Labor costs today make up approximately two-thirds of U.S. business research and development (R&D), illustrating how vital access to high-skilled talent is to America’s economy. In comparison, only about 13% of input costs on U.S. farms for agricultural production, on average, are labor-related. (It’s 39% for specialty crops.)
“Labor costs accounted for $372 billion of U.S. business research and development expenditures in 2020—or over two-thirds of the $538 billion in business R&D performance,” according to a recent report from the National Center for Science and Engineering Statistics. “In 2020, these labor costs included $300 billion in salaries, wages, and fringe benefits; $48.3 billion in stock-based compensation; and $23.5 billion in temporary staffing.
“Across all industries, R&D relies on the creative input of skilled and often highly educated workers, but labor costs as a share of total R&D performance varies among the industries tracked by BERD [Business Enterprise Research and Development Survey].”
More than 80% of the information sector’s R&D costs are for labor, according to the latest data. For pharmaceuticals and medicines manufacturing, 56% of R&D goes to spending on labor. In constant dollars, business spending on R&D increased 63% between 2010 and 2020 (from $279 billion to $538 billion). While the proportion of research and development spending did not change much during this period, the share of R&D spending connected to stock-based compensation increased from 3% in 2010 to 9% in 2020.
At U.S. universities, only about 25% to 30% of full-time graduate students in electrical engineering and computer and information sciences are U.S. students. That means legislation expanding access to foreign-born scientists and engineers could be enormously beneficial to businesses, university research and the U.S. economy.
Despite the significant benefits to the United States of immigrants with technical skills, Sen. Charles Grassley (R-IA) stopped the inclusion of a critical immigration measure in the CHIPS and Science Act of 2022. Although the bill became law on August 9, 2022, Grassley blocked an exemption from annual green card limits and backlogs for foreign nationals with a Ph.D. in STEM fields and those with a master’s degree “in a critical industry.” Senate Republican Leader Mitch McConnell (R-KY) gave Grassley, the ranking Republican member on the Senate Judiciary Committee, a veto, in effect, over any immigration measure in the bill and no other Republican senator intervened during the House-Senate conference committee to stop Grassley, thereby dooming the House-passed measure.
“The benefits of R&D are greater than its costs for the companies performing it but even greater for the country as a whole,” according to Mark Regets, a labor economist and a senior fellow at the National Foundation for American Policy (NFAP). “New knowledge spreads beyond the firm, and new products benefit individuals and other firms that use them.”
Regets notes that innovative firms in America say having talent available is essential. “Without access to the best scientists and engineers, much of this research would not get done or would go elsewhere. Even with much easier international transmission of knowledge, there are huge benefits to being near where R&D is done—that is why research clusters like Silicon Valley form.”
Because science uses more and more advanced instruments and tools, people often think it’s capital intensive, said Regets. “But it is people that matter most.”