Labor costs now account for approximately two-thirds of US corporate research and development (R&D), showing how important access to high-quality talent is to the American economy. In comparison, on average, only about 13% of input costs on US farms for agricultural production are labor-related. (It is 39% for specialty crops.)
“Labor costs accounted for $372 billion of US corporate research and development spending in 2020 — or more than two-thirds of the $538 billion in corporate R&D output,” according to a recent report by the US National Center for Science and Engineering Statistics. “In 2020, these labor costs included $300 billion in salaries, wages, and benefits; $48.3 billion in stock-based compensation; and $23.5 billion in contingent workers.
“In all industries, R&D relies on the creative input of a skilled and often highly skilled workforce, but the share of labor costs in total R&D output varies between the industries BERD tracks [Business Enterprise Research and Development Survey].”
According to recent data, labor accounts for more than 80% of information sector R&D costs. In the manufacturing of pharmaceuticals and medicines, 56% of R&D is spent on labor costs. In constant dollars, corporate R&D spending increased by 63% between 2010 and 2020 (from $279 billion to $538 billion). While the proportion of R&D spending did not change significantly during this period, the proportion of R&D spending related to stock-based compensation increased from 3% in 2010 to 9% in 2020.
At US universities, only about 25% to 30% of full-time graduate students in electrical engineering and computer science and information sciences are US students. This means that legislation expanding access to foreign-born scientists and engineers could be of enormous benefit to companies, academic research and the US economy.
Despite the significant benefits to the United States of immigrants with tech skills, Senator Charles Grassley (R-IA) stopped the inclusion of a critical immigration measure in the CHIPS and Science Act of 2022. Although the law went into effect on August 9, 2022, Grassley blocked an exemption from annual green card limits and arrears for foreign nationals with a Ph.D. in STEM subjects and those with a master’s degree “in a critical industry.” Republican Senate Chairman Mitch McConnell (R-KY) gave Grassley, the senior Republican member on the Senate Judiciary Committee, veto power over any immigration measure in the bill, and no other Republican senator intervened during the House Conference Committee to stop Grassley and deal with it doomed to perish House-tested measure.
“The benefits of R&D are greater than its costs to the companies that conduct it, but even greater to the country as a whole,” said Mark Regets, labor economist and senior fellow at the National Foundation for American Policy (NFAP). “New knowledge spreads beyond the organization, and new products benefit individuals and other organizations that use them.”
Regets notes that innovative companies in America say it’s important to have talent on hand. “Without access to the best scientists and engineers, much of this research would not be done or would go elsewhere. Even if international knowledge transfer is much easier, being close to R&D has enormous advantages – that’s why research clusters like Silicon Valley are forming.”
Because science uses more and more advanced instruments and tools, people often think it’s capital intensive, Regets said. “But the most important thing is the people.”