An academic study published in 2019 (see below) says that, among nine ways to promote innovation in an economy, skilled immigration is one of the best. The authors don’t delve into how skilled immigration actually works. And I’ve not ever read a study describing how.
In my view, if skilled immigration works exceptionally well, is does so in several related ways: (1) If the immigrant is directly recruited by an organization, they are likely to be slotted into a job which has been vetted by the recruiting firm as high value in advancing a product or service. Let’s call this the Recruitment Effect. (2) If the skilled immigrant arrives through a research institution, such as a university, they will enter into a network of skilled persons and find a particularly valuable venue and topic to pursue. Let’s call this the Network Effect. (3) The very nature of skilled immigration tends to select for persons who are relatively self-reliant, meaning that they can perceive opportunities and adapt to them more successfully than others. Let’s call this the Personal Predisposed Effect.
If the skilled immigrant is used primarily to lower the cost of labor, by substituting for domestic workers, the innovation benefit doesn’t exist and may hinder innovation.
From “A toolkit for policies to promote innovation,” by Nicholas Bloom, John van Reenen, and Heidi Williams. Journal of Economic Perspectives, Summer 2019
Market economies are likely to under provide innovation, primarily due to knowledge spillover between firms. [That is, companies being discouraged from innovating because competitors will benefit by grabbing shares of the market.) This article has discussed the evidence on policy tools that aim to increase innovation. In the short run, research and development, tax credits, and direct public funding seemed the most effective, whereas increasing the supply of human capital, for example, through expanding university admissions in the area of science, technology, and engineering and mathematics, is more effective in the long run. Encouraging skilled immigration has big effects even in the short run. Competition and open trade policies probably have benefits that are more modest for innovation, but they are cheap in financial terms and also score highly. One difference is that R&D subsidies and open trade policies are likely to increase inequality, partly by increasing the demand for highly skilled labor and partly in the case of trade because some communities will endure the pain of trade adjustment and job loss. In contrast, increasing the supply of highly skilled labor is likely to reduce inequality by easing competition for scarce human capital.
In Table 2 in the article, the highest net benefits are in R&D tax credits, skilled immigration, and trade and competition. The next rank of a net benefits are indirect R&D grants, and universities stem supply. Lower ranked are patent policies, intellectual property reform and “mission-oriented policies” such as “moonshots.” The latter presumably includes the Biden Administration’s CHIPS and Science Act.