Date: Thu, 26 Jul 2012 23:21:11 -0700 From: Norm Matloff To: Norm Matloff Subject: Brookings and the prevailing wage To: H-1B/L-1/offshoring e-newsletter Yesterday the New York Times Economix blog featured a Q&A on H-1B with the authors of the recent Brookings Institution report. Brookings held a conference on the report about a week ago; my review of the conference in this e-newsletter is archived at http://heather.cs.ucdavis.edu/Archive/BrookingsGeo.txt The blog is at http://economix.blogs.nytimes.com/2012/07/25/answers-to-your-questions-on-skilled-immigration/ (By the way, if you read the blog yesterday, the Brookings people have now updated one of their answers, correcting an earlier statement that general H-1B has a U.S. recruitment requirement.) There are a number of aspects of the blog on which I could remark. But In my posting here, I will comment only on the answer by the Brookings people (whom I'll just refer to below as "Brookings," for brevity) to a question as to whether "H-1B workers work at below-market rates and depress wages in the industry over all." The Brookings answer is that (a) it's against the law to pay below-market wages, but (b) some violation of the law does occur. Of course, claim (b) is valid, though I do have to point out that the SIZES of the violations are usually very small, something like $1,000 per year per worker. But claim (a) is quite incorrect. As Brookings says, correctly, ...employers hiring H-1B workers are required to pay the average wage (or higher) for the occupation and geographical area for which they are hiring. In addition, employers are forbidden to pay H-1B workers less than they pay other workers with similar skills and qualifications. That first remark refers to what the H-1B (and green card) statute refers to as the "prevailing wage," while the statute's term for the second wage level referred to above is the "actual wage." I'll focus on the prevailing wage first, and then come back to the actual wage. The big issue is that the legal prevailing wage does not account for skill sets, specially high talent and so on--exactly the reasons employers cite for hiring H-1Bs instead of U.S. citizens and permanent residents. This has been the consistent claim by employers in the press over the years, e.g. "Yes, there are plenty of American software engineers, but we need to hire a Python software engineers, and we can't find one." Employers would need to pay a premium for these special skills on the open market, typically 15-25% (more if the worker has several such skills in combination). Yet the legal prevailing wage does not account for this. As Brookings pointed out, the legal prevailing wage accounts only for occupation, geography, and (Brookings missed this one) years of experience. Therefore: The legal prevailing wage is typically much less than the market wage. You can verify for yourself that skill sets aren't accounted for in the legal prevailing wage. Take for instance our hypothetical Python software engineer above. The "safe harbor" way (DOL term) to determine legal prevailing wage is to use the government OES data, www.flcdatacenter.com (clik on the wage search wizard). Go through the steps yourself, as if you are an employer who wants to hire an H-1B software engineer who knows Python. You'll find that while there is a category for Computer Software Engineer, there is no way for you to specify Python skills. Bottom line: You get a Python programmer for the bargain price of a generic programmer, avoiding a Python wage premium. (You can get even more of a bargain by using other ways that are allowed for determining prevailing wage.) As I said, you can verify this yourself, on the Web. Or, if you prefer, call any immigration attorney. This has also been noted by the GAO, and even by Rep. Zoe Lofgren, the most strident supporter of the H-1B program in either house of Congress. This gap between prevailing wage and market wage is the absolutely central issue in H-1B. It allows employers--and again, I must emphasize, including the big mainstream U.S. firms, not just the Indian bodyshops--to LEGALLY underpay H-1Bs. By the way, this "premium skills" issue is also the heart of a number of flawed H-1B studies, such as the ones by PPIC, Zavodny etc. Now, what about the "actual" wage? Remember, this is defined to be the average wage the employer pays to other similar workers. And the law requires paying either the prevailing wage or the actual wage, whichever is higher. So in theory, this should account for the premium skills issue. But unsurprisingly, there are lots of loopholes here too. If you have only one Python programmer--the H-1B himself--then the actual wage is the H-1B's wage. Or say you have five Python programmers, only two of which are Americans; then the average can still be low. In any case, the "actual wage" is irrelevant to the discussion, because most employers pay ONLY the prevailing wage. See my analysis of the DOL PERM green card data. In short: The legal prevailing wage is less than the market wage, and most employers pay ONLY the prevailing wage. Therefore, most employers are underpaying their H-1Bs. In addition, as many readers will recall, there is what I call Type II wage savings accruing from hiring H-1Bs. The above discussion concerns Type I, paying an H-1B less than a comparable American (where that qualifier does account for skill sets such as Python). Type II savings comes from hiring young H-1Bs instead of older (35+) Americans. As I've shown before, Type II brings even more savings than Type I. Finally, Brookings never answered the second half of the reader's question: Do H-1Bs depress overall wages? This question was one of those addressed by the NRC report, commissioned by Congress in 1998. Their answer was Yes, the large H-1B population (large in the computer field) does depress wages. Given the very strong pro-employer makeup of the commission (representations from Intel and Microsoft for starters), this is a very strong statement. Norm