​Damning data: How Indian IT gamed the H-1B for cost-cutting US clients, but why new rules may change nothing

Will throttling abuse of the H-1B solve the problem for vanishing low-end tech work in the US? Or should there be a whole new approach to saving domestic jobs?
Written by Rajiv Rao, Contributing Writer

There are many accounts of American techies who lost their jobs because US companies like Disney allegedly shipped in Indian IT workers to replace their American ones.

Around Feb. 20, the chiefs of Indian IT companies are flying to the US to convince President Donald Trump to go easy on the imminent H-1B clampdown. Indian IT gets 60 percent of its $150 billion revenue from the country, and turning off this spigot may have serious consequences for both India as well as the US, which now sells a lot of its goods and services to this fast-developing nation.

There are many problems that have been articulated with the current system of awarding the H-1Bs and countless, wrenching accounts of American techies who lost their jobs because US companies like Disney, Toys 'R' Us and Southern California Edison, amongst others, allegedly shipped in Indian IT workers to replace their American ones.

Amongst these accounts are other, less-written ones, where genuine high-skilled talent from abroad, armed with advanced degrees and hard-to-find science chops (whom the H-1B was originally meant to service), had to leave the country and the companies that desperately needed them simply because they couldn't get their hands on a H-1B visa despite 65,000 of them being offered every year. These folks in The New York Times story -- one from Nepal and the other from France -- are just a few examples of this. How could this be?


For over a decade now, USCIS grants H-1Bs through a computer-generated lottery, and you would think that this serves as an excellent, unbiased way to distribute these work visas. The problem is, while an employee can only submit one Labour Condition Application (an approval by the Department of Labour and a pre-requisite for a H-1B visa), there is no limit to the number of applications that a firm can submit for that one job. If a firm then submits 10 applications with the names of 10 other staff, no prizes for guessing how much the odds of getting a visa for solo applicants such as you or I in a lottery increase.

Therefore, most small companies seeking that one visa for a tough-to-find biophysics engineer or a robotics expert will in all probability lose out to a $60,000 low-end IT programmer with an H-1B from India who most probably performs mundane and routine software tasks for a large American company. So, when people furiously debate about whether there is a shortage or a surplus of STEM workers, the answer in fact may be both -- a shortage at the upper end for specialized work and a sudden surplus of low-end tech candidates who have been crowded out of the market.

The statistics compiled by both The New York Times (using numbers crunched by Ron Hira, Associate Professor of Public Policy at Howard University and an outsourcing expert) and Mint newspaper say it all: In 2014, the top 20 companies received around 40 percent of the visas issued (32,000), while more than 10,000 other firms received much fewer visas. Half of the applications, according to The New York Times, were junked immediately because the quota had already been met.

These records indicate that of those 20 companies, 13 happened to be global outsourcing firms, while the top five prepared as many as 55,000 H-1B applications. India's TCS alone had prepared applications for at least 14,000 visas and won 5,650 of them. In 2015, The New York Times said that 233,000 applications were received in just seven days, and about two-thirds were instantly rejected because the quota had been exhausted.

Mint newspaper points out that since 2010, a scant six outsourcing firms have accounted for 20 percent to 30 percent of all H-1B visa applications, while the share of Indian citizens in approved H-1B petitions has skyrocketed from 39.4 percent in 2009 to 66.2 percent in 2014.

Two things clearly indicate that these H-1Bs are no AI or robotics geniuses: Employers who hire H-1Bs need to show that these recruits are not displacing American workers. However, the exception to that rule is if the new hire's annual salary is greater than $60,000. No surprise that the median salary for most outsourcing firms is just a shade north of this number.

Also, it doesn't come as a shocker that not a single technology services company was among the top 200 in terms of patents granted according to Mint -- at least one marker for cutting edge innovation -- while close to half of the total hire didn't have more than a Bachelor's degree.

Clearly, things have come to a head and legislation in the pipeline under Trump's watch (which also includes a potential executive order), which I wrote about here. It's going to try to make some changes to rectify things.

However, is that just a last-ditch, and ultimately, futile stab at a problem that has far bigger geo-economic underpinnings to it?

The first sign of big changes to come lie not in an impending legislation or executive order but within Indian IT itself. In 2016, India's largest outsourcing company TCS drastically slashed the number of visas it applied for from 14,000 in 2015 to just 4,000. It finally received just 1,300, which was probably what it had counted on getting. TCS's CEO Chandrashekhar said that the company was anticipating a visa-unfriendly regime in the future and had begun to tweak its business model accordingly.

This should come as a well-deserved victory on behalf of longtime campaigners who have been agitating for fair labour practices in the tech sector. The question that looms is whether those tech jobs ostensibly 'saved' will now be up for grabs within the US for the salary of $60,000, never mind the price tag of $100,000, which is what was on offer before price-gouging Indians entered the fray.

Indian IT's efforts comprise only half of the explanation in this saga. After all, these firms are simply responding to a business opportunity via a legal loophole, a strategy that could easily be described as text-book American capitalism. In fact, the other half of the story belongs to companies like Disney and Southern California Edison (there are many more), which don't see anything wrong in bringing in Indian workers if it means that their IT costs are slashed by half.


Stephan Manning, associate professor of management at the University of Massachusetts (Boston) who studies outsourcing, doesn't think the legislation will do a whole lot for American techies. "Whether Disney tech staff is replaced by H-1B workers onshore or by Indian workers offshore does not really matter in the end. In other words, trying to protect higher paid, yet generic tech jobs on US soil is futile. US salaries for such jobs will soon adjust to global competitive standards."

The fact is, experts say that location for these kinds of rapidly commoditized jobs will become less and less of an issue. They can be offshored very easily, especially in a globalized work arena that has been vigorously shaped and influenced, ironically, by the US and its vigorously evangelized brand of free market capitalism. Here, by and large, the lowest bidder will win. Whatever managerial oversight needed for a project can be handled by a few employees onsite.

In a world where a senior engineer or database administrator costs between $70 to $100 an hour in the US, whereas the same person costs about $20 to $30 an hour in India or China, US companies will have no qualms about instantly seizing the low-cost alternative even if there exists a quality difference, or if Trump administers a 100-percent tax on these companies (however unlikely that is.) In fact, very soon, these low-end foreign techies will themselves be disrupted by machine learning and AI for the jobs that they do.

What experts like Manning suggest is to elevate the position of the low-end American techie or coder by grafting valuable managerial skills to the technical aspects along with more client interface and deep product knowledge. Manning calls this "context-specific training -- responding to local client demand, managing local supplier relations, mobilizing funding." These jobs will be very difficult to replace onsite or offshore, and you will create an environment where H-1Bs may then be shipped in purely to manage labour market flexibility and to assist their American superiors rather than to supplant them.

Of course, figuring out how to incentivize and orchestrate this change is another matter altogether.

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