Oh, H-1Behave Yourself!

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Who doesn’t love immigrants? Nobody. That’s who.

OK, maybe a few people… 

But I can tell you who loves them dearly – American corporations. Especially, the 6-year H-1B employee visa for Indian and Chinese tech workers. And shockingly, it’s not because of heartwarming tales of diversity and inclusion. Skilled immigrants deliver – more work for less money and turnover. 

I’ve written about the problems with the H-1B program before. It’s profoundly broken. But it doesn’t need to be cut, as the President suggests, merely reformed.

Yesterday I saw this piece by Noah Smith in Bloomberg Opinion. I agree with his general thesis that skilled immigrants are good for the economy, especially if they stay and start companies here. Or, just pay taxes on generally higher salaries. My main issue is with this last part of Noah’s piece:

But unfounded worry over wage competition is surely a big reason for antipathy toward H-1Bs. H-1B workers in the technology industry tend to be paid less than their native-born counterparts, suggesting that employers use foreign workers to try and hold down pay. And many H-1B opponents think they know the reason; visa holders, they allege, are tethered to a single employer, unable to change jobs for fear of being forced to leave the country. A worker who can’t switch companies probably will accept less in compensation. For this reason, some commentators have likened the H-1B program to indentured servitude.

This criticism is vastly overblown. A law passed in 2000 made H-1B visas much more portable. An H-1B holder can now switch employers and start working before the paperwork is approved. Even if an H-1B worker is laid off, he or she can stay in the country for 60 days to find a new job.

Although the H-1B program does have its flaws, it’s a good program, and it should be expanded. More skilled foreign workers aren’t going to hurt native-born Americans; they’re here to help.

The U.S. Needs More of India’s and China’s Best and Brightest, Bloomberg 

A rebuttal, based on firsthand experience managing a global team with H-1Bs at a Fortune 100 US company.

While the H-1B doesn’t “hurt native-born Americans” today, it might do so implicitly by not investing in domestic skills for the future. I’d have to see the math to be sure. 

H-1Bs don’t officially make workers indentured and underpaid. But unofficially, workers can only move to other companies that sponsor visas. Many companies don’t. So, that:

  • reduces the size of the job market for visa-holders
  • increases employer cost to hire an H-1B, especially late in their term
  • creates transactional friction (delays and paperwork, only some of which has been eased with legislation)

Together, these limit options and pay for H-1B workers.

Though I don’t have direct evidence, I’ve heard from reliable sources that some companies have unofficial agreements not poach each other’s H-1B’s. (I’ll leave that to journalists to sort out.) But don’t assume it’s far-fetched: 

‘When Rules Don’t Apply’: Did Silicon Valley tech giants learn from no-poaching antitrust case?

Because many H1B workers arrive without families (certainly without extended families), they tend to work longer hours, so companies get more bang for the buck.

How much buck?

Since most H-1Bs from India and China come from MUCH lower base salaries – and most companies determine salaries based on past earnings and peer ranges – H-1B’s end up consistently earning towards the lower half of their salary bands. That’s often a big difference.

On top of that, a handful of H-1B visa-hoarder middlemen handle most of the supply, favoring existing huge clients.

“the H1-B process..exclusively favors giant companies..It forces all applications to start submissions in March. They usually run out by June. BUT — employees can’t start work until OCTOBER! What small company can afford that..delay? Very few.” – First Manufacturing, Now It’s Bye Bye Tech

Many reforms are needed, like:

  1. Tax H-1B employers to subsidize training for domestic workers to close the skills gap and improve the local candidate pool.
  2. Eliminate favoritism, middlemen and time lag in the H-1B process. For example, let workers start right after approval and give smaller companies equal footing.
  3. Remove friction. Make it easier for H-1B talent to switch jobs and stay in the US.
  4. Most important, develop a domestic competitiveness strategy for what skills to develop domestically vs import – and at what scale.

I wonder where we’d be if we taxed H-1B salaries at 10%. And used that money to fund domestic STEM training. (I’d guess 10% is at or below how much H-1B workers are underpaid.) Would we then have a more qualified domestic workforce? I’d like to believe so. But it’s far from certain. From my experience, foreign workers are hungrier and harder-working. They set a high bar.

Better answers start with a smart immigration policy – something we haven’t had in ages. We need to look at demand, create the right incentives, eliminate unnecessary friction – or add friction, when needed. Until then, it’s all power games, politics and platitudes.

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