The fix is in: Proof that H-1B visa abuse is rampant

Outsourcers in particular have found a way to avoid the requirement to pay foreign workers the same wages as Americans

The fix is in: Proof that H-1B visa abuse is rampant

Major outsourcers, largely based in India, are obtaining the lion's share of the 85,000 H-1B visas issued each year and are paying salaries far below the prevailing wages for American IT workers -- a violation of the spirit, if not the letter, of the H-1B rules. New information from U.S. Citizenship and Immigration Services, the federal agency that oversees the H-1B program, finally proves what critics have long suspected: H-1B abuse is real and rampant.

The H-1B program is designed to let U.S. companies hire foreigners at prevailing wages when they can't find qualified Americans. And U.S. companies, especially those in Silicon Valley, have been clamoring for years to raise the cap of 85,000 so that they can hire more foreign workers. They've long denied the charges that they've exaggerated the employee shortage, so they can instead reduce wages by importing workers. 

But now we know major H-1B users have in fact rigged the system to do exactly that.

How companies rig the system to abuse H-1Bs

Here's an example of the H-1B abuse: When the Walt Disney Co. laid off 250 IT workers earlier this year, it was far more than a routine reduction in force. The fired workers were replaced by lower-paid holders of the H-1B visa, a controversial mechanism that is designed to allow U.S. companies to import highly skilled foreign workers when they cannot find suitable U.S. residents to do the job.

There are "mainframe-size loopholes built into the H-1B program. Given the extraordinarily high profits involved in using guest workers instead of Americans, it should surprise no one that many employers are taking advantage of this business model and lobbying to expand it,” Ron Hira, an assistant professor of public policy at Howard University, told a Senate committee last year.

In the past, though, much of the evidence that H-1B holders were paid relatively low salaries was anecdotal. But a recent Freedom of Information Act request by Hira yielded a trove of data showing how serious those abuses are.

The five companies that hired the largest number of H-1B workers in 2013 -- Accenture, Cognizant, Infosys, Tech Mahindra, and Wipro -- pay those workers a median salary of about $64,000 a year. That compares to the approximately $100,000 a year earned by the fired workers at Disney.

What companies do is pay the imported workers a little more than the minimum amount ($60,000) that would cause the federal government to penalize them for replacing U.S. workers with foreign H-1B holders.

"This kind of salary pattern is indicative of a rigged market for wages, not a free market," Hire tells me. "It shows how the recruitment and employment of H-1Bs has little to do with markets and more to do with gaming the regulations.”

Employers know the H-1B law well, of course, and that's how Disney was able to fire so many American IT workers and replace them with cheaper foreigners without penalty.

The H-1B program's regulations recognize that it could be used unfairly. Thus, it contains the so-called dependent clause, which covers companies whose H-1B workers comprise 15 percent or more of the employer's total U.S. workforce. Among other provisions, those rules state that covered companies or their contractors may not displace U.S. workers and must make a "good faith” effort to find suitable domestic employees before hiring an H-1B visa holder to do the job.

However, if a company pays a worker $60,000 or more, those rules do not apply. That, says Hira, is why so many outsourcers pay salaries that are very close to the threshold. Indeed, Infosys pays more than 600 of its workers exactly $60,000 a year, and Wipro pays that amount to 500 of its workers, he found when he analyzed the data. It's hardly a coincidence.

In the case of Disney, the IT workers were supplied by HCL America, a branch of a large, India-based outsourcer. HCL obtained 1,024 H-1B visas in 2013, and it pays those workers a median salary of $67,350, according to the data obtained by Hira from U.S. Citizenship and Immigration Services. Although $67,000 is hardly poverty level, it's a fraction of prevailing wages across the IT industry.

Because IT wages are growing faster than overall wages, companies have evermore incentive to reduce those costs. Over the last five years, IT wages have increased by 11.5 percent, compared to 8.5 percent for the economy as a whole, according to PayScale, a firm that tracks compensation in the IT industry. That's a very substantial gain, but it likely understates the gains for tech employees with the hottest skills.

Software architects, for example, now earn a median salary of nearly $128,000 a year in 20 major metro areas, PayScale reported last year, while software developers in Silicon Valley earn $97,000, plus bonuses. Those are medians, which means that half of the people surveyed earn more.

Outsourcers use H-1B the most, pay the least

Who uses the H-1B visa program? By and large it's not the proverbial disruptive Silicon Valley firm that lobbyists for a higher quota invariably point to. Instead, it's the outsourcers, the federal data proves.

In 2014, 13 outsourcing firms, including seven from India, accounted for nearly a third of the 85,000 H-1B visas that were approved. Of the major Indian firms, Tata Consulting Services obtained 5,650, Infosys 3,454, and Wipro 3,048. U.S.-based Cognizant Tech Solutions obtained 4,293 visas. And Ireland-based Accenture got 2,275. (Salary data for 2014 is not yet available.)

Yes, large U.S. tech companies use H-1B visas as well. The largest include IBM with 1,462, Amazon with 877, Microsoft with 850, Intel with 700, and Apple with 443.

But there's an important distinction to keep in mind: By and large, those tech companies are following the rules on wages, paying their H-1B hires significantly more than the outsourcers do. In 2013, Amazon paid its H-1Bs a median salary of $95,000 a year, while Apple paid $115,000. IBM paid less, but at $71,510 it was still more generous than the outsourcers.

New hope for H-1B reform

The H-1B program is, in part, a lottery. Companies that would like to bring in a worker under the program sponsor him or her, then file an application. Many of the approvals are granted by lottery because the number of qualified applicants far exceeds the current ceiling of 85,000.

Since the recession ended, many employers have complained they can't hire enough qualified IT workers, so they lobbied strongly to admit more workers under H-1B.

But critics like Hira say the cap should not be raised unless the program is substantially reformed. And there is now some hope for reform.

Two of the Senate's leading H-1B reformers, Chuck Grassley (R-Iowa) and Dick Durbin (D-Ill.), say abuse of the H-1B visa "is real" and the need for reform urgent. On Tuesday they introduced a new reform bill they say will protect U.S. workers.

Among other important provisions, the H-1B and L-1 Visa Reform Act "explicitly prohibits the replacement of American workers by H-1B or L-1 visa holders," said the senators. It also includes limits on large IT outsourcers, which would be prohibited from hiring H-1B workers if more than 50 percent of their employees are on H-1B or L-1 visas. (L-1 visas allow companies to transfer their offshore employees to the United States for a limited amount of time.)

I haven't yet seen the bill, but Hira says it would be a good start for reform.

If the Silicon Valley firms that have been lobbying for a higher cap are sincere in their argument that they need workers to fill a gap in the labor supply -- and not to take advantage of lower-paid foreign workers -- they'll support the bill. If they don't, it will be hard to take their arguments seriously.

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