Date: Wed, 10 Jan 2007 23:18:00 -0800 From: Norm Matloff To: Norm Matloff Subject: a case study of underpayment of H-1Bs To: H-1B/L-1/offshoring e-newsletter I've always stressed the point that the underpayment of H-1Bs is in most cases fully legal. The law is so full of loopholes that an employer looking for cheap foreign labor has no need to violate the law; he can underpay H-1Bs yet be in full compliance with the law. Recall that even an industry-friendly 2003 GAO report (unwittingly) pointed to the loopholes when discussing the employer survey the GAO ahd conducted: 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. Again, interesting as it may be that some employers actually admitted to the GAO that they were underpaying their H-1Bs (you can imagine how many decided NOT to share such information with the GAO), that is NOT my point here. Instead, my focus is on that last statement by the GAO, "however, these employers said they never paid H-1B workers less than the required wage." In other words, the prevailing wage as defined in the law and regs is so broad that it is easy to pay an H-1B below-market wages yet be in full compliance with the law. All this was illustrated a few years ago in an outstanding case study by John Miano of the Programmers Guild, presented on a Web page titled, "How to Underpay H-1B Workers" (http://www.programmersguild.org/archives/howtounderpay.htm). In my posting here, I will present another interesting case study, with information kindly provided to me by Vivek Wadhwa, CEO of Relativity Technologies at the time I'll be speaking of, and consented to my discussing it here. (He gave further information, including the names of the two programmers discussed below, but wishes to not have the names released publicly.) Vivek is now an academic (among other things), with an adjunct appointment at Duke University. You may recall that I have found a couple of Vivek's studies to be refreshingly "out of the box" thinking (http://heather.cs.ucdavis.edu/Archive/DukeOffshoringStudies.txt), but that I was quite disappointed in the study he released last week (http://heather.cs.ucdavis.edu/Archive/DukeImmEntrep.txt). You may also recall that I pointed out that a check of the Dept. of Labor's H-1B Web page shows that Vivek's firm hired an H-1B Software Engineer for $44,144, and a Computer Programmer for $31,933. Note that even new graduates in computer science get around $50,000, so these are very low by any standard. Vivek is not a rabid defender of the H-1B program, and readily agrees that many employers abuse it. However, he believes that his hiring of the two H-1B programmers was justified on the grounds that they are brilliant people. I too have always supported bringing in "the best and the brightest" from around the world. Most H-1Bs are not in that category (see my university law journal article on this point, http://heather.cs.ucdavis.edu/MichJLawReform.pdf), but if Vivek says those two H-1Bs fall into that category, that's good enough for me. There is, however, the issue of how much to pay them. The one making $44K had a Master's degree and had been working part-time for Vivek in Russia for the previous three years. Moreover, at the time Vivek hired this worker, the guy had been working for a Russian government joint venture company in Russia, developing telephone and networking systems, which is sophisticated work. And yet as an H-1B he was being paid less than a Bachelor's graduate with no experience. The reader's reaction to all this is probably, "Well, THAT must be illegal. The salary Wadhwa paid this H-1B didn't take into account the worker's Master's degree and his work experience." But that is a perfect example of the myriad loopholes in the law. The key point is that under the law, prevailing wage is defined by the JOB, not by the WORKER. If the job just requires a Bachelor's degree, then an H-1B with a Master's can legally be paid a Bachelor's-level wage. What about this worker's experience? Doesn't that have to be taken into account? Well, first of all, the experience level DOL used at the time lumped everyone with 0-2 years of experience into one category, and this worker with three years of part-time and one year of full-time experience might fall into that category. But beyond that, again, keep in mind the prevailing wage is defined by the JOB, not by the WORKER. If this was an entry-level job, then the guy could legally be paid an entry-level salary. Last but not least, what about the fact that the guy is supposedly brilliant? The guy got his Master's degree at the age of 16! (He was only 17 at the time Vivek hired him.) On the open market, that would command a premium salary. But remember, this ain't the open market. And there is nothing in the prevailing wage law about factoring in brilliance. So, the bottom line is that Vivek got a brilliant worker with a Master's degree and the equivalent of something like two years of experience for the price of a Bachelor's graduate of average talent and no experience. And don't forget, that isn't even accounting for what I call Type II wage savings an employer accrues by hiring H-1Bs--by hiring young H-1Bs, he avoids hiring the older, thus more expensive, Americans. In other words, any way you slice it, Vivek got a great bargain--one that would have been impossible on the open market. By the way, the exact salary the guy was hired at was $44,144. Why the oddball figure? Well, the law at the time allowed employers to pay 5% less than the prevailing wage, and the latter was, according to the form Vivek's firm filed, $46,467. Yep, 0.95 X 46467 = 44144. Of course, this additional 5% savings was peanuts compared to the other savings, but it does show that Vivek's firm's HR Dept. and/or their immigration lawyer knew all the loopholes. (You can see this same 5% provision being used in Intel's H-1B data, by the way.) The other H-1B was hired at $31K. He had some experience, and was also supposedly brilliant. Same story, basically. Vivek does point out that he gave both H-1Bs regular raises, with the first H-1B making $85K when he left the firm four years later. Fine, but if he had been hired on the open market, he may well have STARTED at $85K (brilliant people with new Master's degrees and a bit of experience were often making that much), and gotten big raises after that. Remember, both Vivek and I agree that the vast majority of H-1Bs are NOT "the best and the brightest." Thus the two cases here are unusual, but they still illustrate the fact that H-1Bs are abused, even the brilliant ones, and they still illustrate how it is done. Norm