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