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Three ways foreigners could (really) boost the U.S. economy

January 26, 2012: 9:58 AM ET

President Obama wants to lure more foreign tourist from booming economies to spend in the U.S. That's not enough. Here are three ways foreigners could actually stimulate American growth.

FORTUNE – In a move to create more jobs, President Obama recently ordered measures to lure more tourists to the U.S. With high unemployment and homeowners struggling to make their minimum mortgage payments, the idea is to leverage the spending power of middle class tourists from booming developing nations like Brazil, China and India.

In 2010, foreign visitors generated $134 billion, making it the largest U.S. service export industry, according to the Commerce Department. And White House officials estimate that more than 1 million jobs could be created in the next decade if the nation owned more of the international travel market.

So what's the problem? President Obama's order misses the bigger picture in the way it views foreigners as a stimulus onto the U.S. economy. The initiatives, which include boosting federal agencies' capacity for issuing visas in China and Brazil by 40% this year, does little in the way of improving U.S. competitiveness. And while it underscores the spending power of foreigners, it overlooks their labor and brain power. True, the idea of bringing more foreigners into the U.S. is a touchy topic. But in the long-run, they could help turn the economy around.

Here are three ways foreign nationals could actually boost the struggling American economy:

Fix the high-tech jobs mess
The U.S. has lagged behind in science and engineering often said to be the foundation for innovation and job growth. In 2008, out of the 5 million undergraduate university degrees awarded in science and engineering worldwide, China earned about 23% while those in the European Union earned about 19%. The U.S. trailed with 10%, according to a report released earlier this month by the National Science Foundation.

What's more, in 2009 students on temporary visas earned the bulk of advanced degrees in the sciences and engineering across American campuses. That is, 57% of all engineering doctorates, 54% of computer science degrees and 51% of physics doctoral degrees, according to the foundation's report. All the while, few U.S. students seem to be getting through math and science. As The New York Times' Catherine Rampell highlighted recently, nearly one in 10 incoming freshman said they expected to major in engineering during the past decade but the share who actually completed degrees has been about half that.

U.S. companies have long struggled with the shortage of highly-skilled workers. Microsoft (MSFT) CEO Bill Gates and others have publicly urged for reforms in immigration policies they say keep businesses from taking advantage of some of the world's most talented workers. Indeed, reforming the U.S. education system is one way to encourage innovation. But making it easier for the best and the brightest minds abroad stay in the U.S. would also help fill the skills gap.

Lawmakers have certainly tried but efforts seem stalled. Last November, House lawmakers approved a bill that would ease restrictions on U.S. entry of highly skilled immigrants by eliminating the number of green cards that is available annually to each country. Currently, 140,000 green cards are available each year for immigrants based on their job skills, with each country -- no matter their size -- limited to 7% of those visas. But while the bill would start issuing green cards on a first come serve served basis, it does not actually increase the total number of green cards dispensed. What's more, Sen. Charles Grassley of Iowa has already placed a hold on the legislation.

Boost innovation and business creation
The typical story of the American entrepreneur is no longer that simple. It used to be that a thriving businessperson would work in a company for a few years and then leave to start a company, stimulating job growth.

But those advocating incentives to lure highly skilled immigrants to the U.S. say American companies looking to expand in places like China and India are increasingly hiring such workers in their homes countries instead of going through the legal headaches of helping them establish U.S. residency. The problem is those workers -- once they've earned degrees at top U.S. universities -- end up working in their homes countries. And as a result, they start businesses there instead of in the U.S.

"The U.S. is exporting its talent," says Vivek Wadhwa, research director at Duke University's engineering school. In his 2007 research, he found that immigrants helped found more than a quarter of the technology and engineering companies established in the U.S. between 1995 and 2005. Just look at eBay (EBAY) and Google (GOOG).

And Emily Mendell, spokesperson for the National Venture Capital Association that represent more than 400 venture capital firms in the U.S., points to a December 2011 study by the National Foundation for American Policy that shows 46%, or 23 out of 50, of the country's top venture-funded companies had at least one immigrant founder. "We would like to see legislation that not only brings down barriers but also attracts immigrant entrepreneurs," she says.

Last March, U.S. senators John Kerry of Massachusetts and Richard Lugar of Indiana reintroduced a visa startup bill that would grant visas to foreign entrepreneurs if they can raise a certain level of funding from a U.S. investor to start a business. However, the bill has not gained much traction since.

Raise wages for all workers
The topic of comprehensive immigration reform has long been politically charged as opponents say immigrants could take away U.S. jobs and further depress wages. But research shows that it could actually help the economy grow as legalized workers open bank accounts, buy homes and start businesses.

Comprehensive reform, which would include legalizing unauthorized immigrants, could increase U.S. GDP by at least 0.84%, according to research by Raul Hinojosa-Ojeda, a professor at the University of California in Los Angeles. This would translate into a $1.5 trillion hike in GDP over 10 years, which include $1.2 trillion in consumption and $256 billion in investments.

Real wages, meanwhile, of less-skilled newly legalized workers would rise by roughly $4,405 per year, while higher-skilled workers would see their incomes rise $6,185 per year as reform could help raise the minimum wage for all workers.

Last May, President Obama made a visit to the U.S.-Mexico border challenging Republicans to get serious about immigration reform after having beefed up border security to reduce the illegal flow of drugs, weapons and humans. Despite the renewed push and nearly two years after the president promised an immigration reform package, a sweeping bill looks unlikely to passed through Congress -- at least anytime soon.

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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