Are Indian H-1B workers a threat to American techies?

With the recent alleged cases against TCS and Infosys hogging the news, it's time to ask this question. The answer may surprise you.
Written by Rajiv Rao, Contributing Writer
A few days ago, I wrote a piece on the fracas that ensued when Disney and power utility Southern California Edison apparently hired Indian firms TCS and Infosys to replace in-house tech workers with Indians on H-1B visas. What seemed to enrage many about these two situations was the added ignominy that these fired workers had to suffer when they were made to train their Indian counterparts lest they lose out on their severance pay.

There is nothing more degrading than to be fired and then forced to hang around to train your replacement while you figure out where your next paycheck is going to come from. The feeling of humiliation is undoubtedly compounded when you have someone from another country being flown in to do your job at a significantly lower wage.

Indian IT companies have long been accused of using loopholes in immigration regulation in order to make a quick buck, thanks primarily to the ability to pay their imported workers on H-1B visas between 30 percent and 50 percent less than the prevailing American wage rate for that job.

It's a widespread notion that hiring an H-1B worker to perform a specialized task in the US necessitates demonstrating that a local American worker cannot be found to do the same job. But this, apparently, is a widespread misconception. These rules evidently exist, but only for unique situations, and even those can be easily be skirted by using legal loopholes.

Many Indian companies have also had lawsuits filed against them for alleged visa fraud -- for essentially using one category of visa (like the B1, which doesn't allow the holder to engage in any work on the visit) to undertake assignments that you could do only under an H-1B (or a related visa). Some Indian companies, such as Infosys and TCS, have settled lawsuits in this general arena without admitting any wrongdoing.

Still, there is a general feeling in the US that Indian companies have played fast and loose in trying to make a quick buck, which in this case is around $20 billion in revenue -- no small pile. Along the way, American IT workers feel enormously embittered towards people who they feel are not skilled enough and have poor communication skills, while Indian H-1B holders are aghast when they discover that they are being paid a fraction of a client's billed amount. It's an ugly situation all around.

Still, despite all of this, the world of the H-1B is not as simple as described above. For instance, H-1B issues always heat up the closer we get to an election year, with none other than US President Obama resorting to scare-mongering in the past to establish his pro-American chops. It's also surprising that those who you think should be steadfast defenders of the stars and stripes are often fervent advocates of shipping in foreign workers. Presidential candidates Ted Cruz (R-TX) and Marco Rubio (R-FL) both fit into this category. Cruz once wanted to increase the H-1B cap from 65,000 to 325,000, while Rubio's proposed "I-squared" Bill attempts to triple the number of temporary guest workers that firms can bring in every year.

So, it's no surprise to discover that politics and business are familiar bedfellows, which in this context is embodied by the list of the top 10 companies who apply for H-1B visas. In 2014, while six were Indian (with Infosys leading the table by a huge margin, at 32,379, versus second-place TCS, at 8,785), the rest were all American. Deloitte, IBM, Accenture, and Microsoft made up the remainder of the top 10, while Ernst & Young and Google sneaked into 11th and 12th places.

This is nothing new for many American tech workers who have long bemoaned being sold out by their own country and its politicians in the interests of big business. So why make easy scapegoats out of Indian companies? This is a question posed by Norman Matloff, a professor of computer science at the University of California at Davis. Matloff's own research, published in the academic journal Migration Letters, "has shown that non-Indian companies use the visas to acquire cheap labour, saving about 20 percent in an apples-to-apples comparison -- ie, young foreign workers versus young Americans -- and as much as 50 percent for hiring young H-1B visa holders instead of older Americans. A 2001 National Research Council report, commissioned by Congress, also found that underpayment of the visa holders is an industry-wide practice."

But is the H-1B worker really such a problem to begin with, such a persistent blight on American society? Are too may of them displacing American workers and lowering the prevailing wage as is the common perception? The answers to these questions, which I had written about in an earlier article, and which I will trot out here again, are astonishing.

H-1Bs and the American tech worker

It turns out that Ian Hathaway, research director at Engine, an American economic research outfit, has churned out numbers that show employers find it a whole lot more difficult to find candidates in the science, technology, engineering, and mathematics (STEM) fields, as well as computer and math sciences (CMS), than those in other fields. Apparently, at the end of 2012, there were 2.4 CMS job openings for each unemployed CMS worker, and 1.4 STEM openings for each unemployed STEM worker, versus four unemployed workers per job opening in non-STEM and CMS fields.

What's more, Hathaway showed that wage growth for STEM and CMS workers with at least a bachelor's degree was far more "robust" in the last 12 years, compared to other fields.

"Not only did wages grow at the median for these fields while wages in all other professions fell substantially; that growth also reached workers with a broader set of income levels," Hathaway pointed out. In fact, it is "irresponsible for researchers to claim there is an oversupply of STEM workers", he added.


If this isn't conclusive enough, The New York Times pointed to another study conducted by William R Kerr, a Harvard business professor, who found little empirical evidence amongst 300 American companies that pointed to American engineers being displaced by foreign ones. In fact, Kerr's study suggested exactly the opposite -- that the growth of immigrant workers "helps younger American technical workers; more of them are hired and at higher-paying jobs -- but has no noticeable consequences, good or bad, on older workers". Kerr also said that "in the short run, we don't find really any adverse or super-positive effect on the employment of Americans", adding that "people take an extremely one-sided view of this stuff and dismiss any evidence to the contrary".

And yet another study conducted by academics at the University of California at Berkeley found that over the span of a decade in an urban area, a 1 percentage (of total employment) increase in foreign STEM workers during a decade actually increased the wages of native-born American college graduates by 4 percent to 6 percent, with small effect on their employment.

Of course, if I were an American tech worker, none of these facts would probably make a dent in my perception of foreign H-1Bs being the closest thing to Jabba the Hutt, especially after hearing about having to suffer through training your replacements. The feeling of being replaced in any industry is not just about figuring out how to pay rent; it is also about pride in workmanship or technical expertise. The loss of your job is quite simply the loss of your self.

But are we being selective or romantic about how we look at H-1B jobs specifically? After all, nobody today thinks that American cars should be manufactured only in the US. And last time I checked, the Apple iPhone and its components were all being made in China. There is a grudging realisation that the world has changed, and the old ways are simply not tenable anymore.

If you hold Apple stock, it is unlikely that you would cheer that phone being made anywhere else but in China. And pension funds that hold these stocks, in which you probably have a stake, undoubtedly have the same view. So why not uphold the same principle when it comes to H-1B hirers IBM, Google, and Accenture? Moreover, these H-1B positions are essentially assembly-line workers in entry-level jobs that are being slowly supplanted in small ways by bots and automation. Why would anyone who defends free markets and an uber capitalism that is the underpinning of American enterprise want to protect this line of work?

America is the world's largest engine of innovation. Legions of its tech workers have and continue to pioneer new ways in which technology can improve our quality of existence. It seems to me that in the absence of any concrete evidence that H-1Bs threaten the existence of the American techie, it may be more productive to focus on how to move up the value chain.

After all, this kind of commoditization of labour is pretty much what has happened over the decades in the restaurant, hospitality, agriculture, and construction industries in the US. And there's no reason why it shouldn't be happening in IT.

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