FOUR H-1B MYTHS

With this H-1B season having drawn to an early close (due to USCIS receiving an overwhelming number of petitions), and with legislative immigration reform still pending, the time seems opportune to dispel a number of myths about the program.

First, some general facts: the H-1B program was created in 1990 to allow U.S. employers to hire up to 65,000 foreign workers (plus 20,000 more with advanced degrees--starting in 2004) in specialty occupations (i.e., typically high-skill work) for a period of three years (renewable once--with shorter extensions available for workers with pending employment green card applications).

So far, about half of all H-1B workers seem to have come from China and India alone. And about half lived in the United States under a different status (often as students) before obtaining their H-1B visa.

The numerical cap (from which institutions of higher education, not-for-profit organizations and government-research organizations became exempt in 2000) was temporarily increased to 115,000 in fiscal years 1999 and 2000, and to 195,000 in fiscal years 2001, 2002 and 2003 (the only time when supply exceeded demand).

Systems analysis and programming occupations tend to account for over one-third of all petitions in any given year. And, more generally, STEM occupations tend to account for almost two-thirds of all petitions. Between five and ten percent are in higher education (mostly biology and life sciences).

Although the demand for H-1Bs tends to be distributed across a large variety of employers, nonetheless, a few large tech and consulting (or staffing) companies account for a disproportionate share (though less than 20%). They include US-based companies such as Microsoft and Deloitte, but also Indian companies such as Tata and Infosys.

The largest geographical concentration of H-1B employees is in the New York metro area (which, perhaps surprisingly, boasts numbers as high as the three great California tech centers combined). For more information, read this 2012 Brookings Institution report.

Now for the myths:

Myth #1: H-1B workers displace equally-competent American workers

In fact, a 2011 GAO report revealed that unemployment rates for systems analysts, programmers, and other computer-related workers have remained essentially unchanged. Employment levels for college and university educators have actually grown significantly. And, although employment levels for certain types of engineers have declined, this is mostly due to cyclical reasons--not competition from H-1B workers.

Meanwhile, according to the Brookings Institution,  over 50% of the world’s engineering bachelor’s degrees are earned in Asia (one-third in China), with another 17 percent in Europe and just 4 percent in the United States. Actually, "even smaller Asian nations outpace the United States on this measure: the combined natural sciences and engineering degrees earned in South Korea, Taiwan, and Japan exceed those earned in the United States, even though America’s population is much larger." (Perhaps this might also help explain why H-1B workers tend to be younger than their U.S. counterparts.)

The GAO report also mentions one speculation about the increasing length of postdoctoral positions over the past decade, especially in the biomedical fields--that it might be due in part to the presence of large numbers of foreign nationals who are willing to work in these low-paid positions for many years. However, regardless of substance, this claim is largely irrelevant to the H-1B argument, since postdocs tend to rely on J visas.

Myth #2: H-1B workers accept lower wages

In fact, by law, H-1B employees must be paid the "prevailing wage," which is defined as "the average wage paid to similarly employed workers in a specific occupation in the area of intended employment." So, in principle, H-1B workers cannot accept lower wages.

But what does the actual data show? The GAO report revealed that among systems analysts, programmers, and other computer-related workers, differences in median reported earnings between H-1B workers aged 20 to 29 and  U.S. workers of the same age were not statistically significantly different, and the same was true for workers aged 30 to 39. Only H-1B workers aged 40 to 50 had median reported earnings that were significantly lower than the median earnings of their U.S. counterparts. (And yet perhaps the fact that H-1B workers tend to be younger than their U.S. counterparts suggests that this marginal discrepancy is even less significant.)

Meanwhile, among electronics and electrical engineers, there was no significant difference in median earnings. And, finally, among college and university educators, differences in reported earnings were not statistically significant except among younger age groups in which the H-1B workers actually had higher reported earnings than U.S. workers in the same age category.

Likewise, a recent private sector review finds that most studies report "no negative income effects" on high-skilled Americans from high-skilled foreign workers--and, more broadly, that high levels of immigration have not slowed down but have actually increased overall wage gains for average, native-born American workers.

Myth #3: H-1B workers are modern-day "indentured servants"

Here, the suggestion is that foreign workers are so dependent on their employers for their presence in the United States that they might be willing to tolerate abusive employment practices.

However, the fact is that H-1B employees are absolutely free to transfer their status from one employer to another, with no need for any prior authorization from the former. They can complete this process through USCIS by premium processing in as little as two weeks.

Myth #4: H-1B fraud is rampant

The alleged fraud patterns are not completely clear. For example, in one small 2008 DHS study, it was estimated that H-1B fraud occurred in about 13% of cases--the vast majority of which involved smaller companies, less educated employees and more marginal occupational categories (such as accounting, human resources, business analysts, sales, and advertising). Moreover, the estimated majority of violations had to do, not with H-1B employees receiving less than the prevailing wage but rather, with misrepresentations regarding the location of their employment. On the other hand, according to the GAO, DOL investigators reported that the bulk of the complaints they received the next year (in 2009) pertained to large Northeastern staffing companies, whereas the majority of reported violations had been failures to pay the required wage.

The fact remains, nevertheless, that the Departments of Labor, Justice and Homeland Security have significant authority to investigate and punish cases of potential fraud and other violations.

Reform Proposal

Ideally, the H-1B cap should be either increased or removed. This is especially important for the U.S. IT industry, which, in order to remain competitive, might feel more pressure to outsource services or offshore operations--as the GAO report indeed revealed that several IT services firms had in fact moved (or were planning to move) work offshore as a result of the cap.

However, if the cap remains low, then, so long as demand exceeds supply, perhaps DHS should consider adding (or should be required to add) new factors to its selection process, instead of subjecting all petitions alike to the same lottery. For example: perhaps US-based companies, and especially smaller employers petitioning for only one employee per fiscal year, should be given priority (considering that these are much less likely than larger firms to find alternative ways to hire their first choice); or perhaps companies with multiple petitions should be allowed to rank order their choices; or perhaps workers with a U.S. education or other U.S. ties should be given priority, etc.