Reverse Brain Drain

Date: Tuesday, August 13, 2002 10:47 AM

*** H-1B NEWSLETTER ***

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Edwin S. Rubenstein gave ZaZona.com permission to put his paper "Reverse
Brain Drain" online. You can see it at
http://www.zazona.com/ShameH1B/Library/Archives/ReverseBrainDrain.htm

Rubenstein is an economist and Director of Research for the Hudson
Institute. He wrote the paper "Piled Higher and Deeper" which you can see by
going to the ShameH1B Links page.

Reverse Brain Drain

By Edwin S. Rubenstein
December 2001

There’s nothing like a recession and the fear of terrorism to put an end

to talk about the need for more high-tech foreign workers in the United
States. Layoffs in the telecom and technology sector exceeded 600,000 in
2001, precipitating a reverse brain drain. No one knows how many South Asian
professionals have left the U.S., but business leaders in India and Pakistan
say it could be in the thousands – the first major reverse migration since
the workers starting arriving in big numbers to fill unfilled tech job
positions. In the wake of September 11th many of these once sought after
foreign workers are being scrutinized as potential national security risks.
Cuts in the student visa programs that gave most of them entrée to the U.S.
are widely expected.

The most recent figures from the Immigration and Naturalization Service show
that more than 34,000 Indians came to the U.S. between October 1999 and
February 2000 on the H-1b visa program used most often by high-tech
companies. Indians account for 43% of H-1b entrants, dwarfing the next
largest group, Chinese workers, 4-to-1. U.S. jobs have long been coveted by
South Asian professionals seeking higher salaries and U.S. lifestyles. Wages
for software technicians in India, for example, are about half of what they
are in the U.S.

Incredibly, in the midst of the current slump, with thousands of foreign
engineers and programmers sitting idle, the tech industry still insists that
a skilled worker shortage exists.

Technology companies spent much of the 1990s lobbying Congress to raise the
number of new H-1b visa workers allowed into the country. At its inception
(in the Immigration Law of 1990) the annual H-1b cap was put at 65,000. H-1b
workers are “temporary,” working for three years for their sponsor, with a
possible extension to six years. The law specifies that H-1b workers must
hold at least a bachelor’s degree or its equivalent in their field.
Employers of H-1b workers are required to attest that those hires would have
no adverse effect on wages and working conditions on U.S. workers and will
stay only as long as they were employed by the host company. The program
became so popular that Congress increased the visa limit twice – the last to
195,000 a year.

Proponents of the visa program claim that the imported workers are needed
because American schools do not graduate enough young people with science
and math skills. Microsoft’s chairman Bill Gates and Intel’s chairman Andy
Grove told Congress recently that more visas were only a “stopgap” measure
needed until U.S. colleges beef up their math and science offerings.
Restricting the ability of employers to hire foreigners will simply force
them to shift operations abroad, robbing even scientifically proficient U.S.
students of job opportunities – or so H-1b advocates claim.

But even during the boom years, evidence of a high tech labor shortage was
in short supply. National Science Foundation data indicate there is a glut
in scientists, engineers, and computer programmers. Data for 1997 (the
latest available year) show that only 3.1 million, or 24.8%, of the 12.5
million people with science or engineering degrees are actually working in
science or engineering fields. The rest are either out of the labor force,
unemployed, or working in managerial, administrative, sales, marketing, or
teaching positions in fields other than science and engineering.

There are many reasons why highly trained high-tech personnel leave the
field. Individuals change their career interests over time, they may gain
skills in another area while on the job, they may move into management
responsibilities, or some of their original college training may become
obsolete. But if there were a real shortage of high tech workers, wages
would rise, pulling qualified workers back into the field. The supply of
technology workers would rise to meet the demand for high-tech workers.
Eventually the shortage would disappear.

No such trend is evident. Wage increases for computer programmers climbed a
modest 7% to 8% per year, not what you’d expect if the industry were really
trying to attract qualified employees into the field. The median salary for
U.S. citizen scientists, engineers, and programmers is $60,000, with many
Ph.Ds accepting post-doc appointments in the low $20K range. High tech
employers often hire scientists and engineers as contingent employees
(contractors) with low salaries. Not surprisingly, college students stopped
majoring in math and science. In 1997 American colleges awarded 25,000
bachelor’s degrees in computer science, down from 42,000 in 1985.

Less than competitive wages have created a labor market perversity: unfilled
positions amidst a glut of qualified high tech personnel. The Commerce
Department estimates 190,000 vacancies exist in the information technology
(IT) industry alone. Regardless of their source, these job vacancies harm
the U.S. economy. A shortage of high-tech workers delays innovation, reduces
the growth of high-wage jobs, reduce U.S. exports, and increases the costs
of doing business in the United States. Chronic job vacancies have forced
many U.S.-based tech firms to move their operations overseas.

Does the H-1b program reduce high-tech job vacancies? Yes and no. At the end
of 2001 there were 890,000 H-1b workers in the U.S. In some fields –
engineering, computer science – foreign workers account for one-fifth of the
workforce. On the face of it, rising numbers of H-1b workers should help
reduce high tech job vacancies. But H-1b workers tend to be young and, in
the apt phrasing of David North (Soothing of America, 1995), they are
“malleable,” meaning they tend to have lower salary demands than U.S.
citizens. National Science Foundation studies show that the H-1b is paid
between 20% to 50% less than American citizens performing the same work. The
presence of low wage H-1b workers reduces wages for all science and
engineering workers, thereby discouraging U.S. natives from entering those
professions. That trend increases high-tech job vacancies.

Employers love H-1b workers – and not just for their below average salaries.
Employers have considerable leverage over the H-1bs because they promise to
sponsor them for permanent residency visas - green cards – after which the
worker is eligible to become a naturalized U.S. citizen. Until then H-1b
holders are essentially indentured to their employers since their legal
right to remain and work in the United States depends on their continued
employment. Even more important is the freedom from fear that the H-1b will
suddenly leave for another employer, causing a major disruption to the
current employer’s project, perhaps even taking trade secrets to another
company. This is a major plus for many employers.

Abuses in the H-1b Program

The law specifically prohibits employers from hiring H-1b workers if their
doing so would displace U.S. workers from an essentially equivalent job in
the same area of employment. This sounds like good protection of domestic
high-tech workers until you read the fine print defining “essentially
equivalent. A job is not considered essentially equivalent unless it
involves the same responsibilities, was held by a U.S. worker with
essentially the same qualifications and experience, and is located in the
same area of employment. This definition hinges on three aspects: job
responsibilities, worker qualifications, and location.

Companies routinely modify job descriptions in order to comply with the
“essentially equivalent” regulation. They could fire a programmer/analyst
with Oracle experience and hire an H-1b software engineer with Oracle and
Access expertise, thus circumventing the worker qualification provision. As
far as location is concerned, this is how the corporate shell game works:
Employee A (American) is transferred from Department 1 to Department 2.
Department 2 fires Employee A
Department 1 hires an H-1b
Result: Employee A has lost his job, but the company will claim he wasn’t
replaced by an H-1b because the two departments are separated – by an office
wall.

Furthermore, the law protecting U.S. workers applies only to those employers
deemed to be “H-1b dependent.” If a company is not H-1b dependent it can
legally fire and replace Americans. So how is such dependency defined?

An H-1b dependent employer is one that has: fewer than 26 full time
equivalent employees in the U.S. and more than 7 “non-exempt” H-1bs, or an
employer that has between 26 and 50 full-time equivalent employees in the
U.S. and more than 12 “non-exempt” H-1bs, or an employer with at least 51
full time equivalent employees in the U.S. of whom at least 15% are
“non-exempt” H-1bs.

Exempt H-1bs include any worker who receives wages (including cash bonuses)
of at least $60,000 a year AND any H-1b with a master’s or higher degree in
an employment-related specialty. It’s hard to fudge salary, but the Master’s
degree exemption is easily finessed. A real accredited Master’s degree is
not necessary. The company can merely say that the H-1b’s experience is
equivalent to a master’s degree. Essentially companies can give a Master’s
degree equivalent to an H-1b they want to claim is exempt.

Another loophole is the law’s language specifying that no “displacement” or
“lay-off” is considered to have occurred if the U.S. worker leaves the job
through “voluntary departure or voluntary retirement.” Obviously the
requirement of “voluntariness” is crucial to protecting U.S. workers in
situations where H-1bs are being hired. But companies all over the United
States are forcing employees to “volunteer” to retire. Older employers are
told they can either “volunteer” to retire with severance, or be subjected
to a lay off with no benefits. This corporate blackmail is the easiest and
most common way of eliminating employees over age 40. Basically the law
gives companies the right to fire older employees and replace them with
H-1bs.

Data support the age discrimination thesis. Information technology ( IT)
workers over 40 are 16% more likely to be laid off than younger workers. It
takes older IT workers 21% longer to find a job than younger workers, and
when they finally do land a job, older employees typically take a 13% pay
cut. The National Science Foundation study , which first reported these
findings, concluded that “the data available to the committee are
insufficient to establish either the presence of the absence of age
discrimination.” These longer percentage for over-40 IT workers might
reflect personal choices or simply shifts in the industry, the researchers
write. But Norman Matloff, a computer science professor at UC Davis, may
have identified the “smoking gun.” He reports that 20 years after graduation
only 19% of computer science graduates – the field most affected by H-1b
workers - remain in the programming field, while 57% of civil engineers – a
field relatively unaffected by the H-1b program – are still in the field.

Matloff contends that high tech companies create artificial shortages by
refusing to hire experienced programmers. The failure to retain older IT
workers is part of a deliberate effort on the part of IT companies to keep
wages low. Industry spokesmen say older programmers with outdated skills
would take too long to retrain. But Dr. Matloff counters by saying that when
they push for more H-1b visas, lobbyists demonstrate a “shortage” by
pointing to vacancies lasting many months. Companies could train older
programmers in less time than it takes to process visas for cheaper foreign
workers.

In addition to the pay issue, the IT industry rejects older workers because
they will not work the long hours typical at Silicon Valley companies with
youthful “singles” styles. Imported labor is only a way to avoid offering
better conditions to experienced programmers. H-1b workers, by contrast,
cannot demand higher pay: their visas are revoked if they leave their
sponsoring companies.

Immigration Inequities

H-1b is a temporary worker program. It is designed to bring in skilled
workers only if there is a clear need for them. The law says that the H-1b
visa holder is “out of status” the day he or she stops working. In theory,
that means workers must leave the country the day after they lose a job. In
practice, however, it is much more ambiguous. In the current slump most
immigrants who have families, mortgages, and maybe a spouse who works, are
staying around to look for another job. If they find one, the new employer
can apply for a transfer of their H-1b visa and claim that that the time
they spent out of status was due to “extraordinary circumstances.” At least
one H-1b worker has sued the company that let him go on grounds that it had
not filed for green card status as promptly as promised.

Insisting that unemployed H-1bs must leave the country will strike most
people as hardhearted and even cruel. Yet compared to the typical immigrant,
H-1bs are given preferential treatment. Millions of immigrants arriving on a
family unification basis are denied permanent residency status because of
per-country immigration caps. Per-country ceiling requirements are waived in
the case of H-1bs. The Mexican wife of a legal immigrant who is barred for
10 years because she overstayed her visa by a year – which is roughly the
per-country ceiling’s additional delay for her category – may well wonder
why the identical provisions of the law are waived for a neighbor with
technical training.

A strong case can be made that the economic well being of both natives and
newly minted citizens would increase if our immigration laws favored the
entry of skilled workers. Our permanent immigration system is biased toward
people with a family member here. Roughly two-thirds of the nearly 1 million
legal immigrants each year enter via family ties (even distant ones.) No
consideration is given as to whether they possess education, English
proficiency, or job skills - the tools of success that help narrow the wage
gap between natives and immigrants. Yet since the current immigration system
was adopted in 1965, the gap between native and immigrant wage levels and
economic has grown. Today the average male immigrant earns 23% less than the
average male native; in 1960, immigrant men on average earned 4% more than
native men.

The solution to both the social and economic inequities engendered by the
present immigration system lies in broad reforms: English proficiency,
education, occupational skills, literacy, as well as having a close relative
already here, should be taken into account. Under such a system H-1b visas
would be unnecessary. U.S. immigration policy should enhance the well being
of the native-born and give opportunity to those who will advance the
national interest – not special interests to the detriment of our fellow
Americans.

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