"there is no doubt" H-1B Is A Subsidy

Date: Saturday, August 17, 2002 1:06 PM

*** H-1B NEWSLETTER ***

Get the Facts on H-1B at
www.ZaZona.com

Since the ComputerWorld article by Paul Donnelly was published many people
on both sides of the H-1B debate have been asking when Milton Friedman made
his remarks about H-1B. I contacted Donnelly and he explained that the quote
came from direct conversations between him and Friedman.

Donnelly should be commended for getting this article on the ILW website
where more than 30,000 immigration lawyers hang out. They will squirm when
they read this because they make a good living off the H-1B traffic. The ILW
site is the home of ilk like immigration lawyer Joel Stewart who said "even
in a depressed economy, employers who favor aliens have an arsenal of legal
means to reject all U.S. workers who apply." To read more of Stewart's
instructions on how to screw American workers go to
http://ilw.com/lawyers/colum_article/col_joels/2000,0424.shtm

The article below is a searing attack on some of the icons of H-1B such as
the Cato Institute, AILA (American Immigration Lawyers Association), and the
NIF (National Immigration Forum). Donnelly masterfully makes hamburger out
of Harris Miller and explains why H-1B is a "cascading mess".

It's very significant that Donnelly discussed the demise of Spencer Abraham.
He acknowledges that Abraham was defeated in part because of his sponsorship
of the 2000 H-1B increase. The mainstream press, especially Michigan
newspapers, have made an effort to suppress this story. Hopefully a high
visibility article such as this one will make it a little tougher for the
press to continue to deny how powerful the sentiment against H-1B is getting
and how that translates into politics.

Friedman is the high priest of globalist free trade and he is revered by
Cato and the other corporate cronies. Friedman's statements about H-1B
will be a nightmare for them to debate because most of them use globalist
free market rhetoric to argue in favor of H-1B. How can they now deny that
H-1B is a corporate subsidy for cheap labor when their elder statesman says
otherwise?

I don't agree with Donnelly's solution of "Green Cards not Guest Workers"
but I sure appreciate what he has done to debunk the H-1B shills. Here is an
excerpt from a message Donnelly sent to me that is all too true: "there is
NO argument for a temporary visa for IT workers -- virtually all who want to
stay, DO stay, and the only function of the H-1B is to delay their permanent
residency while the lawyers get paid."

http://www.ilw.com/lawyers/colum_article/articles/2002,0816-Donnelly.shtm

The H-1B Is A Barrier To The IT Industry's Recovery
Even Milton Friedman Says "there is no doubt" H-1B Is A Subsidy
by Paul Donnelly

Barring new legislation, next year the H-1B will return to its statutory
level of 65,000 annually. So immigration lawyers face a choice in the advice
they give their clients and, in fact, how they choose to perceive their
clients' best interests: to subsidy, or not to subsidy? It's a two edged
sword. With Nobel economists adding their weight to the evidence of the
dot.com crash that the H-1B based model for the IT industry is economically
inefficient and even counterproductive, it is time to observe that the
interests of the client are not the same as the interests of the bar.

Particularly in firms with big employment practices around high-tech centers
from San Jose to Boston, Seattle to Austin, immigration attorneys have
gotten used to substantial fees from H-1B employers and, tellingly, from
H-1B visa holders themselves. It is a mark of how lucrative the H-1B
program, ostensibly to benefit employers, has become for the immigration bar
that many savvy H-1B visa holders hire their own attorneys to navigate the
process of getting a green card: each 'temporary' foreign worker trying to
become a permanent immigrant can provide work for two lawyers: one for the
employer and one for the employee. Such a deal!

The cascading mess that the H-1B program makes in the wake of the dot.com
bust exacerbates the muddle. Many ILW.com readers are more familiar than I
with the ambiguities in the current INS non-policy on H-1Bs who lose their
jobs. As a matter of the black letter statute, H-1B visa holders who lose
their jobs have lost their legal right to remain in the U.S. The INS' mixed
signals about a grace period in which to find another job, which has no
basis in the law, has surely at least the potential to cause disaster for
tens of thousands of H-1B visa holders who must make major life decisions on
remaining in the U.S. out of status, gambling on finding a new sponsor or
returning to their homeland and perhaps never returning. But let's not kid
ourselves. Nothing makes for more clients like ambiguous, high stakes law.

So it only makes sense that the immigration bar will push for a permanent
increase, or expanded exemptions, for the H-1B program during the inevitable
debate next year. That means continued opposition to deregulating
employment-based immigration, as AILA has done since 1990. Remember: it has
never been the AFL/CIO, nor the IEEE-USA that has blocked deregulating
job-based green cards. It's been the immigration bar and their employer
clients. To represent the interests of the immigration bar, the American
Immigration Lawyers Association is naturally inclined toward a complex
system that is most likely to result in the most work for the most
attorneys.

But is that the best system for the clients - for employers, as well as the
employees? H-1B visas have increased in each of the past five years: from
55,000 to 65,000 to 115,000 to 135,000 to 165,000, not even counting the
exempt categories. It's just plain silly, not to speak of an insult to our
intelligence, when IT lobbyists claim that "the market worked" because a
vastly increased ceiling wasn't reached: the number ISSUED went up 60% (from
135,000 in 2000 to 215,000 in 2001, counting exempt categories), even before
the crash. This year's numbers are down - but they're not down much. Nor are
job-based green cards up sufficiently, even with last year's one-time spike
to 187,000. (A number the INS still hasn't published: What are they afraid
of?) From 1995-2000, green cards averaged 55,000 under the annual limit, and
H-1Bs 55,000 over the statutory cap. That imbalance tells the story.

There are now roughly 700,000 H-1Bs present in the U.S., virtually all
hoping to get green cards. Permanent residency based on jobs is parceled out
at a rate that has averaged under 90,000 a year for a decade. So
employment-based immigration is not a system that can make it up in volume -
not if you like old-fashioned Ellis Island citizenship and free market
capitalism.

It's also a growing question whether it's the smartest legislative tactic.
Everybody knows that immigration issues are not popular in Congress, because
there is so little upside: Spencer Abraham did everything AILA and the
National Immigration Forum asked him, and the result was defeat in his first
bid for re-election. While nobody is making much of an effort for the
coveted Pat Buchanan vote, Tancredo's Immigration Reform Caucus has tripled
its membership - and the fact that the H-1B is a subsidy hits the IT
employer/AILA alliance at precisely its weakest point. Five years ago,
NASDAQ made a powerful argument for the H-1B, the green cards vs. guest
worker argument be damned. Anybody think that's compelling now?

During the last H-1B debate, Harris Miller, the head of the ITAA, told an
interviewer at the Chicago Tribune that the H-1B is a kind of "minor
league", a farm team for the IT industry. This spring, I wrote to Nobel
prize winning economist Milton Friedman, practically the patron saint of the
free market, citing Miller's quote and asking: What is a subsidy?

This is his reply: "The majority of H-1B immigrants do manage by hook or
crook to get permanent residence and become citizens, so as a factual matter
they are not a 'farm team' of indefinitely temporary workers.

"Yet there is no doubt that the program is a benefit to their employers,
enabling them to get workers at a lower wage and to that extent is a
subsidy."

When even MILTON FRIEDMAN says "there is no doubt" that the H-1B program is
a subsidy, that ought to end the argument. What can the ITAA's Harris Miller
say? Or CATO's Steve Moore?

George Borjas of Harvard goes further: "The H-1B program makes a subset of
firms more profitable than other firms, and thereby distorts our investment
decisions. . The only reason is that the subsidy encourages
"over-consumption" of high-tech workers."

For Borjas, the conclusion is blunt: "The H1-B program does precisely what
free-marketeers dislike about subsidies: distort our investment decisions."

Let's be clear: it isn't access to the global talent pool that distorts
investment decisions. It's access to that global talent pool through the
failed regulatory structure of the H-1B and labor certification that
provides a subsidy, guaranteeing inefficient and even counterproductive
economic decisions.

And how much does the H-1B, as a subsidy, distort investment decisions? That
is a very potent question at a time when the collapsing stock values of the
very sector that most relied on this subsidy caused the greatest evaporation
of wealth in American history. Literally millions of Americans who lost
substantial parts of their retirement savings when the NASDAQ cratered will
be very interested to realize that their financial futures are much less
secure, because a government subsidy failed. Has your Senator or
Representative held a town meeting this Congressional recess, taking
questions from constituents? The question has come up.

But - the damage is done. The IT industry has already laid off tens of
thousands of formerly highly-paid workers, including thousands of U.S.
citizens and legal permanent residents, while retaining - if only in minor
league limbo - scores of thousands of H-1B visa holders, many of them trying
to retain their own counsel without steady income. Beware the LAPO
coalition - the laid-off and pissed-off, because Congress listens to voters.

Which is where the second edge of the subsidy sword comes into play.
Subsidies don't simply make the market inefficient. They also limit the
choices that rational players make. As Jack Kemp observes, when you
subsidize something, you get more of it.

The nation's leading expert on labor price elasticity, UT-Austin's Daniel
Hamermesh points out, "the changing need for this subsidy as the fortunes of
the industry have changed is crucial. One might well have justified a
subsidy (which is what it is) when the supply of labor is very scarce. Given
the drop-off in demand with the dot.com bust, that justification surely
doesn't exist any more."

Hamermesh, Borjas and Friedman all recognize that the nature of the H-1B as
a subsidy is to provide the IT industry with lower priced workers. Another
Nobelist, Gary Becker of the University of Chicago, has said much the same
in his Business Week column. Yet every immigration attorney reading this has
instantly thought, "but the regulations require." that H-1B workers get paid
the going rate.

And that's the point. So long as IT employment is defined by regulations
rather than market decisions, the H-1B is actually a hindrance to the IT
industry's recovery. Besides, no serious person who is NOT hiding behind the
regulations concludes the H-1B does anything but provide cheap labor by
delaying permanent residency. Even Rick Swartz, the flexible lobbyist who
claims to represent H-1B workers, effectively concedes the point that
virtually all H-1Bs would prefer permanent residency. He just lobbies to
avoid the deregulation that would make that happen directly.

Friedman's candor in "there is no doubt" calling the H-1B a subsidy
attracted some attention from half-baked libertarians, to judge from my
email when part of the quote above was first published in Computerworld
(please click here). Because the H-1B (and the labor certification process
that is its evil twin) are highly regulated, what those regulations require
are what we get more of - bogus classified ads for highly specific job
qualifications for jobs filled long ago, and the like. I got a call from a
fellow who placed classified ads in dot.com magazines at the height of the
boom a few years back, to ask if I had a list of lawyers who specialized in
employment-based immigration. (Now, I'd send him to ILW.com. Then, I sent
him to AILA.) But I asked - why do you want a list? He explained that he
found that most job ads in IT magazines were NOT placed by the HR people in
IT companies, but by their immigration lawyers.

Any immigration attorneys out there who want to defend that practice to
somebody whose 401(k) lost 50% of its value?

During the debate over the last H-1B hike, I set up a meeting in Cambridge
with Esther Dyson and others who had signed the Open Letter to Congress
calling for green cards, not guest worker visas (covered in the New
Republic, please click here). For a few months afterward, several of the
participants discreetly swapped email debating what to do about the H-1B -
and I was struck by one (an immigration lawyer with a very important IT
practice) who, while careful not to admit that the H-1B subsidized the IT
industry, asked: would that be such a bad thing?

The sensible answer is, that depends on how it is done - which is the
question for immigration lawyers, looking at next year's inevitable fight
over yet another H-1B bill. Does the H-1B promote U.S. citizenship better
than green cards? No. Does it help American workers have long and productive
careers? Nope. Does it help provide for a financially secure retirement for
the millions of Americans who bet their life savings on the New Economy?

Well?

So Milton Friedman gets the last word. As job-based "immigration", the H-1B
is a subsidy: " Yet it may also be a sensible part of immigration policy. If
we must limit immigration, the sensible way to do so is by auctioning off
the immigration permits." Markets are smart and regulations are dumb: the
H-1B program is on the wrong side of the NASDAQ crater. Restrictionists are
restless, but Congress is going to want to do the right thing by the IT
industry: but that will NOT be what is in the zero sum best interests of its
immigration lawyers.

The deregulation train is coming down the road, folks. Are immigration
attorneys going to be the bar on the rails?

About The Author

Paul Donnelly (email: pauldonnelly@mindspring.com) writes about immigration
and citizenship.

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