Hi, I’m Yves. This post illustrates one of our favorite themes: in complex systems, trying to chart a simple path often makes things worse. A big reason for this is that the actors trying to navigate the jungle don’t even have a map of the terrain. Protectionism is a good example of this.
Development economists have found that by erecting various market barriers and providing support to young but high-priority industries, they can succeed in helping them grow large enough to compete globally. But the United States is allergic to industrial strategies, even as it desires command-oriented outcomes: rebuilding its hollowed-out industrial base and defending or even improving its position in advanced technologies. Its failure to ramp up production of 155mm shells and its reliance (according to Alexander Mercouris) on a single factory in Poland for TNT (later generations of less dangerous explosives have by now proved too difficult to produce) indicate notable failures of the plan. Yet it seems to be rampant in the PowerPoint-brained MBA world.
Authors: Mehmet Kanayaz, Assistant Professor of Finance, Smeal College of Business, Pennsylvania State University; Isil Ele, David A. Rissmiller Chair of Finance, Ohio State University; and Umit Gurung, Stan Liebowitz Professor of Finance and Accounting, University of Texas at Dallas. Vox EU
The United States is looking to revitalize its domestic semiconductor manufacturing industry, but are there enough skilled workers to achieve this ambitious goal? Based on global data on 1.6 million employees with semiconductor manufacturing skills, this column presents evidence that U.S. protectionist policies (raising tariffs and visa restrictions) implemented since 2018 may be undermining the very workforce the industry needs to thrive. Fewer U.S. students are graduating with skills relevant to semiconductor manufacturing, and U.S. semiconductor manufacturing companies are hiring less, especially for entry- and junior-level positions.
As the United States seeks to revitalize its domestic semiconductor manufacturing industry through initiatives such as the CHIPS and Science Act of 2022, important questions arise about whether there are enough skilled workers to meet ambitious goals. A recent paper (Canayaz et al. 2024) presents new evidence that, ironically, protectionist policies implemented since 2018 (raising tariffs and visa restrictions) may be undermining the very workforce the industry needs to thrive.
The semiconductor industry sits at the intersection of national security and economic competitiveness. Policymakers have recognized this and have sought to bolster domestic semiconductor production through measures such as tariffs, immigration restrictions, and subsidies. But our analysis reveals that these efforts are having unintended consequences on the industry’s most important resource: its talent pool.
Building on previous work examining the broader economic impacts of trade tensions (Fajgelbaum et al. 2020; Amiti et al. 2019), we focus specifically on how protectionist policies have affected the semiconductor workforce. Our findings highlight a worrying decline in domestic employment, particularly entry-level employment, and a shift in career preferences away from the semiconductor industry.
Using a comprehensive dataset of 1.6 million employees with semiconductor manufacturing skills across the globe, we employ a difference-in-differences approach to analyze employment trends before and after the implementation of protectionist measures in 2018. Our study examines both U.S. semiconductor companies and the education and career trajectories of individuals with relevant skills.
The results were shocking. U.S. semiconductor manufacturing companies saw a 9% decline in hiring activity for science and engineering roles and a 3% decline in overall employee numbers compared to other roles within the same companies. This translates to a yearly decline of 2,285 science and engineering jobs in the U.S. semiconductor manufacturing sector. Between 2019 and 2022, that represents a cumulative loss of 9,140 jobs in an industry that employed 66,382 engineers and 9,768 scientists during this period.
The decline in hiring was particularly pronounced for entry- and junior-level positions, indicating that protectionist policies are disproportionately impacting new entrants to the workforce. This trend is particularly concerning given the industry’s need for new talent to drive innovation and growth.
Additionally, the analysis of educational cohorts reveals a major shift away from chip manufacturing careers. There has been a noticeable decline in the number of U.S. students graduating with skills relevant to chip manufacturing. In 2017, there were 65,290 undergraduates and 39,019 graduate students enrolled in related programs. By 2022, these numbers had plummeted to 12,311 and 20,503, respectively.
We found that U.S. semiconductor companies are responding to these challenges by increasing their hiring of experienced workers outside the U.S. The international divisions of these companies saw a 3% increase in hiring for junior and mid-senior roles. Countries benefiting from this change include Canada, which has strategically amended its immigration policies to welcome more foreign engineers and scientists, and European countries with established semiconductor manufacturing industries, such as the Netherlands.
These findings have significant implications for the success of initiatives like the CHIPS Act. The American Semiconductor Industry Association (2023) projects that 115,000 new semiconductor jobs will be needed in the United States by 2030. By our estimates, at current graduation rates, it could take approximately 16 years to fill these positions. This talent shortage could pose a serious impediment to industry growth and America’s ability to achieve semiconductor self-sufficiency.
Our study highlights the relationship between trade policy, immigration, and workforce development. While protectionist measures were intended to boost domestic manufacturing and employment, they appear to have had the opposite effect on the semiconductor industry’s talent pipeline. A recent study by Bosone et al. (2024) shows that geopolitics began to have a significant impact on global trade from 2018 onwards, in lockstep with the US-China tariff war and coinciding with the timeline of talent shortages observed in the semiconductor industry. Their study also found evidence of “friend shoring” in trade patterns, suggesting that geopolitical considerations are reshaping not only supply chains but potentially talent flows as well, further complicating access to the semiconductor industry’s global skill pool. This highlights the need for a more thoughtful and agile 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, policymakers can consider several key actions.
- Reassessing immigration policyImplement targeted visa programs, such as the proposed “Chipmaker Visa,” to attract and retain international talent in the semiconductor industry.
- Promoting STEM education in JapanIncrease investment in education programs and initiatives that encourage more domestic students to pursue careers in chip manufacturing and related fields.
- Promoting industry-academia collaboration: Promote closer collaboration between semiconductor companies and universities to align curricula with industry needs and provide more internship and research opportunities.
- Developing Retraining Programs: Create initiatives to help workers from other industries transition to semiconductor manufacturing by tapping into a broader potential talent pool.
- Encourage talent retentionImplement policies that make it more attractive for skilled workers to stay in or return to the United States, such as tax incentives for workers who commit to working in the domestic semiconductor industry and student loan forgiveness programs.
- To address the labor shortage and ensure long-term competitiveness in chip manufacturing, Prioritize investments to integrate AI in this areaCoordinate the proposed “Visa for Chipmakers” program with a complementary effort to link chip manufacturing with AI development.
The success of America’s semiconductor recovery depends not just on building new manufacturing plants (“fabs”) and securing the supply chain, but also on developing and retaining a skilled workforce. Our study provides a cautionary tale about the unintended consequences that protectionist policies have on talent development and retention. As the global race for semiconductor dominance intensifies, countries that best develop and attract talented talent will likely emerge as leaders in this vital industry.
The path forward requires striking a delicate balance between promoting domestic capabilities and maintaining the global interconnectedness that has long been a hallmark of the semiconductor industry. By addressing the talent shortage head-on with targeted, proactive policies, the U.S. semiconductor industry can work toward realizing the full potential of its ambitions and ensuring technological leadership for decades to come.
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