How "Guestworkers" Promote Outsourcing

The H-1B "guestworker" program allows firms to bring foreign workers on a temporary basis in so-called specialty occupations, generally professional positions that require a bachelors degree or higher. It is extensively used by the technology industry to bring in information technology workers. The program has been the focal point of the high-skilled side of the immigration policy debate, and was a significant part of the negotiations in the late comprehensive immigration bill considered by the Senate.

But there is a huge amount of mythology about what this program actually does.

A lobbying coalition of the technology industry and universities is seeking a massive increase in the annual quota of H-1B visas. The group has repeatedly pointed to the fact that the annual H-1B quota of 65,000 visas was filled in a single day as proof that the quota is too small. They pulled out all the stops, enlisting Bill Gates in the lobbying effort. In testimony before the Senate he called for an unlimited number of H-1B visas, portraying the typical visa recipient as a uniquely talented engineer earning more than $100,000 per year.

The carefully orchestrated public relations blitz included support from editorial boards of major newspapers and well placed news articles. Most complained that America was shooting itself in the foot by not importing workers for jobs that Americans are incapable of performing. And if persuasion wasn't enough, the technology industry used the not-so-subtle threat that it will simply shift the work offshore if it can't import workers.

A number of presidential candidates have taken the bait by publicly supporting an H-1B increase. The deep pocketed technology industry has made it clear to them it wants something in return for being an ATM to the candidates.

But in reality, the H-1B program has been thoroughly corrupted. Rather than providing firms with workers who posses unique skills, the program is dominated by low wage workers with ordinary rank-and-file skills. And rather than preventing work from going overseas, the program is speeding it up.

Offshore outsourcing firms rely on the H-1B and related L-1 programs for three principal reasons. First, it facilitates their knowledge-transfer operations, where they rotate in foreign workers in to learn U.S. workers' jobs. In fact, U.S. workers are often "transferring knowledge" under duress.

Second, the H-1B and L-1 programs provide them an inexpensive, on-site presence that enables them to coordinate offshore functions. Many functions that are done remotely still require a significant amount of physical presence at the customer site. For example, according to its own financial reporting, Infosys' on-site workers, almost all of whom are foreign guestworkers, directly accounted for 49.2 percent of its revenue in its most recent quarter.

Third, the H-1B and L-1 programs allows the U.S. operations to serve as a training ground for foreign workers who then rotate back to their home country to do the work more effectively than they could have without such training in the United States. A recent BusinessWeek story described Wipro's use of the H-1B program this way: "Wipro has more than 4,000 employees in the United States, and roughly 2,500 are on H-1B visas. About 1,000 new temporary workers come to the country each year, while 1,000 rotate back to India, with improved skills to serve clients."

The abuse of the program is the result of three loopholes.

The first loophole strikes right at the heart of the rationale for the program -- the supposed shortage of workers with specialized skills, particularly in science and engineering; the H-1B program allows firms to hire foreign guest-workers to fill those gaps. But, because of this loophole, companies do not have to demonstrate a shortage exists for U.S. workers and can even force a U.S. worker to train his or her foreign replacement. The U.S. Department of Labor's 2006 Strategic Plan puts it bluntly, "H-1B workers may be hired even when a qualified U.S. worker wants the job, and a U.S. worker can be displaced from the job in favor of the foreign worker."

In spite of this unequivocal statement, there is widespread and mistaken public belief that firms must demonstrate a shortage before hiring an H-1B. For example, news stories over the past year in the New York Times, Los Angeles Times, San Diego Union-Tribune, and Wall Street Journal (in a front page story at the height of last year's immigration debate) have all erroneously claimed the program requires firms to first look for American workers. And the New York Daily News even recently made the false claim in editorial support for H-1B expansion. Many politicians also hold this misconception, making similarly false claims in their correspondence in response to constituent letters on the matter.

The second loophole enables firms to use the program for cheap labor. The H-1B program's primary safeguard for U.S. as well as H-1B workers is the requirement that an H-1B worker be paid the prevailing wage. In theory the prevailing wage should be at least the market wage -- the wage paid to an American worker with the same skills -- but in practice the regulation is chock full of loopholes allowing employers to pay below market wages. How do we know this? Employers say so. The Government Accountability Office conducted interviews of H-1B employers and reported that, "Some employers said that they hired H-1B workers in part because these workers would often accept lower salaries than similarly qualified U.S. workers; however, these employers said they never paid H-1B workers less than the required [prevailing] wage."

And examples of approved H-1B applications show how big the cost savings can be. In 2006, the U.S. Department of Labor (DOL) rubber-stamped applications by HCL America, a major offshore outsourcing firm, to import 75 computer software engineers at annual salary of $24,710. That's a 70 percent discount on the median wage rate for those occupations and a far cry from the $100,000 claimed by Microsoft's Bill Gates. In fact low wages for H-1Bs is the norm. The median wage for new H-1Bs computing professionals is even lower than the salary an entry-level bachelor's degree graduate would command. So, half of the 52,352 H-1B computing professionals admitted in FY2005 earned less than entry-level wages. And even at the 75th percentile, new H-1B computing professionals earned just $60,000. A recent study by John Miano found that 56 percent of the H-1B applications for computing jobs were for the lowest skill level, "Level 1." The DOL defines such jobs as "internships" or "workers in training."

A third problem, deficient oversight, permeates nearly all aspects of the H-1B program. This leads to a program with pages of regulations that are essentially ineffective and toothless. The DOL's own Office of Inspector General has described the labor certification process, the primary means of safeguarding the labor market, as simply a "rubber stamp" of the employer's application. The process is completely automated, with no person reviewing applications, and the employer is not required to submit any supporting documentation. Based on its examination of the process, the GAO concluded that, "…as the [H-1B] program currently operates, the goals of preventing abuse of the program and providing efficient services to employers and workers are not being achieved. Limited by the law, Labor's review of the [labor certification process] is perfunctory and adds little assurance that labor conditions employers attest to actually exist."

And it is no better after an H-1B is issued. Employers are never scrutinized except in the rare case that an investigation is triggered by an H-1B worker whistleblower, something that is exceptionally rare since H-1B employees have especially strong disincentives to blow the whistle on their employer. Because the employer holds the visa, an H-1B worker who gets terminated is out of status (they would have to leave the country) in the eyes of the USCIS. With cases against employers often taking five or more years to adjudicate, it is no wonder that few violations are ever brought to the attention of the DOL.

Any one of these flaws would cause a program to fail to meet its goals. Couple them together and the result is a disaster, a program that directly contradicts its goals. Rather than filling skills shortages as originally conceived, the H-1B program in practice gives employers a temptation, cheaper labor, they simply can't resist. The raison d'etre of modern corporations is maximizing profits, not maximizing their U.S. workforce or increasing the economic welfare of the United States. If companies can lower costs by hiring cheaper foreign guest-workers, they will. If they can hire vendors who hire cheaper foreign guest-workers, they will. And who can blame them? If they don't take advantage of blatant loopholes, their competitors surely will. Cheap labor explains why the H-1B program is oversubscribed and it also explains why the technology industry has fought to expand government intervention to keep wages low. A sizable share of the U.S. high-tech workforce understands this logic, and justifiably views the H-1B program as a threat and a scam. That's the real danger to U.S. competitiveness. Young people considering a technology career see that industry prefers cheaper foreign guest-workers and that the government uses immigration policy to work against technology professionals.

Another canard from the industry lobbyists is that the H-1B program prevents outsourcing. Instead, the facts clearly show is speeding up the outsourcing of jobs. Seven of the top ten H-1B employers are offshore outsourcing firms -- firms that hire almost no Americans. Those seven firms gobbled up nearly 20,000 visas in 2006 alone. And each of those 20,000 positions is used to lever four to five more workers overseas. Many American politicians act oblivious to what is obvious to India's Commerce Minister, Kamal Nath, who recently dubbed the H-1B the "outsourcing visa." The Indian government views the H-1B as a trade issue, not an immigration one. As such they view any restriction on the movement of people in the form of wage requirements or caps as a non-tariff barrier to trade. Their comparative advantage is low cost labor and Corporate America is lobbying hard to help push through this form of "free trade."

The technology industry claims the United States doesn't produce enough technologists. This claim is specious at best. Wages for information technology workers have been relatively flat while the career risks for the profession have skyrocketed. The industry's track record of attracting female and underrepresented minorities to technical professions has been woeful. By giving the industry a steady diet of cheap labor, there is no reason for companies to expand the domestic talent pool they draw from and invest in American workers to fill these jobs. And it also gives the companies ample opportunities to replace older workers with younger ones, fueling age discrimination. If more than half of the H-1B jobs being filled are for "internships" and "workers in training" then it shouldn't be difficult to pull more Americans into the high-skill ranks.

Fortunately, some politicians are paying attention. The Senate immigration bill included more than just an increase in the number of H-1Bs, it also contained some, though not nearly enough, substantive reforms to the program. Senators Dick Durbin and Charles Grassley, who introduced separate legislation to clean up the H-1B and its lesser known sister program, the L-1, played a key role in ensuring that reforms were included in the comprehensive bill. While the H-1B program's regulations are riddled with loopholes, the L-1 program has almost no regulations -- no wage requirements and no cap.

Guestworker programs like the H-1B and L-1 shouldn't be confused with permanent immigration, something the technology lobbyists have used in their public relations efforts. They falsely claim that increasing high-skilled permanent immigration is contingent on an increase in H-1Bs. If we want to increase the number of high-skilled Americans through higher levels of immigration, then let's make them permanent residents, not guestworkers.

The technology industry has long complained about a systemic shortage of workers, but the only solution it offers is for the government to intervene in the labor market by ratcheting up guestworker programs. Technology executives like Intel's Craig Barrett publicly lambaste our K-12 education system as a complete failure leading to an inadequate pipeline of American workers capable of doing technology. At the same time, his company aggressively plays one state government against another as it pursues property tax breaks when locating a facility. A more sensible set of solutions would be twofold. First, significantly increase investments in U.S. students and underemployed workers so they can fill these job openings. Second, let the market work. If technology workers are as scarce as companies claim, then wages would be bid up and talented workers would choose engineering instead of more lucrative and safe fields in finance, medicine or law.

A country with an effective labor-market policy would have no H-1B program at all.