Date: Fri, 7 Oct 2005 15:35:46 -0700 From: Norm Matloff To: Norm Matloff Subject: CNet special report on H-1B To: H-1B/L-1/offshoring e-newsletter The CNet article enclosed below has been in the works for some time. It goes into much more depth than most articles. I do have a number of comments. > The pivotal question: If jobs are leaving U.S. shores, is the program > still needed? Actually, I've answered this question a number of times, notably in my CACM article (http://heather.cs.ucdavis.edu/CACM.pdf), where I pointed out, "Though programmer salaries in India are very low, the overall cost savings for offshoring tends to be in the range of 15 to 40 percent...This is about the same range of savings accrued for work done in the U.S. by hiring H-1Bs...Given the similarity in salary savings between offshoring and labor importation, and the fact that having the work done on-site is far more productive, it is much more cost-effective from a CEO's point of view to hire H-1Bs than to offshore the work." So of course it's not a mystery that the demand for H-1Bs is still very strong. > Critics, however, have long maintained that the program is ripe for > abuse and serves only to replace American workers with cheap foreign > labor. Despite safeguards to prevent employers from paying anything > less than the prevailing wage for a given job, opponents say loopholes > are routinely exploited. "Opponents" say this? OF COURSE loopholes are exploited. If this were an article about the tax code, would the author here have said "Opponents say large corporations exploit loopholes in tax code"? I think not. Instead, he would assume without question that firms make full use of every loophole in the tax code that is legally available to them. But somehow with H-1B it's a matter of "opponents" saying this. And there is no doubt that the loopholes are numerous, as even the employers and immigration lawyers have publicly admitted. For example, the GAO, Congress' research arm, stated of their interviews with employers, "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 wage." In other words, the employers are paying their H-1Bs whatever is legally required, even though that is less than they pay comparable Americans, due to loopholes. And of course there is the famous comment by immigration lawyer Joel Stewart on loopholes to avoid hiring Americans when sponsoring foreign workers for green cards: "Employers who favor aliens have an arsenal of legal means to reject all U.S. workers who apply"; there is just as big an arsenal of loopholes to use to pay the H-1B low wages. > The median annual wage paid in the United States to workers in > computer and math occupations was $62,620 in May 2004, according to > the Department of Labor. Among companies seeking at least 100 H-1B > visas last year, many employers planned to pay substantially less than > that amount, according to the Programmers Guild report. I have two problems with this. First, "computer and math occupations" is far too coarse a category. This would be like using a category of "health care occupations"--including hospital orderlies, LVNs, etc.--to gauge how much surgeons are making. Second, and much more importantly, by looking at the low end of the pay spectrum, the Guild and this article are falsely giving the impression that it is only the "body shops" that are the abusers of H-1B. Again, I would make the analogy to the tax code: Does anyone believe that only small, low-end firms take advantage of loopholes in the tax code? Of course not! It's exactly the opposite--the bigger the firm, the sharper the accounting experts, and thus the more they take advantage of the loopholes. As I've stated many times, Intel is a perfect example. See my posting http://heather.cs.ucdavis.edu/Archive/IntelH1BWages.txt for an analysis of the Intel case. The article goes into a serious discussion concerning the Guild report's focus on Indian firms. In my opinion, the Guild was wrong to zero in on this aspect: I myself have written about the Indian issue, I hope in a sensitive manner (http://heather.cs.ucdavis.edu/Archive/ IndianImmsBoostOffshoring.txt). But the Guild's focus could be misunderstood. I know that the Guild has no race problems, and I can personally vouch for PG President Kim Berry, but readers who don't know the people involved may wonder, so I object to the report's focus first on those grounds. But much more importantly, the Guild is missing the point: EVERYONE is abusing the H-1B program, not just the body shops, not just the Indian-owned firms. See my comment on Intel above. > Defenders of H-1B visas deny that it is a cheap-labor program, noting > that a number of changes made to the law last year were designed to > make it tougher to exploit workers. Companies are now required to pay > 100 percent of the prevailing wage, up from 95 percent, and the Labor > Department's investigative power has been strengthened. It's incredible that the press still presents this as a controversy. To make another analogy, do you ever see the press describe the issue of smoking and cancer as a "controversy"? Of course not. The evidence for the link between smoking and cancer is well established, and the only ones who have denied it are the industry executives, who, duh, have a vested interest. Well, the evidence on H-1B as cheap labor is well established too, and the only ones who deny it are those with a vested interest (industry lobbyists and immigration attorneys). So why is the press still calling it a controversy? I just don't get it. A lot of programmers and engineers tell me they think the press is biased, but I find this to be rare. The problem is not bias but rather a lack of willingness to do their homework. The various studies which have shown that H-1Bs are paid less all use publicly available data. The Guild study here, for instance, used the Dept. of Labor data (http://archive.flcdatacenter.com/casesearch.asp). If the reporter didn't trust the Guild's analysis, he could have checked it on his own. Same for the census data, etc. And one hardly needs data when the employers themselves are admitting to paying the H-1Bs less than comparable Americans, as seen in the GAO quote shown above, as well as in the National Research Council study, again sponsored by Congress. The NRC subcontracted Hal Salzman of the University of Massachusetts to study the issue, and reported, "...based on interviews with some H-1B employers, Salzman reported that H-1B workers in jobs requiring lower levels of IT skill received lower wages, less senior job titles, smaller signing bonuses, and smaller pay and compensation increases than would be typical for the work they actually did." (See my university law journal article for a discussion of the term "lower levels.") Why isn't the press reporting this? Why do they still call it a controversy? > "The law lets them use so many sources to determine prevailing wage," > said Berry, whose organization reportedly has 1,000 members. "The law > should specify a minimum salary, above the median wage of comparable > U.S. workers." ... > Employers can also choose a job title with a lower pay level, said > Norm Matloff, a computer science professor at the University of > California at Davis. > "Hire a programmer as a 'system analyst' instead of under a 'software > engineer' title," said Matloff, who strongly opposes the H-1B program. > "Either one can mean programmer, but the 'system analyst' people tend > to be the IBM mainframers, i.e., people who don't have the hot skills > and thus who tend to have lower salaries." I too have advocated using the overall median salary for the profession as the prevailing wage. As Kim says, that would not allow employers to "shop around" for the most favorable (read lowest) figure, but the real reason is to prevent the larger abuses, such as hiring a programmer with a hot skill but paying him the wage of a generic programmer or hiring younger (thus cheaper) H-1B instead of an older (thus more expensive) American. This change alone would solve a major portion of the H-1B visa problem. However, other changes are also needed; I have a detailed proposal in my university law journal article, at http://heather.cs.ucdavis.edu/ MichJLawReform.pdf > Sanjay Puri, chairman of the U.S.-India Political Action Committee, > acknowledged that Indians or Indian Americans own many of the > companies that hire H-1B workers. But he said abuse is unlikely > because visa holders have many more options today than in earlier > years, when their plight was often likened to indentured servitude. The (de facto) indentured servitude situation has not changed. Just as in the past, it arises when an employer of an H-1B sponsors him for a green card. This takes years, during which the H-1B is essentially immobile, as changing jobs would mean starting the green card process all over again. The 2000 legislation made a small technical amendment to the law, but of minor consequence, as it only allows those being sponsored for green cards to change employers during the very last stage of the green card process. See the link there next to this article, http://economictimes.indiatimes.com/articleshow/msid-1236265,curpg-2.cms as well as "For Green Card Applicants, Waiting Is the Hardest Part: Backlog Has Put Immigrant Workers In the Dark Longer About Their Status," by S. Mitra Kalita Washington Post, July 23, 2005. Norm http://news.com.com/Waging+battle+on+foreign+labor/2009-1022-5888772.html?pa Salary concerns renew H-1B visa opposition By Ed Frauenheim Staff Writer, CNET News.com October 6, 2005 4:00 AM PDT As offshore outsourcing boomed in recent years, the protracted controversy over the embattled H-1B immigrant labor program finally seemed to subside as U.S. jobs were exported overseas and theoretically lessened the need for foreign workers. Yet nearly 15 years after its inception under the Immigration Act of 1990, the program remains in full force and headed for new battles. Just last month, the Indian government made a proposal to the World Trade Organization, demanding that the annual cap for H-1B visas be raised from 65,000 to 195,000. The pivotal question: If jobs are leaving U.S. shores, is the program still needed? The H-1B program was created to keep U.S. companies competitive in the global economy by allowing them to hire professionals from other countries. Industry leaders argue that the program serves as a brake on offshoring by easing shortages in skilled labor within U.S. borders. Critics, however, have long maintained that the program is ripe for abuse and serves only to replace American workers with cheap foreign labor. Despite safeguards to prevent employers from paying anything less than the prevailing wage for a given job, opponents say loopholes are routinely exploited. H-1B visas allow skilled foreign workers into the United States for up to six years. The permits have generated heated disputes in the tech arena, where many of the visas are used. In 2003, 39 percent of H-1B visas approved were for workers in computer-related occupations. Concerns about the program are being raised anew after a recent study examined federal data to rank the lowest-paying employers of H-1B computer workers last year. The Programmers Guild, an advocacy group for U.S. technology workers, claims to have found new evidence indicating that H-1Bs in computer occupations are being paid relatively little by a lot of employers--raising the prospect that visas are being used to hire cheap workers who threaten U.S. jobs and wages. The median annual wage paid in the United States to workers in computer and math occupations was $62,620 in May 2004, according to the Department of Labor. Among companies seeking at least 100 H-1B visas last year, many employers planned to pay substantially less than that amount, according to the Programmers Guild report. Of 100 employers in the category that planned to pay the lowest salaries, the report said, none intended to offer more than an average of $48,355 a year. Seventy-four of these companies pledged to pay an average salary of less than $45,820--a figure in the 25th percentile for U.S. math and computer workers. H-1B rules require employers to provide at least the prevailing wage for the position or the actual rate the employer pays to similar workers--whichever is higher. The study focused on documents called Labor Condition Applications, for which employers must state the minimum wage they plan to pay H-1B workers. The Programmers Guild does not accuse the companies of violating H-1B wage rules. Instead, the guild's findings point to a flaw in the program that benefits employers, Programmers Guild President Kim Berry said. "The law lets them use so many sources to determine prevailing wage," said Berry, whose organization reportedly has 1,000 members. "The law should specify a minimum salary, above the median wage of comparable U.S. workers." Defenders of H-1B visas deny that it is a cheap-labor program, noting that a number of changes made to the law last year were designed to make it tougher to exploit workers. Companies are now required to pay 100 percent of the prevailing wage, up from 95 percent, and the Labor Department's investigative power has been strengthened. But critics maintain that another change in the law last year, one involving surveys used to determine the prevailing wage, worsened the wage problem. The shift increases the number of wage levels in surveys from two to four, a change Berry said makes it easier for unscrupulous employers to pay a low wage by categorizing experienced H-1B workers as novices. Employers can also choose a job title with a lower pay level, said Norm Matloff, a computer science professor at the University of California at Davis. "Hire a programmer as a 'system analyst' instead of under a 'software engineer' title," said Matloff, who strongly opposes the H-1B program. "Either one can mean programmer, but the 'system analyst' people tend to be the IBM mainframers, i.e., people who don't have the hot skills and thus who tend to have lower salaries." Conflict over H-1B visas is, in some ways, a white-collar version of the debate over immigrant workers who do much of the manual labor in the United States in industries such as agriculture and restaurants. Although H-1B workers come to America legally, unlike some of their usually less-educated counterparts, opinions have clashed about whether the visas are providing a way for companies to avoid paying higher wages to domestic workers. Circa the dot-com boom, the H-1B system was rocked by reports of corruption. Technology staffing firms, sometimes called body shops, allegedly were trafficking workers from other countries. The Programmers Guild sees its study as a sign that body shops abusing the program are alive and well--even as American tech professionals are trying to recover from years of layoffs in what seems to be a tepid hiring climate. Moreover, the guild said, the study reinforces the notion that the H-1B program benefits primarily India-based employers operating in the United States, not American companies. The organization's report says the lowest-paying companies are "disproportionately run by Indian nationals." It added that some Indian-run firms are "hiring almost exclusively young Indian nationals to displace American workers in our own country." The research shows that nearly 37 percent of H-1B approvals in 2003 were for workers born in India. Berry estimates that 18 or 19 of the 20 lowest-paying employers, among companies seeking at least 100 visas, are led by Indian citizens or U.S. citizens of Indian descent. To make this claim, the guild did not conduct an exhaustive study of the companies on its list. Its analysis of the employers' leadership is based largely on a review of surnames and where companies have operations. Berry denied any ethnic bias in his group's research, defending its methodology as a way to illuminate what he sees as a chief problem of the visa program: tech staffing firms bringing over low-paid H-1B workers even when qualified U.S. employees are available. "This is a niche that Indians have developed," he said. "It helps to understand the problem to point out what the data shows. Body shops are essentially onshore offshoring." Sanjay Puri, chairman of the U.S.-India Political Action Committee, acknowledged that Indians or Indian Americans own many of the companies that hire H-1B workers. But he said abuse is unlikely because visa holders have many more options today than in earlier years, when their plight was often likened to indentured servitude. Indian H-1B holders not only can change employers in the United States but also have more opportunities back home, as India emerges as a tech powerhouse, said Puri, a U.S. citizen who also leads a technology services company. "They are smart enough to move around. They might come in at low wages, but they're not staying at low wages," he said. "These guys can have five different job opportunities from companies in India." Indeed, many Indians have taken leadership roles in the U.S. tech industry. Research by AnnaLee Saxenian of the University of California at Berkeley found that in 1998, Indian engineers were running more than 775 technology companies in Silicon Valley. Even if tech jobs are multiplying in Bangalore and Mumbai, U.S. guest worker visas are important to India-based firms and the Indian government. And in today's global economy, businesses that thrive overseas can have benefits for U.S. companies as well. "If U.S. immigration laws change and make it more difficult for us to obtain H-1B and L-1 visas for our employees, our ability to compete for and provide services to clients in the United States could be impaired," India-based tech services giant Wipro Technologies wrote in a public filing this month. (The L-1 is another type of work visa.) Others insist that the use of guest worker visas by India-based tech firms has helped promote offshoring. Members of the Indian-American community have learned to use the H-1B program to do tech work through the visas and send some of the work offshore, said Ron Hira, a professor at Rochester Institute of Technology and co-author of the book "Outsourcing America." "There's a clear connection between the Indian diaspora in the United States, the use of H-1B and offshore outsourcing," said Hira, who is of Indian descent. Like the Programmers Guild, he, too, has found evidence that some large India-based tech companies seeking H-1B visas proposed to pay lower wages than their U.S. counterparts. But Hira said critics of the H-1B program should focus more on the evidence that many companies appear to be paying disproportionately low salaries, instead of singling out a specific group. "That's the important outcome of the study, rather than what country the owners of the companies are from," he said. Puri agreed. "I don't think it's an Indian issue," he said. "Ultimately, it's an issue of economics." End box In 1998, Congress created special rules for companies that relied heavily on H-1B visas in an effort to curtail the abusive practices of "body shops"--companies that specialize in the recruitment and placement of foreign programmers at U.S. businesses, often at low wages and under restrictive contracts. Rules specific to these so-called H-1B-dependent companies expired in 2003, and new legal provisions are attempting to address the problem again. But critics say they don't go far enough. As before, these employers must promise that they offered their positions to equally qualified U.S. workers before seeking the visas. They also must make pledges designed to prevent the displacement of U.S. workers. There are exceptions, however. H-1B-dependent employers do not have to worry about recruiting, hiring or displacing U.S. employees if the guest workers have master's or doctorate degrees in fields related to the jobs in question or if they are paid at least $60,000 a year. Critics note that the $60,000 threshold was set in 1998 and hasn't been adjusted to keep pace with inflation or the salaries of U.S. tech professionals, effectively making it easier for employers to bring in more foreign workers. The U.S. cost of living has risen 19 percent since then, and the average annual salary of computer programmers in the United States climbed 23 percent between 1998 and May 2004 (the latest available statistic), to $65,910.