H-1B Workers Are in a State of Indentured Servitude
The use of the programs for cheaper labor is substantial and growing
December 28, 2011
Our current high-skill immigration policy does more harm than good. To meet the needs of both the U.S. economy and American workers, the H-1B and L-1 guest worker programs require immediate and substantial overhaul. These programs are very large, accounting for about 1 million workers, and have a significant impact on U.S. labor markets. These impacts are especially significant in computer occupations, where they account for more than 10 percent of the workforce and are distorting the normal functioning of the labor, educational, and workforce development markets.
The goal of these guest worker programs is to bring in foreign workers who complement the American workforce. Indeed, many highly skilled and highly paid workers are brought in by employers to do so. However, loopholes have made it too easy to bring in cheaper foreign workers, with ordinary skills, who directly substitute for rather than complement American workers. The use of the programs for cheaper labor is substantial and growing, and they are clearly displacing and denying opportunities to American workers.
The problems in the programs stem from three serious design flaws that only legislation can fix. Administrative changes alone, such as stepped-up enforcement, while necessary, are not sufficient to correct the problems.
The first flaw allows employers to legally bring in foreign workers at below-market wages. How do we know that employers exploit this loophole? Employers have told the U.S. Government Accountability Office that they use the H-1B program because they are able to pay H-1Bs less than an Americans. The practice of exploiting the H-1B program for cheaper labor appears to be widespread. The GAO found that 54 percent of the H-1B visa applications were for the lowest wage level, approximately the 17th percentile. The wage differentials can be very significant, providing up to a 60 percent discount over American workers in some cases. The L-1 program has no wage floor, so workers are often paid home country wages. By far the largest sending country is India, where typical wages for engineers is a mere $10,000 per year. With this kind wage arbitrage, it's no wonder that the firms exploiting this loophole are extraordinarily profitable and lobbying to expand the programs.
Second, employers do not have to search for American workers before hiring an H-1B or L-1 and can even replace American workers with H-1Bs and L-1s. News reports indicate that American workers are being replaced by H-1Bs at companies such as Wachovia, A.C. Nielsen, and Pfizer. In a well-known case that captured Congress's attention, Siemens forced its American workers to train their L-1 replacements.
The third flaw is that the employer, rather than the worker, holds the visa, and as a result H-1B and L-1 workers are in a state of indentured servitude. Should they be terminated, H-1B or L-1 workers would have to leave the country immediately. As a result, H-1B or L-1 workers' bargaining power is severely limited, and they can easily be exploited by employers.
Unsurprisingly, many firms exploit these loopholes for competitive advantage and profit, at the expense of American workers and the American economy. Some of these practices require a keen eye to observe, such as enabling age-biased hiring or using guest workers as a substitute for investing in workforce development. But others are more obvious, such as the use of the programs to facilitate the offshoring of high-wage high-tech jobs.
For the past five years, the top H-1B and L-1 employers are using the program to offshore tens of thousands of high-wage, high-skilled American jobs. The list is a who's who in the offshore outsourcing business. Using the H-1B to offshore is so common it has been dubbed the "outsourcing visa" by India's former commerce minister.
An even more disturbing outcome of these loopholes is that the programs have lost legitimacy among American high-tech workers who rightly believe their careers are purposely being undercut by government policy. This is especially worrisome since these workers are telling American students to avoid STEM professions, which threatens our future capacity to innovate and create jobs for the economy.
Another widespread misconception in the public discussion about employer-based immigration is that the H-1B is often mistakenly equated with permanent residence. But the employer has complete discretion over whether it chooses to sponsor its guest worker for permanent residency, and most of the largest H-1B employers sponsor very few of their H-1Bs for permanent residency. Just to provide one example: Between 2007 and 2009, Accenture hired nearly 1,400 H-1Bs, yet during that same time it sponsored a mere 28 (2 percent) of its H-1Bs for permanent residence. Clearly, many employers choose the H-1B program for cheaper temporary labor rather than permanent immigration. This practice may increase corporate profits, but it harms American workers and the American economy.
We can fix the flaws in the guest worker programs. Bipartisan legislation introduced in the last Congress by Senators Durbin and Grassley addresses the major flaws in the H-1B and L-1 programs. Passing it would create and retain hundreds of thousands of high-wage high-technology jobs with no cost to the taxpayer.