Debate on H-1B Visas for Skilled Workers

Read the article, "Most See Visa Program as Severely Flawed" By S. Mitra Kalita. (The Washington Post, March 31, 2006.)

The U.S. Government grants H-1B visas for foreign, skilled workers for jobs such as software engineers and systems analysts. "Unlike seasonal guest workers who stay for about 10 months, H-1B workers stay as long as six years. By then, they must obtain a green card or go back home.......This week, the Senate Judiciary Committee approved legislation that would increase the H-1B cap to 115,000 from 65,000 and allow some foreign students to bypass the program altogether and immediately get sponsored for green cards, which allow immigrants to be permanent residents, free to live and work in the United States."

I quote the article in some length on the controversy over the economics of the program:

Economists seem divided on whether highly skilled immigrants depress wages for U.S. workers. In 2003, a study for the Federal Reserve Bank of Atlanta found no effect on salaries, with an average income for both H-1B and American computer programmers of $55,000.

Still, the study by Madeline Zavodny, now an economics professor at Agnes Scott College in Decatur, Ga., concluded "that unemployment was higher as a result of these H-1B workers."

In a working paper released this week, Harvard University economist George J. Borjas studied the wages of foreigners and native-born Americans with doctorates, concluding that the foreigners lowered the wages of competing workers by 3 to 4 percent. He said he suspected that his conclusion also measured the effects of H-1B visas.

"If there is a demand for engineers and no foreigners to take those jobs, salaries would shoot through the roof and make that very attractive for Americans," Borjas said.

The Institute of Electrical and Electronics Engineers-USA says H-1B salaries are lower. "Those who are here on H-1B visas are being worked as indentured servants. They are being paid $13,000 less in the engineering and science worlds," said Ralph W. Wyndrum Jr., president of the advocacy group for technical professionals, which favors green-card-based immigration, but only for exceptional candidates.

Wyndrum said the current system allows foreign skilled workers to "take jobs away from equally good American engineers and scientists." He based his statements about salary disparities on a December report by John Miano, a software engineer, who favors tighter immigration controls. Miano spoke at the House hearing and cited figures from the Occupational Employment Statistics program that show U.S. computer programmers earn an average $65,000 a year, compared with $52,000 for H-1B programmers.

"Is it really a guest-worker program since most people want to stay here? Miano said in an interview. "There is direct displacement of American workers."

I am not an economist, but some things seem obvious. One is that it is hard to compare the salaries of H-1B workers with those of citizens working in the same fields. Educational experiences are different, and so too, I would guess are worker productivities, and thus it would be hard to tell if there were equal pay for equal work -- that seems to me the real test. It is also the case that representatives of different interest groups will interpret the date in different ways, each seeking to make the case that most benefits the interests they represent.

I wish I knew more about this, but it seems to me that this article misses the point in a number of ways.

In the case of non-tradable services, if you increase the supply and the demand stays the same, then indeed I would expect the remuneration of the service providers to go up. Thus, when the government started to subsidize medical care and the supply of physicians could not increase in step, the remuneration for doctors went up. Thus, at first glance it would seem that increasing the supply of skilled professionals via the H-1B program might tend to increase competition for jobs, and decrease the pay levels for those jobs.

But the world has changed, and engineering and software services are increasingly traded. If we don't bring the Indians and Chinese professionals to the United States to do these jobs, won't the companies just move the jobs to India and China? The Internet and improved telecommunications technology and infrastructure make it possible and easy for them to do so.

Would it not be better for the U.S. economy to have 50,000 high wage engineers and programmers buying houses and cars, food and clothing in Silicon Valley and the 128 corridor, than in Bangalore and Hong Kong?

The assumption that the demand for the services will remain fixed might also be questioned. The more people are innovating, the more goods and services there are to sell. Moreover, high tech products produced by these foreign workers are key exports for the United States, and they represent an important source of our foreign exchange. More to the point, the more these folk produce, the more the U.S. exports, and the more demand there is for the services they provide.

The United States is still a magnate for foreign investment. Our institutions are such that with more skilled professional workers (especially those immigrants who bring entrepreneurial desires and technological innovation skills), we should be able to attract the capital to create new jobs, and increase the demand for professional workers.

We also know that there are significant externalities in the development of the high tech industries. There are economies of scale for the firms, and letting firms grow can make them more efficient. There are also spillovers among firms, and having a critical mass in a cluster of firms produces competitive benefits for the cluster as a whole. Wouldn't U.S. parochial interests be better served if these economies be realized within the United States, rather than in high tech industrial clusters in India and China? Do our legislators really want to foster the outsourcing of these elite jobs in such a way that new high tech clusters will be further promoted for future competition with the United States?

As I understand the economics, the competitiveness of industries depends in large degree on their agility and flexibility, and regulations that reduce this flexibility should be avoided unless they are needed to protect some greater good (e.g. safety, human rights, the environment). Excessive regulation of immigration of workers in categories where binding constraints exist on development would seem to be such a limitation on competitiveness.

And by the way, just whose pay levels are we protecting? Aren't a lot of the high tech workers in these fields foreign born, or (like me) the children of foreign born parents. Just why is it better to protect their high wages (and make U.S. products less competitive on international markets) than to offer economic opportunities to new immigrants?

In a previous comment I suggested that the United States is a big country, with an economy capable of creating a lot of jobs. We should keep to our tradition of welcoming immigrants and offering them economic opportunity. This is especially true for the H-1B visa workers, who offer us so much.

Of course there are limits to how fast the United States can create jobs, and immigration has to be constrained by these limits. Moreover, the education system in the United States is doing a disservice to far too many children, failing to equip them for work in an increasingly globalized, knowledge-based economy. Indeed, there is an underclass, for whom the damage has already been done outside the schools, and American society will have to deal better with their problems. The United States still has a long way to go to attain "The Great Society" of our dreams, but limiting immigration of skilled workers qualifying for H-1B visas doesn't seem a solution to our problems.