Date: Mon, 4 May 2009 22:02:35 -0700 From: Norm Matloff To: Norm Matloff Subject: underpayment of H-1Bs, the age issue, and character assassination To: H-1B/L-1/offshoring e-newsletter Vivek Wadhwa needs no introduction to readers of this e-newsletter. He is a former CEO who recently obtained a couple of academic positions and has been writing about the role of imported foreign workers in tech fields. I've praised some of his research studies here (though I've critiqued others). Vivek and I have been interacting both publicly and privately for almost three years now. He and I agree that (a) employers use H-1B workers as cheap labor (it is legal to do so, mind you), (b) there is no tech labor shortage, and (c) older programmers (I draw the line at age 35) are spurned by employers who hire young H-1Bs. Vivek and I do disagree on a couple of important issues, one of which I will discuss below. And discussion on issues of disagreement should be frank and lively, maybe even what Eric Weinstein called "academic derision" in a seminar last week. But resorting to character assassination should be out of bounds. Unfortunately, Vivek made the following statement as a guest on a talk radio show today, which you can listen to at http://a4.g.akamai.net/7/4/27043/v0001/kalw.download.akamai.com/27043/YourCall/050409yc.mp3 In addressing John Miano of the Programmers Guild, another guest on the show, Vivek said: # I got to tell you, you and Matloff, he just makes up numbers out of # nowhere, he says I did this study and here's the numbers. Come on, this is outrageous, and some would say legally actionable. And it was not some random blurting out; on the contrary, he made the same remark to me in personal e-mail on April 11: "In fact, I am convinced that you are ignoring facts to suit your biases. You are simply making data up." (I normally do not divulge contents of e-mail messages without asking permission, but this is really too much.) Some of you readers will recall Vivek's recent appearance on CNBC with Prof. Ron Hira, in which Vivek treated Ron in a manner which might charitably described as badgering or browbeating, but which I think can be fairly described as insulting. See my account of the incident at http://heather.cs.ucdavis.edu/Archive/BankOfAmWadhwaHira.txt That was a regrettable matter that was personally very painful for me to watch. But at least Vivek didn't accuse Ron Hira of dishonesty, as Vivek has now done to me. This is just plain wrong, Vivek. I'm enclosing below Vivek's recent op-ed, in which he tries to reduce the H-1B issue down to racism and xenophobia. He knows better. As noted earlier, and as he noted himself during the show, abuse of the H-1B for cheap labor is commonplace. And moreover, the abuse is FULLY LEGAL, due to huge loopholes, as again Vivek himself noted in an article the Journal of the American Enterprise Institute (http://www.american.com/archive/2008/july-august-magazine-contents/america2019s-other-immigration-crisis): * I know from my experience as a tech CEO that H-1Bs are cheaper than * domestic hires. Technically, these workers are supposed to be paid a * “prevailing wage,” but this mechanism is riddled with loopholes. In * the tech world, salaries vary widely based on skill and competence. * Yet the prevailing wage concept works on average salaries, so you can * hire a superstar for the cost of an average worker. (I want to make it clear that Vivek is not accusing me of xenophobia, as he knows I'm a longtime minority activist and defender of immigrants. See http://heather.cs.ucdavis.edu/matloff.html) Vivek argues that the recent TARP legislation, which places certain restrictions on the hiring of H-1Bs by recipients of the bailout funds, is sending the wrong message to foreign workers, maybe discouraging them from coming here. This reasoning is invalid, because the TARP restrictions are NOTHING NEW. They are basically the same requirements that have been in place for decades for employer-sponsored green cards. The banks, insurance companies and so on have been meeting these requirements for years and years, yet neither Vivek nor anyone else has characterized it as "sending the wrong message." As to the entrepreneurial and patenting activities by foreign workers that Vivek keeps bringing up, none of the studies has shown that the immigration has brought the U.S. a NET GAIN in these activities. On the contrary, in the case of patenting, the authors (including Vivek) have made disclaimers, stating that they are not claiming that the per capita rate of patenting is higher for immigrant engineers than for American engineers. Immigration policy has squeezed many Americans out of the field, and discouraged many more who have interest in the field from entering it in the first place. This is an internal brain drain, resulting in a loss of innovation and entrepreneurship from Americans. (I've profiled specific cases in the past; see for instance http://heather.cs.ucdavis.edu/Archive/NotBestAndBrightest3.txt) The data indicate that this loss is about the same size as the gain, so in the end it's a wash. At least Vivek and I agree on the age issue. Younger workers are cheaper than older workers, and employers use the H-1B program (median age 27) to greatly expand the pool of younger workers. As I've stated repeatedly, I consider this to be the heart of the H-1B program. Vivek basically said the same thing (as he has before) on another radio talk show on May 1 (http://www.wnyc.org/shows/bl/episodes/2009/05/01/segments/130690): #...even if the [older] $120,000 programmer gets the right skills, # companies would rather hire the younger workers. That's really what's # behind this. And he reaffirmed this in today's show, saying # ...companies prefer younger workers, whether we like it or not. # That's the reality out there. I know Norm Matloff will agree with me # on this one. I agree that that's the reality, but I surely don't agree that a government program, in this case H-1B, should be used as a vehicle for age discrimination. Well, I'll end on that point of (semi-)agreement. But I ask Vivek again to refrain from accusing me of dishonesty. I have more postings in the pipeline, concerning recent studies by Hunt and Mithas/Lucas, the abovementioned seminar by Eric Weinstein, and (still) my response to Bill Kerr. Norm http://www.businessweek.com/technology/content/apr2009/tc20090415_771803.htm BusinessWeek Viewpoint April 15, 2009, 6:48PM EST America's Perilous Anti-Immigrant Protectionism By erecting immigration barriers to protect knowledge workers, the U.S. is resurrecting a ghost of the Depression-era Smoot-Hawley tariff By Vivek Wadhwa As unemployment rises and the recession deepens, advocating skilled immigration has become fraught with risk. In the past two months, Kauffman Foundation has published two of my reports outlining how U.S. immigration policy is chasing away talented foreigners who had previously served as a backbone for U.S. science innovation. I have received more than 1,000 e-mails attacking me for my views and disparaging my race and heritage. Some have threatened to do me harm. The xenophobia reflected by these attacks and recent public discourse is a dangerous indication of a political climate and attitude shift that threaten our economy. The U.S. is sliding toward a new kind of protectionism, one that seeks to preserve knowledge-worker jobs by shutting out skilled immigrants. This protectionism could be every bit as devastating to the U.S. as the Smoot-Hawley Tariff Act, which boosted tariffs to record levels, sparked a trade war, and ravaged world trade during the Great Depression. In the knowledge economy, production of intellectual property is the highest-valued good, helping create great jobs and strong growth. Erecting immigration barriers, political or cultural, to protect knowledge workers is nothing more than IP Protectionism, a modern-day version of Smoot-Hawley. Most of my critics know me only as a Duke professor and Harvard researcher. Few know that I, too, arrived in this country as a low-level programmer working at a big investment bank. I was exactly the kind of hire that Congress banned when it forbade banks such as Citibank, JPMorgan Chase, and Wells Fargo that are receiving Federal rescue money to issue H-1B visas. I was young, hungry, and eager to make something of myself here. I earned an MBA from the Stern School at New York University. I went on to found two software companies, one of which went public. Those businesses collectively employed more than 1,200 workers and dispersed hundreds of millions of dollars in salaries and benefits. Had I not moved to the U.S. from Australia, where I attended university, I would probably have ended up starting my companies there. I moved to the U.S. because I believed this was the most open and inclusive society in the world. I didn't plan on becoming an entrepreneur. It just turned out that way. Going Back Home I'm hardly alone in following this trajectory. As I have written in previous columns, my research has showed that immigrants founded one in four U.S. technology startups over the past decade. The founders of these companies were highly educated and most came to the U.S. to study or work-not as entrepreneurs. In my Indian and Chinese students, I see myself many years ago. They came here, often at great sacrifice. Many had hoped to stay and work in technology or consulting jobs. Few had planned to return immediately to their home countries. Most would take relatively low-level positions to get experience and a foot in the door. Now, most foreign students are going home. Companies are offering fewer H-1B visas to foreigners. For the first time in many years, the H-1B visa program, which has been the primary conduit for technology labor into the U.S., is undersubscribed. Less than two years ago, U.S. companies lined up to hire H-1Bs. Part of the reason for fewer H-1Bs is the economy. Companies are simply hiring less. But there's another, more troubling reason. Due to government policy and an increasingly xenophobic climate, hiring foreigners has become as toxic as issuing a subprime mortgage. The Patent Barometer There's a view that giving a job to a foreigner takes a job away from a U.S. citizen. At a micro level, there is some truth to that. Some companies have used H-1Bs to hire foreign labor at lower costs, effectively outsourcing a job even though it's located in the U.S. But in the aggregate, the preponderance of evidence shows that the more foreigners are working in science and technology jobs in the U.S., the better off the U.S. economy is. Increasingly, the number of H-1B holders in a region correlates to increased filings of patents in that region. And for every 1% increase in immigrants with university degrees, the number of patents filed per capita goes up 6% in the U.S. These same skilled foreigners are far more likely to start technology businesses than the general populace. India-born immigrants, for example, constitute less than 1% of the U.S. population. Yet they started 6.7% of the nation's tech companies. So immigration is actually an economic multiplier. But it can work both ways. Send those smart brains back home, and India and China will reap many of the benefits we forfeit. None of this is to say that the H-1B program is perfect; it's actually bad. By limiting career mobility and travel, the H-1B program can be used to do the negative things critics accuse it of. A far more open immigration policy, without H-1B wage and career restrictions for science and technology workers, would be a better solution. This is what Canada and Singapore have done, with great success. We want more engineers and scientists; they help make the pie bigger by creating jobs and boosting innovation. A software engineer working at a big bank can go on to launch the next Google. An equity analyst pumping out spreadsheets could later build the next Mint.com. Silicon Valley startups are rife with numerically astute Wall Street refugees. And by putting them in a box at the immigration application window, we discount future possibilities and give lie to the notion of America as the land of limitless opportunity. Argentina's Errors Rather than erecting legal barriers to H-1Bs and fomenting xenophobic attacks, our politicians should be fostering a broader understanding that hiring smart people is a good thing for America. They should be discussing how to reform immigration policies so that skilled workers move more easily around in jobs and remain in America. And they should remember the fate of Argentina as they consider their actions. Before the Great Depression, this South American country was a strong economy with a better standard of living than Europe or the U.S. It had an economy that was remarkably similar to that of the U.S., with a booming agricultural sector and growing industrial production. But protectionist behavior initiated by the populist Peronistas eventually crippled the Argentine economy, bringing about hyperinflation, sovereign default, and a stunted economy. The standard of living in Argentina now significantly lags that of Western democracies and the U.S. The country remains economically troubled and adrift because of years of heavy government intervention and steep protectionism. To be sure, the U.S. is not in danger of becoming the next Argentina. But making the wrong policy moves could similarly rob the U.S. of competitive advantages while strengthening the hands of India, China, and other nascent competitors. The vitriol emerging in this debate serves only to handicap what is already a compromised U.S. hand in the race to retain the best and the brightest. Viewing the H-1B question as a zero-sum game ensures that the U.S. will lose out and pay a long-term price in reduced economic vitality and technological innovation. Wadhwa is senior research associate at the Labor & Worklife Program at Harvard Law School and executive in residence at Duke University. He is an entrepreneur who founded two technology companies. His research can be found at www.globalizationresearch.com.