Will U.S. Tech Jobs Turn All-Indian? The H1B Visa Dilemma

By Stephan Manning.

Skilled immigration is one of the most controversial topics in the current presidential election race as political scientist Ron Hira points out in his latest Conversation article. At the core of this debate are H1B visas which allow U.S. employers to sponsor the temporary recruitment of skilled workers from abroad, particularly in so-called STEM* professions. Currently, U.S. law permits 85,000 H1B visas to be issued every year. In theory, this visa program allows for labor market flexibility in response to domestic skill shortages. In practice, H1B visas have increasingly been used to employ skilled foreign workers for lower costs, primarily from India. While H1B visas have certainly helped create tech positions at home rather than offshore, Thousands of U.S. employees have been replaced in the process and forced to train those taking their jobs. Facing this dilemma, presidential candidates across the political spectrum have struggled to find convincing solutions. I discuss what’s behind the dilemma; why the solutions of presidential candidates fall short in addressing it; and what is needed to make the H1B debate more fruitful in today’s global competitive environment.

In recent history, H1B visa policies have unintentionally facilitated two major shifts in employment of skilled workers. The first shift occurred in 2004 when the H1B visa cap was drastically reduced from 195,000 in the previous year to 65,000 partly in response to a perceived oversupply of visas in prior years. Business scholars Arie Lewin, Silvia Massini and Carine Peeters argue in one of their studies that the drastic visa cut promoted a boost of offshoring of tech jobs in the coming years. At that time, the number of U.S. science and engineering graduates was declining. Many firms used H1B visas to fill positions with foreign workers – partly to save costs but also to respond to the perceived shortage of talent. With less visas available, more firms started going offshore and create STEM jobs outside the U.S. Or they recruited global service providers, such as IBM, Accenture, Wipro and Infosys, to hire low-cost tech staff in India and elsewhere on their behalf, to provide tech support, engineering services, software testing, and other work for their domestic and global operations. This led to an unstoppable dynamic: the global redistribution of knowledge work.

The second shift, which started happening in the 2010s, followed the earlier trend. As the outsourcing industry grew, service providers from India in particular increasingly expanded their operations and started setting up subsidiaries in the U.S. and around the world to better serve their clients, but also to secure access to skilled tech workers while keeping labor costs low. In doing so, they transformed the H1B visa program into a recruitment channel to tap into their labor market at home while serving U.S. clients onshore. The top four sponsors of H1B visas in recent years have been India-based service providers: Infosys, Tata, IBM India, Wipro. In 2015, these firms combined filed around 75,000 H1B visa applications out of which 12,000 H1B visas were issued. H1B visas rarely replace U.S. workers directly. In fact, they initially help create competitive jobs in the U.S. Yet, H1B staff allows their employers to take on more client projects. As a result, U.S. workers at client firms may lose their jobs. One recent example is Disney Orlando where 250 employees were laid off in October 2015 and jobs were transferred to H1B workers from an Indian outsourcing firm. Similarly, 500 staff were cut at Southern California Edison (SCE) in February 2015 and replaced by Infosys and TCS H1B workers. Following that, a Thousand SCE staff marched in front of corporate offices to stop layoffs from happening (see picture).

The H1B visa program thus presents a dilemma. Lowering the quota reduces labor market flexibility in the U.S. and may drive firms to hire STEM workers offshore. Maintaining or increasing the quota enables tech firms to add skilled jobs onshore, which, however, may replace higher paid U.S. staff in similar positions. In trying to address this dilemma, presidential candidates vary greatly in their suggestions: Marco Rubio wants to expand the H1B program – back to 195,000 visas a year – to make U.S. tech firms more competitive and to attract foreign talent. However, jobs should be advertised for 180 days to privilege U.S. job applicants. Donald Trump is against this approach and instead proposes to keep the current quota but raise the minimum wage for H1B hires to avoid replacement of U.S. workers by cheap labor. Interestingly, Bernie Sanders takes a similar view and also urges tech firms to raise (rather than cut) wages to make engineering jobs attractive again. Ted Cruz initially supported the H1B program, to promote productivity and job growth, and even suggested a 500% quota increase, but now favors the exact opposite: a suspension of the entire program for 180 days. Hillary Clinton has not contributed to the H1B debate recently – maybe a smart decision given the difficulty of this subject.

What all candidates seem to ignore (or not say out loud): Many job roles that the H1B program covers, such as software engineers, analysts and IT professionals, have become global commodities. Firms hire workers for these generic jobs – either directly or through external vendors – from across the world, with or without the H1B program. Whether Disney tech staff is replaced by H1B workers onshore or by Indian workers offshore does not really matter in the end. In other words, trying to protect higher paid, yet generic tech jobs on U.S. soil is futile. U.S. salaries for such jobs will soon adjust to global competitive standards. Once the commodity status of such jobs is accepted, having some flexibility in hiring tech professionals from abroad to manage fluctuating demand can be useful, as will be the ability to get highly specific tech skills temporarily which are short in supply.

Much more important is the question of how domestic tech jobs can be created that are less generic, so that temporary H1B workers may support rather than replace U.S. staff. In my view, for example, the blending of technical and managerial skills, product and client knowledge, global and local expertise may help create more robust jobs that can neither be easily relocated nor replaced onsite. STEM education needs to complement generic skills with more context-specific training – responding to local client demand, managing local supplier relations, mobilizing funding. Salaries and promotions will reward the combination of generic and idiosyncratic skills, rather than just the mastery of technical standards. In such a world, H1B visas will be seen as a welcome tool to manage labor market flexibility, rather than a continuous threat to U.S. jobs and competitiveness.

*STEM: Science, Technology, Engineering, and Mathematics

Picture taken from: “Imported Indian Tech Workers Taking American Jobs” (The Federalist, June 30 2015)

Related New OSC Post (11/21/2016): “Hire U.S. Labor and Bangalore CEOs to make America great again!”