Reverse Brain Drain

By Edwin S. Rubenstein
December 2001

The most recent figures from the Immigration and Naturalization Service show that more than 34,000 Indians came to the U.S. between October 1999 and February 2000 on the H-1b visa program used most often by high-tech companies. Indians account for 43% of H-1b entrants, dwarfing the next largest group, Chinese workers, 4-to-1. U.S. jobs have long been coveted by South Asian professionals seeking higher salaries and U.S. lifestyles. Wages for software technicians in India, for example, are about half of what they are in the U.S.

Incredibly, in the midst of the current slump, with thousands of foreign engineers and programmers sitting idle, the tech industry still insists that a skilled worker shortage exists.

Technology companies spent much of the 1990s lobbying Congress to raise the number of new H-1b visa workers allowed into the country. At its inception (in the Immigration Law of 1990) the annual H-1b cap was put at 65,000. H-1b workers are “temporary,” working for three years for their sponsor, with a possible extension to six years. The law specifies that H-1b workers must hold at least a bachelor’s degree or its equivalent in their field. Employers of H-1b workers are required to attest that those hires would have no adverse effect on wages and working conditions on U.S. workers and will stay only as long as they were employed by the host company. The program became so popular that Congress increased the visa limit twice – the last to 195,000 a year.

Proponents of the visa program claim that the imported workers are needed because American schools do not graduate enough young people with science and math skills. Microsoft’s chairman Bill Gates and Intel’s chairman Andy Grove told Congress recently that more visas were only a “stopgap” measure needed until U.S. colleges beef up their math and science offerings. Restricting the ability of employers to hire foreigners will simply force them to shift operations abroad, robbing even scientifically proficient U.S. students of job opportunities – or so H-1b advocates claim. 

But even during the boom years, evidence of a high tech labor shortage was in short supply. National Science Foundation data indicate there is a glut in scientists, engineers, and computer programmers. Data for 1997 (the latest available year) show that only 3.1 million, or 24.8%, of the 12.5 million people with science or engineering degrees are actually working in science or engineering fields. The rest are either out of the labor force, unemployed, or working in managerial, administrative, sales, marketing, or teaching positions in fields other than science and engineering. 

There are many reasons why highly trained high-tech personnel leave the field. Individuals change their career interests over time, they may gain skills in another area while on the job, they may move into management responsibilities, or some of their original college training may become obsolete. But if there were a real shortage of high tech workers, wages would rise, pulling qualified workers back into the field. The supply of technology workers would rise to meet the demand for high-tech workers. Eventually the shortage would disappear.

No such trend is evident. Wage increases for computer programmers climbed a modest 7% to 8% per year, not what you’d expect if the industry were really trying to attract qualified employees into the field. The median salary for U.S. citizen scientists, engineers, and programmers is $60,000, with many Ph.Ds accepting post-doc appointments in the low $20K range. High tech employers often hire scientists and engineers as contingent employees (contractors) with low salaries. Not surprisingly, college students stopped majoring in math and science. In 1997 American colleges awarded 25,000 bachelor’s degrees in computer science, down from 42,000 in 1985. 

Less than competitive wages have created a labor market perversity: unfilled positions amidst a glut of qualified high tech personnel. The Commerce Department estimates 190,000 vacancies exist in the information technology (IT) industry alone. Regardless of their source, these job vacancies harm the U.S. economy. A shortage of high-tech workers delays innovation, reduces the growth of high-wage jobs, reduce U.S. exports, and increases the costs of doing business in the United States. Chronic job vacancies have forced many U.S.-based tech firms to move their operations overseas.

Does the H-1b program reduce high-tech job vacancies? Yes and no. At the end of 2001 there were 890,000 H-1b workers in the U.S. In some fields – engineering, computer science – foreign workers account for one-fifth of the workforce. On the face of it, rising numbers of H-1b workers should help reduce high tech job vacancies. But H-1b workers tend to be young and, in the apt phrasing of David North (Soothing of America, 1995), they are “malleable,” meaning they tend to have lower salary demands than U.S. citizens. National Science Foundation studies show that the H-1b is paid between 20% to 50% less than American citizens performing the same work. The presence of low wage H-1b workers reduces wages for all science and engineering workers, thereby discouraging U.S. natives from entering those professions. That trend increases high-tech job vacancies. 

Employers love H-1b workers – and not just for their below average salaries. Employers have considerable leverage over the H-1bs because they promise to sponsor them for permanent residency visas - green cards – after which the worker is eligible to become a naturalized U.S. citizen. Until then H-1b holders are essentially indentured to their employers since their legal right to remain and work in the United States depends on their continued employment. Even more important is the freedom from fear that the H-1b will suddenly leave for another employer, causing a major disruption to the current employer’s project, perhaps even taking trade secrets to another company. This is a major plus for many employers.

Abuses in the H-1b Program

The law specifically prohibits employers from hiring H-1b workers if their doing so would displace U.S. workers from an essentially equivalent job in the same area of employment. This sounds like good protection of domestic high-tech workers until you read the fine print defining “essentially equivalent. A job is not considered essentially equivalent unless it involves the same responsibilities, was held by a U.S. worker with essentially the same qualifications and experience, and is located in the same area of employment. This definition hinges on three aspects: job responsibilities, worker qualifications, and location.

Companies routinely modify job descriptions in order to comply with the “essentially equivalent” regulation. They could fire a programmer/analyst with Oracle experience and hire an H-1b software engineer with Oracle and Access expertise, thus circumventing the worker qualification provision. As far as location is concerned, this is how the corporate shell game works: 
Employee A (American) is transferred from Department 1 to Department 2. 
Department 2 fires Employee A
Department 1 hires an H-1b
Result: Employee A has lost his job, but the company will claim he wasn’t replaced by an H-1b because the two departments are separated – by an office wall.

Furthermore, the law protecting U.S. workers applies only to those employers deemed to be “H-1b dependent.” If a company is not H-1b dependent it can legally fire and replace Americans. So how is such dependency defined?

An H-1b dependent employer is one that has: fewer than 26 full time equivalent employees in the U.S. and more than 7 “non-exempt” H-1bs, or an employer that has between 26 and 50 full-time equivalent employees in the U.S. and more than 12 “non-exempt” H-1bs, or an employer with at least 51 full time equivalent employees in the U.S. of whom at least 15% are “non-exempt” H-1bs.

Exempt H-1bs include any worker who receives wages (including cash bonuses) of at least $60,000 a year AND any H-1b with a master’s or higher degree in an employment-related specialty. It’s hard to fudge salary, but the Master’s degree exemption is easily finessed. A real accredited Master’s degree is not necessary. The company can merely say that the H-1b’s experience is equivalent to a master’s degree. Essentially companies can give a Master’s degree equivalent to an H-1b they want to claim is exempt.

Another loophole is the law’s language specifying that no “displacement” or “lay-off” is considered to have occurred if the U.S. worker leaves the job through “voluntary departure or voluntary retirement.” Obviously the requirement of “voluntariness” is crucial to protecting U.S. workers in situations where H-1bs are being hired. But companies all over the United States are forcing employees to “volunteer” to retire. Older employers are told they can either “volunteer” to retire with severance, or be subjected to a lay off with no benefits. This corporate blackmail is the easiest and most common way of eliminating employees over age 40. Basically the law gives companies the right to fire older employees and replace them with H-1bs.

Data support the age discrimination thesis. Information technology ( IT) workers over 40 are 16% more likely to be laid off than younger workers. It takes older IT workers 21% longer to find a job than younger workers, and when they finally do land a job, older employees typically take a 13% pay cut. The National Science Foundation study , which first reported these findings, concluded that “the data available to the committee are insufficient to establish either the presence of the absence of age discrimination.” These longer percentage for over-40 IT workers might reflect personal choices or simply shifts in the industry, the researchers write. But Norman Matloff, a computer science professor at UC Davis, may have identified the “smoking gun.” He reports that 20 years after graduation only 19% of computer science graduates – the field most affected by H-1b workers - remain in the programming field, while 57% of civil engineers – a field relatively unaffected by the H-1b program – are still in the field. 

Matloff contends that high tech companies create artificial shortages by refusing to hire experienced programmers. The failure to retain older IT workers is part of a deliberate effort on the part of IT companies to keep wages low. Industry spokesmen say older programmers with outdated skills would take too long to retrain. But Dr. Matloff counters by saying that when they push for more H-1b visas, lobbyists demonstrate a “shortage” by pointing to vacancies lasting many months. Companies could train older programmers in less time than it takes to process visas for cheaper foreign workers.

In addition to the pay issue, the IT industry rejects older workers because they will not work the long hours typical at Silicon Valley companies with youthful “singles” styles. Imported labor is only a way to avoid offering better conditions to experienced programmers. H-1b workers, by contrast, cannot demand higher pay: their visas are revoked if they leave their sponsoring companies.

Immigration Inequities

H-1b is a temporary worker program. It is designed to bring in skilled workers only if there is a clear need for them. The law says that the H-1b visa holder is “out of status” the day he or she stops working. In theory, that means workers must leave the country the day after they lose a job. In practice, however, it is much more ambiguous. In the current slump most immigrants who have families, mortgages, and maybe a spouse who works, are staying around to look for another job. If they find one, the new employer can apply for a transfer of their H-1b visa and claim that that the time they spent out of status was due to “extraordinary circumstances.” At least one H-1b worker has sued the company that let him go on grounds that it had not filed for green card status as promptly as promised.

Insisting that unemployed H-1bs must leave the country will strike most people as hardhearted and even cruel. Yet compared to the typical immigrant, H-1bs are given preferential treatment. Millions of immigrants arriving on a family unification basis are denied permanent residency status because of per-country immigration caps. Per-country ceiling requirements are waived in the case of H-1bs. The Mexican wife of a legal immigrant who is barred for 10 years because she overstayed her visa by a year – which is roughly the per-country ceiling’s additional delay for her category – may well wonder why the identical provisions of the law are waived for a neighbor with technical training.

A strong case can be made that the economic well being of both natives and newly minted citizens would increase if our immigration laws favored the entry of skilled workers. Our permanent immigration system is biased toward people with a family member here. Roughly two-thirds of the nearly 1 million legal immigrants each year enter via family ties (even distant ones.) No consideration is given as to whether they possess education, English proficiency, or job skills - the tools of success that help narrow the wage gap between natives and immigrants. Yet since the current immigration system was adopted in 1965, the gap between native and immigrant wage levels and economic has grown. Today the average male immigrant earns 23% less than the average male native; in 1960, immigrant men on average earned 4% more than native men.

The solution to both the social and economic inequities engendered by the present immigration system lies in broad reforms: English proficiency, education, occupational skills, literacy, as well as having a close relative already here, should be taken into account. Under such a system H-1b visas would be unnecessary. U.S. immigration policy should enhance the well being of the native-born and give opportunity to those who will advance the national interest – not special interests to the detriment of our fellow Americans.

Edwin S. Rubenstein is an economist and Director of Research for the Hudson Institute.