The Indian Economy Blog

August 26, 2005

Busting H-1B Myths

Filed under: Labour market,Outsourcing — Amit Varma @ 3:30 am

The Wall Street Journal speaks out against a cap on H-1B visas, and in favour of letting market forces decide. It writes:

Contrary to the assertions of many opponents of immigration, from Capitol Hill to CNN, the size of our foreign workforce is mainly determined by supply and demand, not Benedict Arnold CEOs or a corporate quest for “cheap” labor. As the nearby table shows, since the H-1B quota was first enacted in 1992 there have been several years amid a soft economy in which it hasn’t been filled. When U.S. companies can find domestic workers to fill jobs, they prefer to hire them.

And let’s not forget that these immigrant professionals create jobs, as the founders of Intel, Google, Sun Microsystems, Oracle, Computer Associates, Yahoo and numerous other successful ventures can attest. The Public Policy Institute of California did a survey of immigrants to Silicon Valley in 2002 and found that 52% of “foreign-born scientists and engineers have been involved in founding or running a start-up company either full-time or part-time.”

Moreover, the notion that Indian software writers are being hired by Microsoft at bargain-basement costs and driving down the wages of Americans is also refuted by the evidence. A Federal Reserve Bank of Atlanta study conducted in 2003 found no negative impact on U.S. wages. Government fees and related expenses for hiring foreign nationals can exceed $6,000, and additional fees accrue if and when the H-1B status is renewed after three years. The law also requires companies to pay visa holders prevailing wages and benefits, and it forbids hiring them to replace striking Americans.

A central irony here is that opponents of lifting the H-1B cap also tend to be the biggest critics of outsourcing, which is fueled by the arbitrary cap.

I am, of course, in favour of completely free movement of goods and labour across the world. But that is an ideal, and politics comes in the way of any ideal being achieved.

6 Comments »

  1. This is a very good intervention by the WSJ. At some level, the H1 B hysteria is silly, given how small the numbers are.

    I too am in favor of complete labor mobility. In fact, I would actually prefer complete mobility of labor to that of capital, only because of the power issues involved, but that is pipe dreaming…

    Comment by Arjun — August 26, 2005 @ 9:58 am

  2. The cap on visas and the like is a classic non-tariff trade barrier. Pipe-dream or otherwise, I think developed countries need to realise this. They seem to have no issues with asking developing countries for free movement of goods/capital and then setting up quotas when it comes to free movement of labour (the one commodity that developing countries have a comparitive advantage in).

    Comment by Reuben Abraham — August 26, 2005 @ 12:46 pm

  3. As the numbers in the table show, there’ve been many years when the H1-B cap wasn’t hit ie, American firms filled their open positions with non H1-Bs.

    And more importantly, even at the peak, only 163,600 H1-Bs were hired.

    In an economy with a total employment of 140 million, that’s slightly more than 1%!

    Unfortunately anecdotes and “human element” stories make for more compelling copy (just like the entire “outsourcing” brouhaha — http://indianeconomy.org/2005/07/16/much-ado-about-nothing/)

    For instance, a story about how an American hasn’t got a job because a firm is hiring only H1-Bs makes the rounds so much so, that the popular perception springs up that H1-Bs are “overwhelming” the American labor force.

    It’s ironic that the anti-H1B crowd is similar to the anti-outsourcing crowd. If a firm can’t hire enough engineers/ workers on-shore, they’ve got NO CHOICE but to go offshore.

    Comment by Prashant Kothari — August 27, 2005 @ 10:18 am

  4. I favor labor mobility too, but the idea that labor mobility does not affect wages is just silly. Like any other commodity, the cost of labor depends on competition – whether directly through immigration or indirectly through imports that embed the labor.

    Comment by Amitabh — August 27, 2005 @ 12:12 pm

  5. >In an economy with a total employment of 140 million, that’s slightly more than 1%

    A false comparison, because IT jobs are such a small part of the US economy. There were only 499,000 IT jobs in the entire US economy in 2002. http://www.bls.gov/oco/ocos110.htm Bringing in 163,600 each year means that 1/3 of the entire existing IT workforce is being added as H-1Bs EACH YEAR to compete for the limited pool of jobs. Being more in scale with the actual size of the IT job market would mean 20,000 people total per year, not 163,600.

    Comment by Blackwood — August 30, 2005 @ 4:02 pm

  6. You raised a good point, Blackwood; however, not all H-1B visas are granted for IT positions. A great many of them are also granted for scientific and engineering jobs, for example. For this reason, we can’t use your analysis to conclude that 1/3 of the entire IT workforce consists of H-1B holders either.

    Comment by Dv — November 30, 2007 @ 12:50 am

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