The H-1B Visa conspiracy

As an IT Architect who has led multiple large scale development engagements, including hiring a large staff of technical resources, I can't help but comment on the fiasco around H-1B Visas.  And because this subject has so much to do with race and culture, I'll state right out of the gate that my opinion has nothing to do with race and culture.  My opinion is based on pure labor economics.

Vivek Wadhwa writes in last weeks Business Week:

The Visa Shortage: Big Problem, Easy Fix

This visa shortage is a problem for U.S. companies that depend on engineers because significantly more foreign-born students than Americans are completing higher degrees in engineering. According to the American Society of Engineering Education (asee.org), foreigners account for nearly 45% of masters-level engineering students and 60% of PhDs. The result? Multinationals have little choice but to expand their engineering operations abroad, and smaller businesses that can't afford to expand overseas are unable to hire the talent they need.   ***snip***

Unlike many of the problems facing the U.S., this one isn't hard to fix. All we need to do is increase the number of visas that are available for international students who get job offers from U.S. companies. An even better solution is to offer these students permanent-resident visas rather than H-1Bs. In the new global landscape, we need the world's best talent on our side.

Let me be very clear on what I think here, this is nothing more than pure, unmitigated, CRAP!  I don't know the last time Mr. Wadhwa has had to hire any technical staff, but I can tell you his article is highly biased to the employer (cheap labor) side of this debate.

The problem is not with American graduates as Mr. Wadhwa states.  The problem is with a term used more in accounting discussions: margins. Lets face it, American labor costs more, and all the major tech firms have figured out that they can save on labor costs thereby increasing profit margins, by hiring less expensive resources.  Americans expect costly things such as healthcare and retirement benefits, bonuses and a suitable work environment.

Foreign workers are more interested in the experience, and the potential windfall of working for an American company on American contracts.  They are typically hired by contracting agencies who have arrangements with big IT firms like IBM, Cisco, etc.  They don't get vacation pay, or benefits, and they can be fired without any notice and sent back to their home country.  They have no say on poor work conditions, excessive hours, or lack of proper resources.  The people we bring into this country on the H-1B Visa program are in many cases indentured servants.

What Mr. Wadhwa doesn't bother to ask of course is "why are American kids avoiding these types of education programs?".  Maybe because they know that IT labor has to a certain degree become commoditized, and like currency, labor forces can be shuffled around the globe to assure the lowest costs.

I must have missed why these folks came to American universities in the first place.  By stating:

Our loss is likely to be the gain of countries like India and China.

Mr. Wadhwa seems to think these kids are here to educate themselves for "our" benefit.  Who exactly "our" is depends on YOUR perspective.  If by "our" he means Cisco actually having to hire some American interns and T R A I N them, then yes, I can see what the benefit would be of getting an H-1B Visa holder to do the job for 2 years for a lower cost. 

Why is it bad when they go home with their skills?  Why is it bad when we have a shortage of skills here?  A shortage creates demand, which raises salaries.  Market forces right?  What is it that is driving foreign students to come and get American educations? Demand. 

I'm simplifying the argument here for brevity, because this subject goes a lot deeper than shifting labor costs.  The cost of doing business in the U.S. is simply suffocating.  And the demands on growth and profit from shareholders never subsides.  But the H-1B Visa program is not the fix for this.  The fix is to leave the program as it is, and let the market forces of supply and demand play out with the American work force.  Yes, it will cut into profits, that's what the payment is for outsourcing and the myth of inflation and consumer driven globalization.

Of course the crash of the U.S. dollar is inverting the entire business model.  The rise of the Rupee is already taking its toll on margins, and after being the waterboy of the IT industry for the past 20 years, the Indian work force is waking up to their position in this formula and industry demand for their skills. The good thing for them is that this cat is out of the bag, and they'll do just fine without working for an American company, and without an H-1B Visa.

Comments

[Brad Ward, Arlington, TN]

There's always problems with the free markets when it's influenced by government subsidies to corporations like H1B visas. To explain simply what's going on, consider this thought experiment:

There are two sellers, #1 & #2, and many buyers in the same market. The two sellers would like to buy their supply to make their product at a low price. The supply includes all inputs to make the product such as materials, labor, manufacturing processes, etc. Ultimately, these two sellers would like to sell their products at a high price and make a profit. Well one day, seller #1 decided that they would like to make more profit but they can't figure out how to take more market share from seller #2 to increase profits. During a meeting with management, seller #1 decides to lobby the government for more H1B visas to help them be more competitive against seller #2 because their labor rate is too high. The government agrees with seller #1 and decides to increase the H1B visa quota. Like magic, the labor rates fall as predicted because of the increase labor supply, and this makes seller #1 happy. Seller #1 can now buy their supply at a lower cost. This in turn, allows their profits to increase because they are still selling high. If seller #2 doesn't take advantage of the H1B visas or the resulting new labor rates, then his profits will be lower because he is still buying the supply at a higher price than seller #1. Therefore, seller #2 will see a decrease in profits. If seller #2 continues to be unprofitable, then they will go out of business after some period of time. Well seller #2 wants to stay in business, so they take advantage of H1B visas as well. So who wins and who loses? Since labor rate obviously goes down, then the workers for seller #1 and #2 will take a financial loss.

That's what happen when the government intervenes. The government basically allowed the sellers to profit at the expense of someone else-the worker. This may not be the intention, but it is certainly the result. Now, let's consider what happens without government intervention:

There are two sellers, #1 & #2, and many buyers in the same market. The two sellers would like to buy their supply to make their product at a low price. The supply includes all inputs to make the product such as materials, labor, manufacturing processes, etc. Ultimately, these two sellers would like to sell their products at a high price and make a profit. Well one day, seller #1 decided that they would like to make more profit but they can't figure out how to take more market share from seller #2 to increase profits. During a meeting with management, seller #1 decides to lobby the government for more H1B visas to help them be more competitive against seller #2 because their labor rate is too high. The government disagrees with seller #1 and decides to not increase the H1B visa quota. Seller #1 is not happy and goes back to management with a different stategy. This time seller #1 decides to improve their manufacturing process to be more efficient and increase productivity. Seller #1 can now buy their supply at a lower cost because their were innovative. This in turn, allows their profits to increase because they are still selling high. If seller #2 doesn't take become more innovative, then his profits will be lower because he is still buying the supply at a higher price than seller #1. Therefore, seller #2 will see a decrease in profits. If seller #2 continues to be unprofitable, then they will go out of business after some period of time. Well seller #2 wants to stay in business, so they become more innovative. So who wins and who loses? Everyone wins because these two sellers are doing more with less. Their resulting lower supply costs and increased profits benefits the shareholders and workers because their pay will eventually rise and the buyers of their products because the price of the products will ultimately decrease.

We're essentially making a choice between capitalism and socialism. Should the government make rules that benefit one at the expense of another?