Jag Venugopal's Blog

May 18, 2009

Is the H1B visa useful to America?

Filed under: Information Technology — Jag @ 10:37 pm
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There is a heated debate about whether the H1-B visa program should continue in the face of recession and widespread job cuts. Opponents of the program argue that the H1-B visa is a vehicle for fraud, and for lowering market wages payable to American citizens and permanent residents. Evidence is provided of an ethnic stereotype whose technical skills are sub-par, and whose social skills are significantly worse. Proponents of the program usually trot out one or the other example of a brilliant programmer who came to the United States many years ago, became extremely successful, laid down roots, and started an innovative business that is providing employment to a large number of people.

As is usually the case, the truth is not black or white, but can be found in shades of gray. The H1-B visa has become a vehicle to bring skilled, talented people into the United States, who add significant value, and are paid at the top of their salary brackets. Such individuals do not depress wages. They create additional value. Equally, there is significant evidence for whoever is willing to look with open eyes that the H1-B program, in the hands of storefront “consulting” companies, has become a way to import ultra-cheap labor of questionable quality and competence. This has the dual effect of lowering wages in certain occupations, and driving reasonably competent workers out of those professions, due to the low wages in the marketplace.

The assertion that the H-1B program is being used by certain sections of employers to keep programming salaries low cannot be denied for one simple reason — H1-B employees have little or no leverage with their employers when it comes to negotiating salary and benefits. A US citizen or permanent resident can choose to walk off a job if they find that they are being paid less than what a comparable position would fetch them elsewhere. An H1-B employee on the other hand, does not have the leverage for two reasons. The first reason is that moving to a different employer will require more immigration paperwork (H1-B visas are employer specific), involving time and expense. The second reason is that an H1-B employee is often in the middle of a permanent residence (“green card”) application. The application can take a good part of a decade to come to fruition. And if the employee leaves during certain parts of the process, the entire process needs to be restarted. Thus, even if the H1-B employee is being paid less than what her colleague performing the same job is being paid, there is a strong incentive to grit one’s teeth and bear it, to save the aggravation of either more immigration paperwork or losing one’s place in the green card line.

There is another reason why the H1-B visa is being misused. A large number of H1-B visas are going to individuals recruited by “body shops” of questionable legality, who then place these programmers in various contract positions. Not all body shops are illegal by any stretch, but I am personally aware of individuals with made-up skills and work experience that got in through them. A glance at classified advertisements on the web for body shops (e.g. see http://www.sulekha.com) clearly demonstrates the lack of skill and experience of the potential recruits — the body shops promise to train them in whatever technology is the flavor of the day, before they are placed. If the recruits need to be trained, how can they be highly skilled workers? Classified advertisements on the same website offer “80/20” or “90/10” deals to potential body shop contractors. Under such an arrangement, the contractor finds their own job, while the body shop provides legal cover in the form of H1B paperwork and a green card application. For its services, the body shop takes a cut somewhere in the region of 20%. Note that this is patently illegal but is allowed to flourish. For one, there is no offered job in the bodyshop. Furthermore, there is no fixed salary or benefits. Thirdly, there is a requirement for the contractor to be paid when they are “on the bench.” It is difficult to envision how the body shop can pay a benched contractor under an 80/20 or 90/10 arrangement.

The current debate centers on whether H1-B visas are appropriate given the high unemployment currently being faced in the US. Companies that receive federal bailout funds and hire H1-B workers are now treated as “H1-B dependent employers” under the law. Still, the question arises — should the granting of H1-B visas be suspended? kept level? expanded? eliminated?

There can be no denying the current dismal employment situation all around, even for technology workers. One of the premises of the H1-B program is that workers are imported to address a critical labor shortage. Any honest person would admit that in this present instance, there is no labor shortage. Rather, there is a job shortage. A significant one. Equally, there exist a small minority of individuals whose continued employment is critical to large corporations such as Microsoft and Google. It could be argued that it would cause grave damage to the competitiveness of these companies if they did not have the freedom to hire the cream of the crop coming out of computer science graduate programs, even if they were foreigners.

One way forward that addresses protections for the US worker while giving some latitude to companies is to institute an annual cost of procuring an H1-B visa. This fee would start at $20,000, and would reduce to $10,000 upon the unemployment rate decreasing to a certain percentage. This amount would go straight into a fund meant for training of citizens and permanent residents, and additionally, into increasing enrollments in Computer Science curricula.

A large fee of this nature would still make sense to Google, Microsoft, and friends if their prospective employee was truly highly qualified, difficult to recruit stateside, and contributed significantly to the corporate bottom line. Indeed, it would be akin to the signing bonuses and stock options that these companies offered their recruits just a few years ago.

On the other hand, the fee would increase the hourly rate of body shops by about $10 an hour (assuming 2000 hours per year). Not yet a big deal. but significant enough that the economics of body shopping of unskilled workers starts to erode. By increasing the cost of imported labor, it makes local labor cost-competitive. Yet, this fee would not be so onerous as to completely eliminate H1-B recruiting. It would merely serve to change the competitive equation in favor of those in the US, at a time of significant unemployment.

If we bring in highly qualified temporary workers under a restructured H1-B program, I would also like to see them have the opportunity to lay down roots in the US permanently, through a fair and fast, merit based, permanent residence opportunity — not the decade-long farce that the green card process has turned into. Is it not in the interest of the US that these workers, after they have enhanced their work skills and experience in the US, continue to work, earn, invest in, and enrich their local communities in the US rather than be forced to take it all back to where they came from at the expiration of their visa?

A little disclosure: I had an H1-B visa back during the tech boom of the ’90s. Understand that both sides of the H1B debate (legitimately) argue out of their own self interest — US workers have an interest in restricting the labor pool, which will eventually drive up wages. Employers have the opposite interest — in diluting the labor pool to keep costs down. As always, caveat emptor.

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1 Comment »

  1. The US is facing a job shortage for years to come. The H1-B visa program robs US College grads of opportunity. A recent published poll shows 85% of college grads are on the way home to live with their parents because there are no jobs. Over the past 3 years the labor market has been shrinking and has not absorbed a significant amount of the nearly 15 million college grads from the US. America has plenty of under utilized talent from it’s own cities and towns. The H1-B visa is an out dated program filled with fraud and should be abolished.

    Comment by Joe Orlando — October 27, 2010 @ 7:46 pm | Reply


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