H-1B Visa Workers: Lower-Wage Substitute, or Higher-Wage Complement?

June 10, 2010
| Reports

Over the last decade U.S. policy makers have debated the issue of high skill immigration in general, and the H-1B visa program in particular. The H-1B visa program is a temporary work visa for high skill immigrants and is used extensively by the technology industry.

Defenders of the H-1B visa program argue that it is needed to help U.S. technology tech companies fill critical scientific and technical positions in the United States and enable companies to be more globally competitive. Opponents of the program, principally unions representing professional technical workers, argue that the H-1B program is used by companies as a way to lower the wages they have to pay to American workers and that additional H-1B visa slots come at the expense of American jobs. Largely because of the concerns raised by opponents, since 2004 Congress has limited H-1B visas to 65,000 per year (with an additional 20,000 for foreigners graduating from U.S. universities with a master’s or higher degree.) It should be noted that each year since then the cap has been reached, with applications significantly outnumbering available slots.

Much of this debate was informed by anecdotes and arguments marshaled by both sides. Each side would provide what they considered to be compelling arguments about why the program was either critical to U.S. competitiveness or a corporate ploy to undermine American worker’s wages. But until now, little objective analysis was available to inform the debate. However, a scholarly, peer reviewed study of the H-1B program and its impacts on the labor market published in May sheds new light on this debate. The study, “Are Foreign IT Workers Cheaper? U.S. Visa Policies and Compensation of Information Technology Professionals,” was written by Sunil Mithas and Henry Lucas, of the Robert H. Smith School of Business and appeared in the May, 2010 issue of the journal Management Science.

In the study, Mithas and Lucas examine the largest segment of H-1B visa entrants, those taking jobs in IT occupations (which account for an estimated 60 percent of H-1B visas). There are close to 3.5 million IT jobs in the United States, and of these approximately 300,000 are in the H1-B category. The authors use salary surveys conducted from 2000 to 2005 of more than 50,000 IT professionals. Moreover, they use a number of variables such as education level, gender, size of the employer, years of experience to control for possible differences between immigrant and non-immigrant IT professionals.

In contrast to those who argue that H-1B visas are used as a way for companies to avoid paying higher wages to American citizens or permanent residents, the study in fact finds just the opposite. After controlling for differences, they find that IT professionals with an H-1B or other work visa earn on average 6.8 percent more annually than IT professionals who have U.S. citizenship. When they add additional controls for the state in which the IT professionals work and for job titles, the premium declines, but is still significant at 2.6 percent. Moreover, they also note that H-1B visa IT workers earn less than foreign IT workers with a green card, who make 12.9 percent more than workers with U.S. citizenship. But in either case, their evidence suggests that at least for their sample, H-1B visa workers are not being used by U.S. firms as a way to undercut the wages of domestic workers.

While it is true that their sample size is relatively small relative to the entire population of IT workers and that there is a possibility that some lower wage IT workers are not fully represented in the sample, it does suggest that the reflectivc notion that H-1B visa workers are low-wage substitutes for does not appear to hold up. In fact, the authors’ findings are in direct contrast to the claims of opponents that U.S. companies use H-1B visas to undercut the salaries of U.S. workers. In fact, the authors find that in years when Congress has expanded the number of visas available to companies, the wage premium for H-1B visa workers actually decreases. As they state, “the yearwise results on salary premium for foreign professionals do not provide support for the notion that firms are misusing U.S. work visa provisions to pay less to foreign professionals. The presence of a significant salary premium for H-1B and other visa holders in 2000 when the H-1B cap was 115,000, but insignificant premium in 2001 when the H-1B cap went up to 195,000, appears to vindicate the IT industry’s plea for raising the H-1B cap to make it easier to hire foreign professionals to overcome ‘tightness’ in the IT labor market.”

Why do H-1B visas not appear to negatively impact American IT workers? As the authors argue, the H-1B salary premium “lends support to foreign IT professionals as being complements rather than substitutes for American professionals.” In other words, these high skill immigrants do not substitute for or directly compete with U.S. tech workers. Rather, they complement them so that hiring foreign workers increases demand for domestic workers. A major reason for this is that firms that are able to attract and retain talented workers from overseas may be able to be more competitive and expand more domestically, thus creating even more demand for American high-skilled technology workers. Foreign high-skilled workers may have unique skills that make the U.S. firm more competitive in global markets. These skills may be quite narrow (an H-1B visa worker with deep expertise in cybersecurity in health information technology, for example), or may be broader (IT skills supplemented by a knowledge of foreign business practices and linkages to global professional networks). Likewise, foreign IT workers may be more willing to travel internationally. If U.S. firms only competed nationally, then additional immigrants in one occupational category like IT professionals might in fact reduce wages for domestic workers in that occupation. But when the economy is global and the occupations in question are in firms that are in global markets (e.g., as opposed to occupations like nurses or truck drivers that serve the domestic market), then high-skill foreign immigrants can expand jobs and opportunity for American workers by making U.S. firms more competitive.

The authors go on to note that “policies that restrict the supply of highly skilled professionals for U.S. firms may force U.S. companies to hire professionals overseas, thus defeating the very rationale invoked for reactive policy responses.” In other words, when Congress imposes strict limits on H-1B visas, well below levels of demand, they may actually be hurting not just overall U.S. technology job growth, but employment growth of U.S. citizens. This suggests that a key component of a robust national innovation and competitiveness policy needs to include a more liberal approach to high skill immigration so that America can attract and retain the world’s best and brightest.

Embracing the Self-Service Economy

April 14, 2010 - 10:00am - 11:30am
Information Technology and Innovation Foundation
1101 K Street NW

From check-in kiosks in airports to tax preparation software, self-service technology has generated a wide range of benefits and savings for consumers, businesses and government. Over the long term, self-service technology will likely be a major force for growth in productivity and improved quality of life. And yet, policymakers and government leaders often fail to see this. Read more »

Embracing the Self-Service Economy

April 14, 2010

From check-in kiosks in airports to tax preparation software, self-service technology has generated a wide range of benefits and savings for consumers, businesses and government. Over the long term, self-service technology will likely be a major force for growth in productivity and improved quality of life. And yet, policymakers and government leaders often fail to see this. At this event, ITIF will release a new report "Embracing the Self-Service Economy" that gives an overview of the benefits of self-service technology and the current trends in the field. Read more »

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Embracing the Self-Service Economy

April 14, 2010
| Reports

The past decade has witnessed a rapid growth in self service that allows consumers to take on the traditional role of a service worker in the provision of a service. Self service has long existed—think of placing a call by dialing a telephone instead of using a telephone operator or pressing a button in an elevator instead of using an elevator operator—but its importance has grown as advances in information technology (IT) have created many opportunities to leverage self-service technology for large gains in efficiency and convenience. Using computer kiosks, airline travelers check in to their flights; on the Internet, consumers purchase products without ever speaking to a sales agent; and, using a mobile phone, customers check their bank balances and transfer funds. Self-service technology continues to become more efficient and more convenient, and, as a result, increasingly organizations, including businesses, non-profits and governments, are using self-service technology to operate more productively and to better serve their customers.

Self-service technology has already transformed entire industries, from ATMs in banking to e-commerce in the travel industry, resulting in significant savings for businesses which are passed on to consumers in the form of lower prices and better service. However, even though self-service technology has generated a wide range of benefits and savings for consumers, businesses, and government, it is only the beginning. Over at least the next decade, self-service technology has the potential to be a major force for growth in productivity and improvements in quality of life. We estimate that if self-service technology were more widely deployed, the U.S. economy would be approximately $130 billion larger annually, the equivalent of an additional $1,100 in annual income for every household.

These savings could not be coming at a more crucial time. Most national economies will need the power of self-service technologies if they are to avoid serious economic problems stemming from significant growth in the number of retirees, a situation that will be particularly acute in Europe, Japan, and the United States. In the United States, for example, the number of retirees for every 1,000 working age adults is projected to grow from 213 today to 346 by 2030. For Social Security recipients in 2030 to not see a decline in their inflation-adjusted payments without workers seeing a decline in their after-tax incomes, economic productivity will have to increase by 62 percent. Unfortunately, the Social Security Administration estimates productivity will grow just 40 percent. As a result, in 2030, either worker incomes after Social Security taxes are deducted will be significantly lower, or Social Security benefits will be lower, or both. Self-service technologies promise to be a major source of needed productivity growth, enabling the United States, Japan, Europe, and other nations facing demographic challenges to realize such growth without reductions in wages or benefits.

But these benefits will not automatically occur unless the right policies are in place and the wrong ones are avoided. First, governments should avoid putting in place restrictions on self-service business models and processes. This means that policymakers must resist the efforts of special interest groups that press for restrictions in technology to protect their economic or social interests at the expense of the average citizen. Second, where appropriate, governments should proactively promote self-service delivery of government services. For example, governments should pass along to citizens the savings from using lower-cost self-service options. Governments should also help create a climate conducive to expansion of self-service technologies. This means that government should support the development and deployment of technologies that enable self-service, like broadband, electronic IDs, and mobile payment systems. In the United States in particular, Congress should increase the minimum wage thereby providing firms with more incentive to invest in self-service technology, while at the same time helping to boost the incomes of low income Americans. In addition, Congress should establish an academic Center of Excellence to develop best practices for accessible design for self-service technology. Finally, we recommend that policymakers establish stronger safety nets for workers adversely affected by technological change so that the workforce can more easily adapt to a rapidly changing economy.

Self-service technology offers a broad set of benefits to consumers and businesses and has the potential to contribute even more to our national prosperity and quality of life. While self-service technology is widespread, it is still relatively new and will only continue to improve in quality over time. However, policymakers must avoid enacting policies to restrict self-service while at the same time putting in place appropriate policies to stimulate the self-service economy to realize these benefits.

The Internet Economy 25 Years After .com

March 15, 2010
| Reports

ITIF is marking the 25th anniversary of the very first .com with a comprehensive report, "The Internet Economy 25 Years After .Com: Transforming Life and Commerce." The Internet revolution has just begun.

The report is being issued 25 years to the day in 1985 when was registered as the first .com in the world. The report quantifies the dazzling growth and economic benefits of e-commerce, especially in the last decade since bubble collapse, and recommends ways to ensure a growing and vibrant Internet in the years to come.

From its quiet beginning in 1985, the Internet has grown to 80 million .coms and well over 200 million websites. E-commerce is the driving force behind rapid innovations, new products, services and business models and redefining our roles as consumers and citizens. The 25th anniversary of the .com will be the subject of a policy forum headlined by former President Bill Clinton on Tuesday at Reagan Building in which ITIF President Robert D. Atkinson will participate,

ITIF’s new report arrives in an important week in the development of the Internet’s infrastructure, with the FCC announcing its long-awaited recommendations on the national broadband plan.

Among the findings in the report are the following:

  • Of the roughly 250 million websites about 80 million are .coms. Even after the collapse of the .dom bubble, the number of domain names grows by an average of 668,000 a month.
  • The .coms alone account for some $400 million in economic benefits to businesses and consumers and that figure will likely double in the next ten years.
  • Despite high-profile failures in the dot-com bubble burst, typical survival rates for these new businesses were actually higher than normal and spectacular success stories have followed.
  • Only about 25 percent of the world's 6.7 billion participate in the dot-com economy but is changing – 73 million Chinese became Internet users in 2007 alone.

In order to sustain the progress that has been made in empowering consumers, spurring innovations and boosting productivity, the report urges:

  • Adoption of policies that allow for the deployment of technologies, like wired and wireless broadband, mobile payments platforms, health IT, and other Internet platforms.
  • Removal of regulatory and legal barriers to the emergence of new e-business models.
  • Creation of incentives for companies to invest in Internet-enabled business practices.
  • Advancing digital literacy.
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