How and Why Government, Universities, and Industry Create Domestic Labor Shortages of Scientists and High-Tech Workers (Content)

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Eric Weinstein's 1998 NBER paper, "How and Why Government, Universities, and Industry Create Domestic Labor Shortages of Scientists and High-Tech Workers," argues that the perceived labor shortages in the U.S. science and engineering fields are deliberately manufactured. He explains that key stakeholders—government, universities, and industry—manipulate the labor market by artificially suppressing wages through policies that encourage the influx of foreign labor, particularly via immigration programs like H1-B visas. This oversupply of foreign talent, combined with stagnant wages, discourages domestic students from pursuing advanced technical training, ultimately leading to a reduced pool of homegrown scientists and engineers.

Weinstein focuses on the role of the National Science Foundation (NSF), which, during the 1980s and 1990s, projected severe shortages of scientists and engineers. These projections, based on flawed supply-side economics, ignored the natural corrective mechanisms of the labor market, such as rising wages that would attract more domestic workers. The paper highlights how these shortage claims were used to pass the Immigration Act of 1990, which significantly increased the number of visas for skilled workers, worsening the job prospects for domestic PhDs. In conclusion, Weinstein argues that the interests of domestic knowledge workers are overlooked, as policies favoring wage suppression and market manipulation benefit employers at the expense of long-term innovation and economic stability.

Summary of Sections

1. Introduction

Weinstein opens by challenging the notion that long-term labor shortages, particularly in high-tech fields like science and engineering, occur naturally. He argues that these shortages are artificially created by government, universities, and industry through wage manipulation and immigration policy. The key assertion is that by avoiding wage increases, employers lobby for immigration and government funding, leading to an oversupply of foreign workers, which depresses wages for domestic scientists and engineers.

2. The 1990s and The Flooded Market for Scientists and Engineers

This section discusses how, since the 1990s, the market for PhD-level scientists and engineers has been oversaturated, particularly with foreign labor. The influx of foreign students and postdocs, especially those on temporary visas, is identified as a primary factor. As foreign PhDs became the majority in many technical fields, domestic wages were suppressed, and the employment prospects for U.S. scientists and engineers diminished.

3. Threats of Shortage and the Immigration Act of 1990

Weinstein discusses how the Immigration Act of 1990 was passed in response to warnings from the National Science Foundation (NSF) about an impending shortage of scientists and engineers. This led to a significant increase in the number of visas available for skilled workers, particularly from East Asia. However, instead of addressing any actual shortage, this influx worsened the job market for U.S. workers by suppressing wages and increasing competition.

4. The NSF Scarcity Projections Vs. Standard Economic Methodology

This section critiques the methodology used by the NSF to predict a shortage of scientists and engineers. Weinstein explains that the projections focused solely on the supply side—ignoring demand—which led to erroneous conclusions. This supply-side analysis was seen as unorthodox by most economists and was heavily criticized as a form of “voodoo economics.” The section describes how these projections failed to account for market adjustments, such as rising wages, that would naturally occur in a free market.

The Supply Side Appeal: Here, Weinstein describes how the NSF's methodology was based on the idea that increasing the supply of PhDs would resolve shortages. However, this ignored the fact that demand for these PhDs was not rising, and the natural wage mechanism was being suppressed by policy interventions.

The Analysts Respond: Economists and labor market analysts pushed back against the NSF's projections, stating that the market would correct itself through wage adjustments, not through government intervention or increased immigration.

5. The NSF's Real Shortage Study

Weinstein delves into the lesser-known internal NSF study that projected rising salaries for PhD-level scientists as the "pessimistic scenario." This internal analysis showed that wages would naturally increase in response to a tightening labor market, but these findings were suppressed because they threatened the political agenda of maintaining low wages through the influx of foreign labor.

6. The Three Traditional Policy-Level 'Stakeholders': Government, University, and Industry

This section highlights how the government, universities, and industry worked together to manipulate the labor market for their benefit. Weinstein discusses the formation of the "Government-University-Industry Roundtable" (GUIR), which brought these stakeholders together to control labor costs and influence policy. Instead of allowing wage competition, these groups collaborated to depress wages by expanding immigration and securing government funding for technical training.

7. Further Irregularities

Weinstein explores several irregularities in the labor market manipulation, including the suppression of critical analysis within the NSF. He provides examples of how internal divisions within the NSF, such as the Statistics Division (SRS), were marginalized when their findings contradicted the shortage narrative. He also discusses how Congress was misled by the NSF’s inflated shortage projections.

8. Conclusion: The Scientist or Knowledge Worker as Forgotten Stakeholders

The paper concludes by emphasizing that the real victims of these policies are the domestic scientists, engineers, and knowledge workers who have been left out of the decision-making process. Despite being the backbone of the U.S. innovation economy, these workers have seen wages stagnate and job security erode due to the manipulation of the labor market by the government, universities, and industry. Weinstein calls for a reassessment of these policies and for the needs of domestic workers to be prioritized over the interests of large employers.

Supporting Materials

Throughout the paper, Weinstein includes several Wage Boxes and Predictions Boxes that provide additional commentary and quotes from key figures in academia, industry, and government. These boxes highlight the prevailing views on wage suppression and labor market manipulation, as well as predictions from economists and demographers about the future of the labor market for scientists and engineers.