Outsourcing expert Ron Hira on H-1B reform bill's impact

Ron Hira, a professor at the Rochester Institute of Technology, has a few issues with my take on an H-1B visa reform bill yesterday. In a nutshell, I argued that a Senate bill trying to reform the H-1B visa program would in reality push more work offshore.

Hira, who has been a valued source of mine for years, is an expert on offshore outsourcing and has published a book, testified before Congress and given a host of policy statements. Instead of responding point by point in another post--and most likely mucking up his argument--it makes more sense to run Hira's response in full. Here's his email:

Hi Larry,

I think you are taking a too limited view of business decision-making.

The companies do not make binary either-or choices: hire a foreign guest-worker or hire abroad.

If the company can't find a US worker for an opening at a particular price, they will choose one or more of the following options:

• raise the wages offered to attract a larger pool of candidates;
• hire a less ideal candidate and have them do some training;
• train an internal worker to move to the job;
• split the tasks up and spread them across a number of workers;
• mechanize/automate the job - substitute capital for labor;
• outsource the work to a contractor domestically;
• outsource the work overseas;
• hire overseas.

The idea that there are a fixed number of jobs in the country is something that economists call the "lumps of labor" fallacy. This is generally talked about in terms of the layperson's misperception that "jobs" move overseas and no new ones will be created in their place. I think you have the same misperception of the labor market. It is a "market" that exhibits all kinds of flexibility.

Now turning to the business logic of offshoring, and the constraints on offshoring. Companies are not moored to the U.S. If a set of tasks are offshorable, and companies can save money doing so, then you better believe that companies are doing it. If they didn't, they would be irresponsible to their shareholders. The Boards do not compensate managers and executives based on how many U.S. workers are employed. I don't say this as a criticism, simply as a fact.

So, companies are offshoring everything they can, and I see few political constraints. Microsoft isn't keeping work in the U.S. because it is "patriotic", nor should it. The real constraints are technical. The nature of the tasks are such that they require physical presence in the U.S. They are "geographically sticky". See for example, Alan Blinder's recent foray into the offshoring discussion (WSJ profiled this about a week ago). (Note: WSJ subscription required.)

Now, turning to the bill provisions themselves.

You state, "A company, say Microsoft on any other technology concern that hires a lot of H-1B workers, is going to look at this bill and say it's not worth the effort to hire foreigners in the U.S.

This seems unlikely to me. All of the provisions are things that Microsoft already says they comply with. Why would they balk at signing a sheet of paper saying they are complying with it? There is little additional cost to them to do this.

They are, after all, asking for a privilege not afforded to most other businesses, and they are increasing the supply of the labor market.

It seems reasonable enough to ensure that the H-1B program meets its intents. If this means that there are costs to ensure compliance, then it seems like a reasonable tradeoff.