Reform H-1B now -- then raise the cap

Skyrocketing salaries and long searches for qualified applicants mean there really is a tech labor shortage, at least in some areas

With tech salaries soaring and competition for qualified IT workers becoming frenetic, it may be time to ease the labor shortage by modestly raising the cap on imported talent admitted to the United States via the H-1B visa program.

But because there’s solid evidence that the existing H-1B program is rife with abuse, any increase in the cap must be accompanied by real safeguards and penalties for employers who use H-1B as a way to avoid hiring qualified U.S. workers.

Those safeguards already exist -- on paper -- but in the real world the penalties for ignoring the law are toothless.

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 earlier this month.

I’ve long argued that the so-called labor shortage was largely the invention of tech companies eager to drive wages down and create a pool of easily bullied foreign workers.

That was true for years, I’m still convinced, but the labor market has shifted. Wages are too high and unemployment is too low to believe there isn’t a legitimate need to expand the labor force. (Unemployment in the tech industry in late 2014 stood at 2.7 percent, compared to 5.7 percent overall, according to the U.S. Bureau of Labor Statistics.)

Evidence of the legitimate tech labor shortage

Over the last five years, wages in the IT industry 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. Although 11.5 percent is a solid number, it likely understates the gains for tech employees with the hottest skills.

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

There’s simply no way that salaries would be that high if labor wasn’t scarce.

How to truly reform the H-1B visa program

Hira spoke at a session of the Senate Judiciary Committee, which is considering a tech-industry-backed bill known as the I-Squared Act. It would raise the base cap for H-1B visas from 65,000 to 195,000 and eliminate the cap on people who earn advanced degrees from U.S. colleges in STEM (science, technology, engineering, and math) fields.

There’s a good chance the bill will pass and be signed into law. But the real question remains: Will Congress strengthen protections for U.S. workers?

Although the existing law implies that jobs may only be filled with H-1B visa holders if no qualified U.S. workers are available, that’s not actually the case, says Hira. There’s a good deal of anecdotal evidence to substantiate that claim, including recent layoffs of IT workers at Southern California Edison in favor of overseas workers.

SCE is cutting 500 positions held by U.S. workers and replacing them with H-1B recruits from India. Adding insult to injury, the soon-to-be-fired SCE employees had to train their own replacements. What’s more, SCE will save $20 million a year by making that change, Hira told the committee:

SCE published a compensation study that showed its IT workers were paid an average of $110,466 per year. We know Tata and Infosys pay their new H-1B workers on average $65,565 and $70,882, respectively. Therefore, the cost savings are approximately $40,000 per worker per year, which is a wage savings of about 43 percent. Multiply that by the 500 workers being replaced and there's a windfall of $20 million each and every year by replacing American workers with H-1Bs.

In an interview with InfoWorld, Hira said it isn’t clear to him that the cap needs to be raised, but if it does, a series of safeguards must first be built into the law before additional visas are issued. His proposals include:

  • Companies that want to hire an H-1B visa holder should be required to actively recruit and hire qualified American applicants.
  • Although the current law says that H-1B workers should be paid the “prevailing wage” in order not to undercut the salaries of U.S. workers, in reality the prevailing wage rules are so loosely written that H-1B workers are in fact paid far less than the workers they replace. H-1B wages should be pegged to periodic survey of the IT labor market by the U.S. Department of Labor.

There’s another side to the H-1B issue: Visa holders have very few rights. If they’re fired, they face swift deportation, and the employer -- not the employee -- has the discretion to apply for a green card. Not surprising, visa holders are afraid to complain about employers that make them work longer hours for less pay than they were promised.

To end that pattern of abuse, says Hira, the Department of Labor should periodically audit firms that hire H-1B workers and ensure they have a way to defend their rights through the judicial system.

In addition to out-and-out abuses, it turns out that the largest users of H-1B labor are offshore outsourcing companies, not American companies facing IT shortages. In 2012, the largest users of newly approved H-1B visas were outsourcers, notably Infosys, Tata, Cognizant, Accenture, and Wipro, according to an analysis of government data by our colleagues at Computerworld.

Why I changed my mind about H-1B caps

The soaring salary numbers noted earlier in this post tell only part of the story. Survey after survey indicates that IT workers are changing jobs more frequently and rejecting initial salary offers. Hiring managers say they are having trouble filling openings.

Jobs boards like Dice and Glassdoor are stuffed with postings and bonus pay for hot skills and certifications -- pay that has steadily increased in the last year.

As I’ve reported on these trends recently, I’ve had to reexamine my position on the H-1B program. I still believe talk of a labor shortage is often exaggerated, but it is, in fact, real. If solid reforms are part of the pending legislation, raising the number of visa slots is a reasonable solution to a real problem.

Copyright © 2015 IDG Communications, Inc.

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