Are Foreign and Domestic Information Technology Professionals Complements or Substitutes?

Abstract

The globalization of work raises important questions related to the employment of workers across geographies and how the complementarity or substitution of workers across country borders influences firm profitability. In particular, tension often exists regarding the substitution or complementarity of workers located outside the U.S. or within the U.S. for American firms. We investigate this question in the context of information technology (IT) professionals and assess how domestic and foreign IT professionals contribute to firm profit by utilizing a rare firm-level dataset with information on the locational composition of IT professionals within and outside the U.S. Exploiting a labor market supply-side exogenous shock induced by the American Competitiveness in the Twenty-First Century Act (AC21), which increased the availability of H-1B visas in the U.S. in 2001, we find that foreign IT professionals located offshore and American IT professionals located onshore complement each other in generating profits. Our model and empirical findings are important both for informing firm choices and for shaping and creating public policies that so far appear to have been informed more by emotion than by data and science.