sort of like an aqua hire or or a
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workaround to talent shortages, yeah, we
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tend to find that these deals tend to be
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small, right? Somewhere in the five to
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10 up to maybe 20 million range. After
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that, um, you know, we're not seeing the
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effect. So, you know, that again is
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consistent with a talent substitution
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mechanism as opposed to another
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motivation for the deal. But the
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importance of having these employees
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especially to a company's bottom line we
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are learning is becoming that much more
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important to have that value and in many
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cases to be able to either expand you
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know current success that a firm has
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already had or maybe even expand new
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pipelines that they're looking to add in
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in the years ahead.
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>> Yeah. I mean, look, we we know a lot of
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uh things from other studies uh done by
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other scholars uh on on the importance
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of these H-1B workers. And I know this
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is a very political subject in terms of
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the visa program specifically, but you
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know, the H-1B program is the main
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vehicle or one of the main vehicles by
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which US companies can hire skilled
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people with bachelor's degrees or
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higher. We know, for example, that
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immigrants in the United States are
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responsible for over a third of all
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patents, and many of those immigrants
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enter through programs like the H-1B. We
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also know that startups, right, that
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that that miss out on hiring H-1B
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workers, uh, they're less innovative.
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They're less likely to grow to to end up
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with an IPO or or to have a successful
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exit. That means they're not creating as
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many jobs. And so, these are really
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important outcomes for firms. And and
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the good news is that it's not a zero-
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sum game between like hiring these
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workers on H-1Bs versus hiring native
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workers is that this the unique skills
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these workers bring enable firms to do
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other things that actually create jobs
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for other workers, right? They have a
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multiplier effect. So, you know, the
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fact that we're seeing this acquisition
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effect, again, I emphasize is a really
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strong indicator of how critical these
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workers are.
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>> What do you think then from this
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research are are the most important
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takeaways?
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Uh, I think the takeaway is, uh, firms
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are not crying wolf when they say they
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need these workers, right? They really
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do. And not being able to get them makes
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US-based firms, uh, less competitive,
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right? Uh, now, we can't prove this in
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the paper, but it would be interesting
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to ask as a follow-up to what we're
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doing. Is this causing consolidation in
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the market? Right? Is that consolidation
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affecting innovation? Is it affecting
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the ability to create other jobs? Is it
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affecting the ability of firms to uh
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create products that customers need?
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Right? Those are all implications that
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we need to talk about in a very serious
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way if we're going to get immigration
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policy right and keep firms competitive.
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>> But seemingly this is an area that
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because of the importance of the topic
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right now is going to be probably
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something that's going to be on your
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mind and your colleagues mind to see how
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this continues to develop down the road
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in the years ahead. Yeah, I mean we have
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other research ongoing looking at other
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other outcomes, right? For example, the
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ability of firms to uh create products
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for markets, right? Uh that are relevant
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for those markets and you know, lots of
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other research and it's only getting
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stronger. Remember, the research we did
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was based on immigration restrictions
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that are much weaker than what we're
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seeing right now. For example, the
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$100,000 tax on every H-1B worker is a
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much stronger restriction than what we
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study. So, it's presumably going to have
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an even stronger effect than what we
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found in our research.
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>> Ezekiel, great to talk to you again.
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Thanks very much for your time. All the
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best.
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>> Thank you. Ezekiel Hernandez, who's a
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management professor here at the Wharton
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School.
