Brian's Blog

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Seven Strategic Priorities of US Competitiveness, Part 1.

 

This past Thursday evening at the Newseum, Harvard Business School Professors Michael Porter and Jan Rivkin presented seven broad-spectrum strategic priorities for Federal policy on US Competitiveness. As I mentioned in a recent Tweet, I love the debate that is taking place relative to the future of our great country. I also love that this debate was brought here to DC. A quote in the March 2012 issue of the Harvard Business Review, states that the rigorous and vivacious debate about the future of our country is healthy as long as we maintain a "sense of commitment to the health of the democracy - above party, economic interest, and ideology."

 

I suspect that some of the specific tactics of these seven prescriptions for the economy were left purposely vague. Because of there were too many specifics they would be dismissed out of hand by both the far right and far left wings of the Washington parties.

 

Although there are many, many ways to implement the HBS recommendations, in the spirit of healthy debate, I want to share the ideas from this week’s conference in the context of a few additional studies I found in my research. Then at the conclusion of each idea, I’ll do a little math and estimate the potential economic impact if these strategic priorities.

 

I don’t mean this analysis to be bullet proof nor the final word on the topic, just the starting point of a debate to help me frame a few of the main issues coming up in this Fall’s election campaign season, that are critical to our country’s global economic competitiveness over the next few years. 

 

The seven strategic priorities presented by HBS are:

 

1.      Ease the immigration of highly skilled individuals

2.      Simplify the corporate tax code

3.      Create a competitive international tax code

4.      Aggressively address distortions and abuses in the international trading system

5.      Find simpler and faster ways to regulate business

6.      Enact a multi-year program to improve infrastructure

7.      Create a sustainable federal budget

 

Below, I present an analysis of strategic priority one, and in the coming few days/weeks, I’ll expand the analysis.

 

1. Ease the immigration of highly skilled individuals, starting with international graduates of US universities. According to a Manpower survey, 34 percent of companies have found it difficult to fill vacant positions. In my personal experience over the past two years, there are some great employees that are here in the US on Visas. But with the instability in US policies on work permits, not to mention periodic administrative snafus, it is hard for skilled non-US workers to feel comfortable establishing deep personal roots at US corporations.

 

Taken together, these have led to a massive disintermediation in US labor markets – to the tune of 600,000 jobs vacancies. As illustrated in a study published by Deloitte, surveys show that these 600,000 job vacancies are a result of participants in the US labor market lacking the combination of both the skills and experience.

 

On the other hand, there is an argument that immigration leads to US-born citizens loosing their jobs. This argument seems to not take into account that if the jobs stay in the US, even without the participation of US-born workers that these filled job vacancies still lead to a positive economic impact on the US economy. And that kind of protectionist thinking leads to those jobs ending up overseas, with US-based revenue, tax receipts, productivity, and income going overseas with them.

 

·         Employment: 600,000 additional US workers. For the sake of a quick analysis, I spread these new entrants into the US labor force evenly over from 2013 through 2017. The presumption is that there is a connection between the employment gap and immigration. Although it is unlikely that this gap can be filled 100%, the figures below give an order of magnitude that is easily scalable.

·         Unemployment: This proposal is unlikely to have any direct impact on the unemployment since these workers are immigrating into the US. I do anticipate that there would be an indirect and multiplier impact on unemployment. That is not included in this part of the analysis.

·         Income Tax Revenue: Since these workers would be injecting new labor into the economy, there would be an increase in income tax revenue. To help calculate I used estimates of personal disposable income per capita through 2017.

·         Corporate Revenue: Presumably, these jobs are open because there is “slack in corporate output”. Therefore, by putting this labor to work, corporate output would increase commensurate to the increase in employment. I used estimates of worker productivity through 2017 for this estimate.

·         Corporate Tax Revenue: As corporate revenue increases, so does federal, state, and local income revenue. I applied the 2012 total federal, state, and local corporate tax rate through 2017.

 

Estimated Economic Impact of Immigration Reform

 

2013

2014

2015

2016

2017

Employment (annual)

120,000

120,000

120,000

120,000

120,000

Employment (cumulative)

120,000

240,000

360,000

480,000

600,000

Unemployment

0%

0%

0%

0%

0%

Income Tax Revenue (billions)

1.41

3.03

4.99

7.28

9.72

Corporate Revenue (billions $)

9.37

18.92

28.63

38.51

48.55

Corporate Tax Revenue (billions $)

5.53

11.16

16.89

22.72

28.65

 

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