Part 2: Incentivizing the Overlap: Using the Private Sector to Bridge the STEM Skills Gap
The H-1B visa program has faced increasing backlash as America continues its march toward a more isolationist foreign policy. The Hire American, Buy American directive issued by President Trump last year has served to fan those flames of controversy. Critics complain that the program deflates wages and takes opportunities away from Americans. Proponents of the program would argue that it fills a need created by a shortage of qualified skilled workers and improves American innovation through idea sharing. Neither side is wholly wrong, and a solution should be crafted that takes each side into account.
Does the Worker Shortage Exist?
Many supporters of the H1-B program argue that there is a significant shortage of STEM workers, which includes the fields of science, technology, engineering, and math. While this is partially true, it suggests that this phenomenon is occurring throughout all STEM fields. However, studies have shown there are shortages in very specific areas while other areas are experiencing a surplus of qualified workers. These shortages are fluid and can move across STEM fields depending on the timing and location of the position. It can be easy to mistake these fluid changes for an overall shortage of adequately skilled workers living in the United States.
Those working under an H-1B visa often have salaries that rise far above the average American’s. This is even true for the typical American holding a baccalaureate or advanced degrees. This inadequacy is especially evident in fields that rely heavily on recruitment through H-1B visas, which includes STEM occupations. This is mainly due to the perceived shortage of adequately trained American workers in these fields. The reality, though, is the data is conflicted about the shortage of trained American STEM workers.
The use of H-1B visas has helped to alleviate short-term skilled worker shortages, but the United States should not rely on foreign recruitment when there are so many Americans with similar skills capable of performing those jobs with minimal training. The H-1B program should be structured to encourage private sector skills training to individuals with significant skills overlap to open positions, while still allowing for visas to be given to the truly best and brightest the world has to offer.
Skills Overlap & Supplemental Training: Comparing the Costs
The Bureau of Labor Statistics recently updated their Standard Occupation Classification system for the first time since 2010. This system classifies occupations based on work performed, and in many cases similarly classified occupations have significant skills overlap. Engineering, for instance, typically includes four broad disciplines that are then broken out into more specific subcategories. Many of the positions found under the broad heading will share skills regardless of the subcategory they are placed into. It follows, then, that the more specific the skillset under the broad category, the more distance there is between possessed skills and skills that need to be acquired to successfully perform the job. Regardless, potential employees that are trained under the same broad occupational category as the position needing filled would likely possess, at the very least, similar baseline skills.
If additional skills are required, they can be quantified into dollar amounts by using the average costs of post-secondary education for Americans attending schools in the United States. The average per credit hour cost at an American post-secondary school is $594. This can vary based on factors like Carnegie classification and type of university, i.e. bachelor’s, master’s, or doctoral and public or private institution, respectively. Employers could also choose to train in-house, possibly through programs like apprenticing. These costs, though, would likely vary significantly by employee, employer, and position. Regardless of method, by assessing the additional training needed to bring skillsets to the level required, a comparison becomes possible between the cost of training similarly skilled Americans against acquiring an employee working through an H-1B visa.
While proponents of the H-1B visa program may argue that limiting the influx of nonimmigrant labor would serve to similarly reduce the level of American innovation, the stark reality of the program is that most firms do not hire H-1B immigrants to generate innovation that is captured by patents. The typical H-1B recipient is a young Indian computer engineer or IT support specialist with a bachelor’s degree. These positions are not engaged in research or patent generation. This suggests that the program is not geared toward innovation, a finding which has been supported by academic research. Additionally, the USCIS typically finds program violations or outright fraud in 1 out of 5 H-1B applications it investigates. This percentage could be significantly higher, as the average number of approved applications investigated between 2014 and 2016 was 7,200. This is around 3% of all approved visa applications. Creating a system that is partly self-regulating is important in combatting the rampant fraud currently occurring. While the USCIS plans to double the number of investigations for 2018, that still would only amount to 6% of approved applications. Supplying enough labor to investigate most applications would likely prove to be a political impossibility. Creating such a system is possible with enough checks placed on incentives to defraud the program.
Turnover & the Forced Loyalty of Today’s H-1B
There are inherent benefits for employers in choosing to hire an H-1B visa holder over an American applicant. For example, despite the increased portability of the visa between employers in recent years, transferring the visa between employers is still cumbersome and its approval is never guaranteed. In fact, the USCIS suspended premium processing for any H-1B applicant in August of 2018. This can significantly increase the time an applicant has to wait for their transfer application to be approved. The election of President Trump has created an environment of increased denials and requests for additional evidence along with administrative threats to begin removal proceedings if a transfer denial leaves a visa holder out of status. They previously were allowed to remain for 240 days from expiration to receive a renewal decision. This has created significant fear among H-1B holders when considering leaving their current employer. This fear is advantageous to employers utilizing H-1B workers as it greatly reduces their turnover costs. The average private sector turnover rate is around 5% across all industries, with 60% of that turnover being voluntary. The tech sector, which employs a significant majority of the H-1B visa holders, has the highest turnover rate of any industry at 13.2%. The typical H-1B visa holder is eligible to work for three consecutive years in the United States, though that number may be longer if their employer sponsors them for a green card or they qualify for an three year extension. Limiting the ability or interest of H-1B employees to change employers guarantees at least a 300% increase in the longevity of employees for some of the largest tech companies such as Google, which has an average employee tenure of only 1.1 years. This can help explain why so many mid-level tech jobs appear to be filled by H-1B visa holders.
Turnover also comes with significant costs. Some studies have found that it can take up to 1.5 times the employee’s salary to replace them. Other studies suggest it takes as much as a third of salary. The average H-1B employee earned around $75,000 annually in 2016. This creates a range between $23,000 and $105,000 to replace every employee that terminates their employment to move on to another employer. With average employment lasting as short as a single year in the tech sector, utilizing an H-1B visa employee for three years can represent a significant cost savings—anywhere from $70,000 to $315,000 and double that if the visa is extended to the maximum of six years. It is also important to note that the average H-1B visa holder earns significantly less than their American counterparts performing the same job responsibilities, averaging about $10,000 less annually. These statistics reveal some of the incentives for American employers to cheat the system. There are massive savings to be had by prolonging employment. This also illustrates ways in which the H-1B could deflate wages. By locking employees into a position, those employees become unable to price their skillsets on the open labor market. This results in artificially low wages for everyone in the field.
Supporters of the program may point toward the costs of sourcing the applicant and that of the actual visa as justifications for the lower pay, but that just does not seem to be the case. The overwhelming majority of H-1B visas are held by third party employers. In February of 2018, the United States Customs and Immigration Service (“USCIS”) issued a memo placing significant requirements on third party employers to provide evidence that the position being filled was a skilled position. This was in response to rampant abuses of wage requirements, wage theft, and fraudulent Labor Condition Applications (“LCA”). The cost to sponsor a visa is also relatively small. Sponsorship can range from $1,710 to $6,460 depending on factors such as the size of the company’s workforce and its percentage of H-1B visa holding employees. Attorneys fees may increase this number but should be discounted as part of doing business. Regardless, none of these costs should affect the employer’s legal requirement to meet the going wage for the skillset needed to do the job. The rampant fraud being committed throughout the program is likely more responsible for the wage deflation than the costs of obtaining a visa.
A Way Forward: Redesigning the Program
While the above issues do not represent the totality of the issues with the H-1B program, they are significant causes of several of the complaints against it. That being said, the H-1B visa program was never meant to be used as a source of discount labor for American companies, and it certainly was never meant to be so at the expense of American labor. Addressing the issues discussed above would be a major step toward imposing accountability of employers. The solutions in creating a more equitable program should lead to restrictions and increased scrutiny on an employer’s use of the H-1B visa program. Those restrictions should both be tighter when an initial application is reviewed and looser in regards to the way employees are tethered to a single employer after an H-1B visa is granted – both implicitly and explicitly. Americans should not be burdened with the cost of subsidizing labor for private industry. Instead, industry looking to take advantage of the world’s best and brightest should be exposed to the same gambit of risks the typical employer faces in a free market.
First, by comparing the costs of recruiting an H-1B applicant against those to bring an American candidate’s knowledge to a similar level, resources could be pivoted in an economical way. This could also result in the additional benefit of forcing employers to be more truthful in the description and responsibilities of the open position they want to use an H-1B employee to fill. An employer would not want to set the requirements and responsibilities of the position too low for fear of their application being rejected. If they set them too high, the required salary would be significantly higher than they would need to pay an American applicant. This creates a self-regulating mechanism that would discourage employers from using the H-1B program to fill mid-level positions using discounted foreign labor.
Additionally, including such balancing tests to weigh the interests of citizens against those of the company could further solve some of the objections discussed on both sides. Specifically, it may alleviate complaints of underpaying foreign workers and deflating the relative wages of Americans in the same position. As noted above, companies would need to be transparent about the position they were hiring for. Job descriptions that were not technically descriptive enough would force an employer to look toward underutilized American labor with similar skillsets. Job descriptions that were overly technical would set the salary requirement too high vis a vis a qualified American applicant. Some may argue that this puts too much strain on the company, but if the company truly believed that an H-1B visa applicant was some of the best talent the world had to offer, it is doubtful price would be a significant obstacle.
Such a change would force employers to consider additional American candidates they would not have pursued before. Such a solution would still allow for H-1B’s to be granted, but it would serve to level the playing field between H-1B and American applicants. There are STEM graduates with similar base level skills that could be developed into what the company needs. The shortages are typically across different fields at different times. Due to the first come, first served nature of the H-1B program, there is no guarantee that a visa application will be approved or even selected for review. The application ceiling is typically met within several days upon opening, and those that arrive on the day the limit is reached are all placed in a lottery for selection. If a company solely relies on the H-1B program to fill their open positions, it could potentially go unfilled indefinitely. Utilizing capable American labor through development could have the dual effect of stabilizing wages by coopting an untapped labor force and strengthening the American workforce. As explained above, experience does not seem to be an issue since such a large majority of H-1B holders are young Indians that are early in their career. Training the skills needed in the workforce at home while still allowing for sourcing of exceptional talent should be the ultimate aim of the H1-B program.
Finally, H-1B holders need to be given the freedom to submit themselves to market forces. While the ability to transfer employers was granted by the Obama administration, President Trump’s approach has been one of intimidation. As noted above, it has caused visa holders to approach new positions with great trepidation for fear of their application being rejected. A separate process for already approved holders must be created. Presently, H-1B applicants go through the same process regardless of whether they hold a visa or not. While having an application previously approved may speed the process somewhat, the Trump administration’s decision to end priority processing means they are subject to review whenever they are reached in the queue. This can still take months and lead to a visa’s expiration. While there was previously a grace period to allow for this type of situation, the Trump administration has directed action to be taken immediately once visa holders are considered out of status. This has resulted in a climate of fear that discourages free market principles from being exercised and implicitly creates a type of indentured servitude that greatly favors business. In effect, it can lower the real costs of obtaining certain skills from the labor marketplace and greatly reduce the risk of employee turnover in one of the most volatile areas for it. These two possibilities combined represent the potential for hundreds of thousands of savings for a business over the three year timespan an H-1B visa can last. Those savings, though, come at the expense of both American labor and the wages of the H-1B visa holders.
A guest worker program that is structured correctly should seek to avoid the above negative outcomes. The alternatives discussed would still allow for the recruitment of the world’s brightest for the sake of innovation, but not at the expense of the labor forces on both sides of the argument.
- See Laron et al, Bureau of Labor Statistics, Stem Crisis or Stem Surplus? Yes and Yes, MONTHLY LABOR REVIEW, https://www.bls.gov/opub/mlr/2015/article/stem-crisis-or-stem-surplus-yes-and-yes.htm (last visited Oct. 20, 2018). ↑
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- See National Center for Education Statistics, Condition of Education 2018: Employment Outcomes of Bachelor’s Degree Recipients, https://nces.ed.gov/programs/coe/pdf/coe_sbc.pdf (last visited Oct. 20, 2018). ↑
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- Laron et al, Bureau of Labor Statistics, supra note 1. ↑
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- Student Loan Hero, Study: Here’s How Much College Credits Actually Cost, https://studentloanhero.com/featured/cost-per-credit-hour-study/. ↑
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- Department of Labor, Apprenticeship Toolkit, https://www.dol.gov/apprenticeship/toolkit/toolkitfaq.htm#1e (last accessed Oct. 20, 2018); See Also Hogarth et al, Net Costs of Modern Apprenticeship Training to Employers, Institute for Employment Research, https://warwick.ac.uk/fac/soc/ier/publications/2003/hogarth_and_hasluck_2003_rr418.pdf (last accessed Oct. 20, 2018). ↑
- Andy Wu, Skilled Immigration and Firm-Level Innovation: The U.S. H-1B Lottery, Harvard Business School, 23, https://mackinstitute.wharton.upenn.edu/wp-content/uploads/2017/03/FP0185_WP_Feb2017.pdf (last accessed Oct. 20, 2018). ↑
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- Kerr et al, The Supply Side of Innovation: H-1B Visa Reforms and US Ethnic Invention, Harvard Business School, 30-31, https://www.hbs.edu/faculty/Publication%20Files/09-005_005359f2-2ee8-4d73-b248-af492e44ecb4.pdf (last accessed Oct. 20, 2018). ↑
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- Stuart Anderson, Who Will Be Hurt By The Latest USCIS Decision on H-1B Visas, Forbes, https://www.forbes.com/sites/stuartanderson/2018/09/05/who-will-be-hurt-by-the-latest-uscis-decision-on-h-1b-visas/#1eaf091b12b5 (last accessed Oct. 20, 2018). ↑
- USCIS, USCIS Updates Policy Guidance for Certain Requests for Evidence and Notices of Intent to Deny, https://www.uscis.gov/news/news-releases/uscis-updates-policy-guidance-certain-requests-evidence-and-notices-intent-deny (last accessed Oct. 20, 2018). ↑
- Stuart Anderson, New USCIS Policy Will Carry Harsh Consequences for Applicants, Forbes, https://www.forbes.com/sites/stuartanderson/2018/07/11/new-uscis-policy-will-carry-harsh-consequences-for-applicants/#6bca7a764615 (last accessed Oct. 20, 2018). ↑
- Anderson, Who Will Be Hurt By The Latest USCIS Decision on H-1B Visas, supra note 22. ↑
- See USCIS, Nonimmigrant Services, 7 https://www.uscis.gov/sites/default/files/USCIS/About%20Us/Electronic%20Reading%20Room/Applicant%20Service%20Reference%20Guide/Nonimmigrant_Services.pdf (last accessed Oct. 20, 2018). ↑
- Anderson, Who Will Be Hurt By The Latest USCIS Decision on H-1B Visas, supra note 22. ↑
- See Yahoo Finance, More than 60 Percent of Employee Turnover is Voluntary, Surprising Employers Who Could Have Predicted it, Marketwired, https://finance.yahoo.com/news/more-60-percent-employee-turnover-133000372.html (last accessed Oct. 20, 2018). ↑
- See Tim Johnson, The Real Problem With Tech Professionals: High Turnover, Forbes, https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2018/06/29/the-real-problem-with-tech-professionals-high-turnover/ (last accessed Oct. 20, 2018). ↑
- http://ap.washington.edu/ahr/visas/scholar-resources/h1b/ (last accessed Oct. 20, 2018). Initial term for H-1B visa is up to three years and may be renewed for up to an additional three. ↑
- Johnson, supra note 29. ↑
- Nicole Torres, The H-1B Visa Debate, Explained, Harvard Business Review, https://hbr.org/2017/05/the-h-1b-visa-debate-explained (last accessed Oct. 20, 2018). ↑
- See Duda et al, Mendel University Department of Management, Costs of Employee Turnover, https://acta.mendelu.cz/media/pdf/actaun_2013061072071.pdf (last accessed Oct. 20, 2018). Study finds that it can cost up to 1.5x the employees wages to replace them. It should be noted that their formula takes into account the tax structure of the Czech Republic, though. ↑
- See Youyou Zhou, Most h-1B Workers are Paid Less, But it Depends on the Type of Job, AP News, https://www.apnews.com/afs:Content:873580003. ↑
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- See USCIS Policy Memorandum, Contracts and Itineraries Requirements for H-1BPetitions Involving Third-Party Worksites, https://www.uscis.gov/sites/default/files/USCIS/Laws/Memoranda/2018/2018-02-22-PM-602-0157-Contracts-and-Itineraries-Requirements-for-H-1B.pdf (last accessed Oct. 21, 2018). ↑
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- USCIS, H and L Filing Fees for Form I-129, Petition for a Nonimmigrant Worker, https://www.uscis.gov/forms/h-and-l-filing-fees-form-i-129-petition-nonimmigrant-worker (last accessed Oct. 21, 2018). ↑