Solving a Labor Crisis or Exploiting Foreign Tech Workers? The H-1B Visa in Review

2014 applications for the regular H-1B visa hit their cap of 65,000 in less than a week of the application opening. And with the immigration reform debate effectively dead before the midterms, the possibility of raising that cap has all but vanished. The H-1B visa allows specialized foreign workers into the country to work for certain companies, predominantly in the IT space, for a predetermined amount of time. The U.S. tech industry has lobbied the federal government to raise the cap, arguing that these visas are necessary for continued innovation and dominance over foreign competitors.

However, in “Immigration and the tech industry: As a labour shortage remedy, for innovation, or for cost savings?” author Norman Matloff finds evidence contrary to the narrative espoused by the tech lobby. The tech lobby makes two major claims about H-1B visas: that they serve the purpose of filling labor shortages for skilled labor, especially in electrical engineering and computer science, and that they are a route for bringing in innovative talent from abroad. Matloff uses two comprehensive data sets, the 2003 National Survey of College Graduates (NSCG) and PERM to counter these claims. He argues that the H-1B visa serves more as a method for bringing in cheap, indentured labor compared to American worker alternatives and that the visa is a potential source of a native tech brain drain.

The labor shortage claim applies to both the undergraduate and advanced degree level. Labor shortages in given industries would manifest themselves in corresponding wage growth. However, 2011 data show that “starting salaries for new computer science graduates were only up 3 percent from the year before, certainly not indicative of a shortage.” Matloff contends that there has been market saturation in computer science and electrical engineering at the advanced degree level. Overproduction of advanced degree holders can be seen in the growing popularity of the post-doctoral fellowship, which can act as a form of “disguised unemployment.” A 2012 study found that “postdocs were now the first post-degree positions for 41 percent of new PhD engineers, more than doubling from 18.9 percent a decade before.

The tech industry also claims that H-1B visas give it access to the best and the brightest computer scientists and electrical engineers. If tech firms are hiring the best and the brightest engineers from abroad, one would expect these engineers to be more highly valued by the tech firms (manifested by higher wages) and be producing patents and working in R&D positions at higher rates than the U.S. tech workforce.

The author addresses these claims through various regression analyses looking at the impact of age, degree type, job function, and former foreign student status on a worker’s wage, patent production, and probability of R&D work. Notably, his results indicated that a worker’s former foreign student status had a negative impact on a worker’s wages in computer science work, a worker’s patent rate in computer science, and the likelihood that a worker was engaged in a R&D position in both computer science and electrical engineering.

While the author counters the positive claims made by the tech industry, the most egregious claim made by Matloff is that the H-1B visa serves the purpose of allowing tech firms to pay foreign workers significantly less than American counterparts doing comparable work.

Although sponsors of H-1B visa holders are required to pay the “prevailing” wage in their given industry, the prevailing wage does not account for skills that generally command a premium in native workers, such as iPhone programming (estimated at about a 20 percent premium as of 2011). Many firms employing programmers expect their applicants to have knowledge of multiple languages and platforms that command significant wage premiums compared to a base programmer. Matloff’s analysis of the top firms sponsoring H-1B visas shows that none of the top ten firms pay a median salary above the 20 percent premium for specialized skills.

Additionally, H-1B visas can arguably act as a form of indentured servitude, tying an employee to a specific sponsoring employer for the duration of the visa. Being bound to a specific employer has the result of limited upward wage mobility, as it is less risky for a firm to forgo wage increases for visa holders than to forgo wage increases for American workers who are extremely mobile.

Finally, Matloff indicates that use of the H-1B visa has the effect of a native brain drain. He suggests that the growing proportion of advanced engineering degrees going to foreign students has resulted in downward wage pressure for American MS and PhD graduates. This has the potential to dramatically disincentivize American students from pursuing these degrees resulting in a future native labor shortage.

The author does not quantify the effects of his labor shortage prediction nor does he explicitly argue for a reduction in the number of H-1B visas authorized by the U.S. government. However, he clearly believes that their use has had adverse effects both on the foreign H-1B visa holders as well as the American workforce that competes with them for jobs in the computer science and electrical engineering fields. Further investigation into the determining factors for declining proportions of Americans in advanced engineering degree programs is needed.

Article Source: Norman Matloff, “Immigration and the tech industry: As a labour shortage remedy, for innovation, or for cost savings?,” Migration Letters 10, No. 2 (2013): 210-227.

Feature Photo: cc/(Fidel Ramos)