Amidst high unemployment in U.S., guest worker programs under fire

Hundreds of thousands of high-skilled foreign workers have come to the United States in recent decades under the auspices of the H-1B and L-1 visa programs, which allows temporary employment, particularly in the much-coveted software/engineering/computer science fields.

Jacob Funk Kirkegaard, research fellow at the Peterson Institute For International Economics in Washington, D.C., explains that H-1B visa is a non-immigrant visa which was created in the early 1990s under the Immigration and Nationality Act. It permits U.S. employers to temporarily hire foreign workers in “specialty occupations” -- particularly those requiring a high level of expertise in science and engineering.

U.S. corporations demanded its implementation in order to recruit highly-trained foreign employees. India currently accounts for about half of all these guest-workers, with China accounting for about 10 percent.

The visa lasts three years, but can be extended to a maximum of six years. Although, if the employer sponsors the H-1B worker for permanent residence, the duration can be extended indefinitely beyond the six years, in one-year increments.

Unlike a common student visa, the holder of an H-1B can eventually apply for permanent residence and ultimately U.S. citizenship.

Moreover, many foreign students currently in the U.S. under student visas often obtain jobs in the U.S. by subsequently receiving an H-1B visa.

However, in the current economic malaise of high pervasive unemployment and growing uneasiness over immigration, the H-1B visa program (among others) has come under tremendous criticism.
Some have called for its reform; others have sought its outright elimination.

Ron Hira, an associate professor of public policy at the Rochester Institute of Technology in Rochester, N.Y., who has written extensively on the subject, said these “visa programs need immediate and substantial overhaul.”

Hira claims the guest-workers programs are riddled with abuses that hurt both the foreign workers they were originally designed to help, as well as U.S. workers whom he says are being replaced by cheaper foreign labor.

“The goals of the H-1B and L-1 visa programs have been to bring in foreign workers who complement the U.S. workforce,” said Hira, who is also co-author of the book Outsourcing America.

“Instead, loopholes in both programs have made it too easy to bring in cheaper foreign workers, with ordinary skills, who directly substitute for, rather than complement, workers already in the country. They are clearly displacing and denying opportunities to U.S. workers.”

These “loopholes,” Hira asserts, also provide an unfair competitive advantage to companies specializing in offshore outsourcing, undercutting companies that hire American workers.

He notes that for at least the past five years nearly all of the employers receiving the most H-1B and L-1 visas are using them to offshore tens of thousands of high-wage, high-skilled American jobs.

“Offshoring through the H-1B program is so common that it has been dubbed the 'outsourcing visa' by India’s former commerce minister [Kamal Nath],” Hira stated.

Hira cites Infosys (NASDAQ: INFY), the Indian-based IT offshore outsourcing firm.
Between 2000 and 2010, Infosys revenues skyrocketed from $203 million to $4.8 billion, while its workforce jumped from 5,400 to 113,800. Over that span of time, the company's use of H-1B and L-1 visa holders increased more than ten-fold.

“Those H-1B & L-1 visa holders are leveraged to increase its offshore workforce,” Hira said.
“Easy access to the H-1B and L-1 visa programs is a key to its business model and provides it [with] a competitive advantage. Infosys' business model is replicated throughout the IT off shore outsourcing sector.”

This guest worker program, Hira suggests, has damaged one of the most dynamic sectors of the American economy, information technology. Indeed, he said, all of the top 10 H-1B employers and nine of the top 10 L-1 employers are IT firms.

Specifically, Hira points to four serious flaws with these existing visa arrangements:

*Neither visa requires a labor market test.

“Employers can and do bypass American workers when recruiting for open positions and even replace outright existing American workers with H-1B and L-1 guest workers,” he said.

*Wage requirements are too low for H-1B visas, and they are non-existent for L-1.
“The programs are extensively used for wage arbitrage,” Hira indicates.

“Employers have told the General Accounting Office that they hire H-1Bs because they can legally pay below-market wages.”

In fact, the arbitrage opportunities for L-1 visas can be even greater because employers pay home-country wages. In the case of workers from India – the largest source country for L-1 visas – this can mean a 90 percent discount for importing an L-1 guest worker compared to hiring an American.

*Visas are held by the employer rather than the worker.

“Visa workers can be easily exploited and put into poor working conditions but have little recourse because the working relationship is akin to indentured servitude,” Hira commented.

*Program oversight and enforcement is deficient.

Hira explains that the Department of Labor's review of H-1B applications has been called a “rubber stamp” by its own Inspector General. In addition, there is evidence that one in five H-1Bs were granted under false pretenses.

There was a particularly egregious case of a “highly skilled” H-1B worker employed in a Laundromat, for instance.

Hira suggests that by closing these visa loopholes, “we would create and retain tens of thousands of good quality American jobs and ensure that our labor market works fairly for American and foreign workers alike.”

Hira also cites the comments of Neeraj Gupta, CEO of Systems in Motion, a U.S.-based in-shoring company, and past executive of a major off shore outsourcing company, who stated that “the widespread abuse of current work visa laws… that allow companies to bring in cheap labor from other countries to replace an American labor pool is extremely damaging to our business, because it creates artificial pressure on prices, and consequently wages, of an equally qualified local workforce.”

“The use of H-1B and L-1 workers to displace American workers is not some far-fetched theoretical possibility, Hira noted.

“Employers can, and do, replace American workers with H-1B and L-1 workers.”

IBM (NYSE: IBM), for example, has been one of the biggest users of H-1B visas, Hira said, while simultaneously eliminating nearly 28,000 net positions from its U.S. workforce from 2005-2009.

Similarly, in early 2009, Microsoft (NASDAQ: MSFT) said it would lay off 5,000 workers. After meeting that target by late 2009 it announced another round of 800 layoffs -- yet the company continued to import H-1B workers, ranking fifth in fiscal 2008 and moving up to second in fiscal 2009 on the top H-1B employers list.

Indeed, Microsoft has received 2,355 H-1Bs in those two years alone.

Overall, the IT industry, Hira indicates, continues to import large numbers of H-1B and L-1 visas in spite of the fact that the sector’s employment is shrinking in the U.S.

The U.S. high-tech industry lost 245,600 jobs in 2009... while more than 100,000 new H-1Bs were granted in fiscal 2009,” Hira added.

However, Kirkegaard said that while abuses certainly exist, in the guest worker program, he thinks the idea that they are woefully underpaid and replacing American workers is exaggerated.

“For one thing, U.S. companies must abide by something called the 'prevailing wage requirement' under which they are obliged to pay the same wage to foreigners as they would to an American workers for the same position,” he said.

“If they don't do so, they're breaking the law.”

Hira, however, counters, that H-1B workers are routinely paid below-market wages.

“Given these deep discounts it should be no surprise that there is incredible pressure for employers to hire workers with H-1Bs rather than those already in the U.S.,” Hira said.

Kirkegaard concedes that there is now tremendous political pressure against the H-1B visa program, particularly due to the high rate of U.S. joblessness.

“But even though this is an election year, I don't think most politicians will cave in to the pressure of removing these visas,” he said. “The business community is very vocal and strongly in favor of keeping the guest worker program as it is”

Indeed, Kirkegaard points out that in the unlikely event that the H-1B visas were eliminated, U.S. corporations would find it very hard to find qualified candidates for many high-tech jobs, since they also recruit foreign students studying in American colleges.

“In many graduate and doctoral programs, especially in the computer science/engineering/mathematics schools, you have as much as two-thirds of the student body from foreign countries,” he said.

“Without these worker visas, these highly-trained, highly-educated foreigners would be ineligible legally work in the U.S.”

Noting that the U.S. benefits enormously from high-skilled permanent immigration, especially in the technology sector, Hira stated that “when we need foreign workers with truly specialized skills, we should rely on permanent immigration rather than guest-worker visas.”

While the subject of visas has become very contentious in the U.S., other advanced countries have instituted similar guest-worker programs, even nations like Korea and Japan which have historically barred immigration (due largely to demographic issues).

As the population of the advanced nations continues to age and the need for highly-skilled tech workers remains acute, it would seem that guest-worker programs are here to stay.