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

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

Summary: 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.

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TOPICS: Outsourcing
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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.

Topic: Outsourcing

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  • 70% of the 65,000 h-1b visas are taken by foreign IT offshoring firms

    We don't need to raise the cap, we need to stop the abuse of foreign IT offshoring companies. Foreign IT offshoring companies are using 70% or more of the h-1b Visas, in order to train workers and ship them back home.

    The h-1b program is taking more jobs away from the U.S. each year, than it could ever hope to bring in.

    This program is in bad need of a complete reform, before it guts this countries IT industry.

    Don't believe me, read up, here are the links:

    Businessweek: The h-1b program is a "conduit to offshoring"

    http://www.businessweek.com/bwdaily/dnflash/content/feb2007/db20070208_553356.htm

    MSNBC: "Work visas may work against the U.S."

    http://www.msnbc.msn.com/id/17048048/

    Bill gates doesn't give XXXX about the U.S. worker, read up on how he sticks it to his own Microsoft employees:

    http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2007/03/30/EDGRJN7CFB1.DTL

    70% (or more) of the 65,000 available h-1b visas are being used by foreign offshore outsourcing companies. These foreign companies are using the Visas to train their workers in the U.S., and then ship them back home to continue the IT offshore outsourcing process.

    Companies are using the h-1b program to help them setup foreign offices, development groups of all sizes, and divisions. H-1b workers are paid 20% less than their U.S. citizen counterpart. That's less tax money, then the company sends the worker back to India (usually), where he doesn't pay a dime in U.S. taxes, and proceeds to build a offshore development group that further removes U.S. jobs.

    Companies such as Microsoft and Oracle are actually just trying to escape the high infrastructure cost (8 trillion dollars worth) of the United States. Half an engineer's salary is taxes. Taxes that pay Social Security to help our senior citizens, that keep the roads up, that assist our farmers, and taxes that are being used to defend the rest of the world from harm.

    The U.S. department of labor has stated that companies can hire an h-1b worker over a U.S. citizen, even if the U.S. worker is just as qualified/capable as the foreign worker.

    In open testimony before the U.S. congress, a job applicant called an agency to see if she could apply for a programming job on the east coast. The congress members were shocked to hear that the agency would not consider her for a job, because she could not be sponsored with an h-1b visa. The George Bush Department of Labor took no action against the company, even though most americans would consider this a clear act of bigotry against the U.S. citizen.

    And the reason is clear, most h-1b visas are used to offshore U.S. jobs, not to create U.S. jobs.

    All over the IT workplace, U.S. citizens are facing open discrimination, simply because their point of origin happens to be the United States. There is an onslought of bigotry being perpetrated by industry against the working U.S. citizen.
    So even if you complained about your company prefering to hire a h-1b workers, you wouldn't have a leg to stand on in court. And Even if you applied for a job and were the best candidate, it could "legally" be taken by a worker from another country, and you "the american citizen" can stay on the unemployment line.
    jake_leone
    • Has some valid points

      Your argument has some valid points. But one thing is growth will be there when is a competition. So, competition always helps the economy or society to grow. And i agree with you on H1B abusing by Offshore firms and so we need to close the loopholes in H1B program that allows Offshore firms to apply for H1. Otherthan that it is all Ok with H1B program even though it hurts some native-born americans so that they will update their skills in competing with high skilled foreigner labour which inturn helps them and society.

      So, I strongly feel if Congress closes the loopholes there in present H1B program by not allowing Offshore firms to apply for H1, then you will see slow real talent flow into the US job stream. It will help the economy to grow also. Also, it is better to H1B visa holder the flexibilty to move the companies/employers so that it won't restrict them to get the previling wage same as American gets for the same type of job.
      tech_savvy