Trump Is Right: Silicon Valley Is Using H-1B Visas To Pay Low Wages To Immigrants

On the heels on its controversial immigration ban targeting seven Muslim-majority countries, the Trump administration has drafted a new executive order that could actually mean higher wages for both foreign workers and Americans working in Silicon Valley. The Silicon Valley companies, of course, will not be happy if it goes into effect. 

The order aims to overhaul and limit work visas, notably the H-1B visa program. Tech companies rely on these to bring in foreign talent. Their lobbyists claim there is a “talent shortage” among Americans and thus that the industry needs more of such work visas. This is patently false. The truth is that they want an expansion of the H-1B work visa program because they want to hire cheap, immobile labor — i.e., foreign workers.

To see how this works, note that most Silicon Valley firms sponsor their H-1B workers, who hold a temporary visa, for U.S. permanent residency (green card) under the employment-based program in immigration law. EB sponsorship renders the workers de facto indentured servants; though they have the right to move to another employer, they do not dare do so, as it would mean starting the lengthy green card process all over again.

This immobility is of huge value to many employers, as it means that a foreign worker can’t leave them in the lurch in the midst of an urgent project. In a 2012 meeting between Google and several researchers, including myself, the firm explained the advantage of hiring foreign workers: the company can’t prevent the departure of Americans, but the foreign workers are stuck. David Swaim, an immigration lawyer who designed Texas Instruments’ immigration policy and is now in private practice, overtly urges employers to hire foreign students instead of Americans.

This stranglehold on foreign workers enables firms to pay low wages. Academics with industry funding claim otherwise, but one can see how it makes basic economic sense: If a worker is not a free agent in the labor market, she cannot swing the best salary deal. And while the industry’s clout gives it bipartisan congressional support concerning H-1B and green card policy, Congress’s own commissioned report found that H-1B workers “received lower wages, less senior job titles, smaller signing bonuses and smaller pay and compensation increases than would be typical for the work they actually did.”

Salaries of software engineers are basically flat, rising at 2 percent or so per year for established workers. The rates are similarly mild for new graduates. This belies the industry’s claim of a tech labor shortage. And while Silicon Valley wages appear high on the surface, they come nowhere near matching the astronomical local real estate prices. 

Another dirty little secret in all this is that the H-1B program is an enabler of rampant age discrimination in the tech industry. Age is actually one of the core issues in H-1B. Mind you, we are talking about age 35 as being “old” here, not 55. Almost all the H-1Bs are young, and younger is cheaper. And young H-1Bs are even cheaper than young Americans.

Age gives employers an excuse to shun American applicants, on the grounds that a given job opening requires only three to five years of experience, rendering the Americans “overqualified.” Or the employer will load the job description with unnecessary requirements, making the Americans simultaneously under- and overqualified. That doesn’t leave much room, does it?

A popular tack taken by industry lobbyists and their congressional allies is to blame Indian firms that hire H-1Bs and “rent” them out to mainstream companies. The message is that the Indian outsourcing firms abuse the visa while the mainstream firms use it responsibly. This is pure scapegoating and a veiled appeal to xenophobia. It’s an attempt by Silicon Valley firms to distract attention from their own abuses of the system. The data show that the Silicon Valley firms do indeed underpay their H-1Bs, and individual examples of abuse by household-name firms are disturbing, to say the least. 

Cisco, for instance, was exposed as routing job applications from American engineers to an immigration law office, rather than to engineering managers, apparently to gather evidence that no qualified Americans were available for the job taken by a foreign worker. The immigration lawyer was deciding who was “qualified.” A former manager at Oracle accused the firm of justifying underpayment of an H-1B by saying, “It’s good money for an Indian.”

The industry especially asserts a need to hire H-1Bs with a PhD, citing the fact that 50 percent of computer science doctorates in the U.S. are granted to foreign students. What they are hiding in that claim is that it simply doesn’t pay for an American student (i.e. U.S. citizen or permanent resident) to pursue doctoral study, as the salary premium for a doctorate is too small. That small wage premium is due to the flooding of the market by foreign applicants, something correctly forecast (with approbation) by the National Science Foundation years ago. The industry claim is doubly deceptive, as they are not very keen to hire PhDs because this level of study just isn’t needed. We actually have a surplus of computer science PhDs; 11.3 percent of them are involuntarily working in a non-computer science field.

The industry lobbyists’ ace-in-the-hole argument is that if they can’t hire more H-1Bs, they’ll ship the work overseas. But for projects on which H-1Bs are hired in the U.S., face-to-face interaction (between themselves and their American coworkers) is crucial. That is why employers bring H-1Bs to the U.S. in the first place rather than sending the work abroad, where the wages are even cheaper.

Aside from the reduced wages and reduced job opportunities H-1B and EB inflict on American workers, there is a broader impact that is far worse. We should of course support facilitating the immigration of “the best and the brightest.” But research performed at the University of Michigan and Rutgers University, as well as my own work for the Economic Policy Institute, shows that the former foreign students now in the U.S. workforce tend to be weaker than their American peers. On a per capita basis, the former foreign students in computer science file fewer patents, are less likely to work in research and development and have degrees from less selective U.S. universities.

Given the indirect and direct displacement of Americans by foreign workers, this amounts to replacing stronger people with weaker ones in science, technology, engineering and mathematics — the STEM fields. The harm this brings to our economy, our ability to innovate and our general national interest is immense.

This problem can be easily solved, with political will and foresight. The Trump administration is reportedly considering doling out H-1Bs to the employers offering the highest salaries. This would be only a partial solution, though still a useful step. But this would need to be done strictly in order of salary, not in the emasculated form in the bill introduced by Rep. Zoe Lofgren (D-Calif.), whose salary ordering would be intertwined with the four experience levels defined in current law. Most H-1Bs are in the bottom two levels, again a major enabler of the age discrimination problem that forms the core of the abuse.

Employers claim that they hire H-1Bs for rare skill sets or outstanding talent ― traits that they would need to pay a premium for on the open market. Yet current law requires only that they pay the average wage. Worse, it is the average wage within one of those four experience levels. Instead, we should replace this with a single wage floor set at the 75^th percentile of the overall wage distribution for the given occupation and region.

This approach would give the visas to those who can truly make exceptional contributions to our economy and society. If there is real interest in draining the swamp, this is a great place to start.