Yves here. This post illustrates a pet theme of ours: that in complex systems, trying to map a simple path through them often makes things worse. The main reason why the groups trying to hack their way through the jungle is that they don’t even have a map of the area. Protectionism is an example.
Development economists have found that erecting different market barriers and providing support to young but important industries can actually help them grow large enough to withstand global competition. But the US is not sensitive to industrial strategies even though it wants results that look like a dirigiste, that is, to rebuild our empty industrial base and protect, better but progressive, our position in advanced technology. The fact that we have not been able to increase the production of 155 mm shells, and we depend (through Alexander Mercouris) on one factory in Poland for TNT (later the worst explosives have proven to be very difficult to produce so far) is a significant planning failure. Yet that seems to be the norm in the world of PowerPoint-addled MBAs.
By Mehmet Canayaz, Assistant Professor of Finance, Smeal College of Business, Penn State University; Isil Ere, David A. Rismiller Chair in Finance, The Ohio State University; and Umit Gurun, Stan Liebowitz Professor of Finance and Accounting, University of Texas at Dallas. Originally published at VoxEU
The US aims to revive its domestic semiconductor manufacturing industry, but will there be enough skilled workers to meet the ambitious goals? This column presents evidence, based on a global dataset of 1.6 million workers with chip manufacturing skills, that US protectionist policies – increased tariffs and visa restrictions – implemented since 2018 may have undermined the very workers they need it is the industry to develop. The number of US students graduating with skills related to chip manufacturing has declined, and US chip manufacturing firms have cut back on hiring, especially for entry-level and junior positions.
As the US aims to revitalize its domestic semiconductor manufacturing industry through programs like the CHIPS and Science Act of 2022, a key question remains: will there be enough skilled workers to meet the ambitious goals? In a recent paper (Canayaz et al. 2024), we present new evidence that protectionist policies – increased taxes and visa restrictions – implemented since 2018, ironically, may have undermined the very workers needed by the industry to develop.
The semiconductor industry sits at the crossroads of national security and economic competitiveness. Recognizing this, policymakers seek to bolster domestic chip production through measures such as taxes, immigration restrictions, and subsidies. However, our analysis reveals that these efforts have had unintended consequences for the industry’s most important resource: the talent pool.
Building on previous work examining the broader economic impacts of trade disputes (Fajgelbaum et al. 2020, Amiti et al. 2019), we focus on how protectionist policies have shaped semiconductor workers. Our findings paint a picture of a decline in domestic employment, particularly in higher education, and a shift in career choices away from the chip industry.
Using a comprehensive data set of 1.6 million skilled workers in chip manufacturing worldwide, we use a cross-sectional approach to analyze employment trends before and after the implementation of safeguards in 2018. Our study examines both US conductor and education and employment firms. leads for people with the right skills.
The results are amazing. We find that US chip manufacturing firms experienced a 9% reduction in hiring activity and a 3% decrease in overall workforce size in science and engineering positions compared to other job categories within the same firms. This means an annual loss of 2,285 science and engineering jobs in the US shipbuilding sector. Between 2019 and 2022, this amounts to a reduction of 9,140 jobs in an industry that employs 66,382 engineers and 9,768 scientists during this period.
The decline in employment has been particularly sharp in entry-level and junior positions, indicating that protectionist policies have disproportionately affected those new to the workforce. This trend is particularly concerning given the industry’s need for new skills to drive strategy and growth.
In addition, our analysis of academic clusters reveals a significant shift in chip manufacturing activities. We are seeing a significant decline in the number of US students graduating with skills related to chip manufacturing. In 2017, there were 65,290 undergraduate and 39,019 graduate students in relevant programs. By 2022, these numbers had dropped to 12,311 and 20,503 respectively.
We find that US semiconductor firms have responded to these challenges by increasing their hiring of skilled workers outside the US. There was a 3% increase in hiring for both junior and mid-level roles in the international divisions of these companies. Countries benefiting from this change include Canada, which amended its immigration policies to welcome more foreign engineers and scientists, and European countries with established chip manufacturing industries, such as the Netherlands.
These findings have profound implications for the success of programs like the CHIPS Act. The Semiconductor Industry Association (2023) projects the need for 115,000 new semiconductor jobs in the US by 2030. Based on our estimate, it would take about 16 years to fill these positions at current graduation rates. This talent shortage could seriously hamper industry growth and the US’s ability to achieve semiconductor independence.
Our research emphasizes the relationship between trade policies, immigration, and workforce development. While the protectionist measures were intended to boost domestic production and employment, they appear to have had a negative impact on the semiconductor industry’s talent pipeline. A recent study by Bosone et al. (2024) show that geopolitics began to have a significant impact on global trade after 2018, coinciding with the US-China tariff war and coinciding with the timeline of our talent decline in the semiconductor industry. Their research also found evidence of ‘friendship’ in trade patterns, suggesting that geopolitical considerations are not only reshaping supply chains but, potentially, talent flows as well, making it difficult for the semiconductor industry to access global talent pools. This highlights the need for a thoughtful but proactive approach to industrial policy that takes into account the global nature of the semiconductor workforce and the importance of maintaining open channels for talent acquisition and development.
To address these challenges, policy makers can consider several key steps:
- Re-examine immigration policies: Use targeted visa programs, such as the proposed ‘Chipmaker Visa’, to attract and retain international talent in the semiconductor industry.
- Increase STEM home education: Increase investment in education programs and programs that encourage more local students to pursue careers in chip manufacturing and related fields.
- Develop industry-academic relationships: Encourage close collaboration between semiconductor companies and universities to ensure curriculum relevance to industry needs and to provide more internship and research opportunities.
- Develop retraining programs: Create programs to help workers from other industries transition into semiconductor manufacturing jobs, tapping into a wider pool of potential skills.
- Encourage talent retention: Implement policies that make it more attractive for skilled workers to stay or return to the US, such as tax incentives or student loan forgiveness programs for those committed to working in the domestic semiconductor industry.
- To close the talent gap and secure long-term competitiveness in chip manufacturing, prioritizing investment including AI in this sector. Guide the proposed ‘Chipmaker’s Visa’ program and additional programs linking chipmaking and AI development.
The success of America’s semiconductor renaissance depends not only on building new manufacturing plants (‘fabrics’) and securing supply chains, but on cultivating and sustaining a skilled workforce. Our research serves as a warning about the unintended consequences of protectionist policies on talent development and retention. As the global competition for semiconductor supremacy intensifies, the nation that best nurtures and attracts top talent is likely to emerge as a leader in this important sector.
The way forward requires a delicate balance between developing domestic capabilities and maintaining the global connectivity that has long been a hallmark of the semiconductor industry. By addressing the talent shortage head-on with targeted, forward-thinking policies, the US semiconductor industry can work to realize the full potential of its ambitions and regain its technological leadership for decades to come.
See the original post for clues
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