Raising Wages Is Just a Start on Fixing Skilled Worker Visas

(Bloomberg Opinion) — The visa program for skilled workers is a net positive for American society despite a number of problems that make it a target of critics who worry that cheap foreign workers are taking Americans’ jobs and lowering wages.


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Fortunately, the country may already be on the way to fixing those problems. The first step, an increase in the minimum wage for H-1B visa holders, has just happened.

The H-1B program is often discussed as a way to alleviate labor shortages: Import foreign specialists to do work that native-born Americans are unavailable to do. That’s how advocates often sell the program, and it fits the common idea of jobs as a fixed resource to be parceled out. In fact, helping companies “who cannot otherwise obtain needed business skills and abilities from the U.S. workforce” is right there in the program’s mission statement.

But in reality, relieving shortages has little to do with the H-1B program’s true economic purpose. H-1B visas expand the available pool of skilled workers in the country, which makes the U.S. a more attractive place for high-value industries to locate. Without the ability to hire talented foreigners on American soil, tech companies will take their offices to Asia, Europe, or elsewhere. The total number of high-paying tech jobs in the U.S. will then shrink.

That’s why it makes no sense to talk about “shortages” of skilled workers; the more of them the U.S. takes in, the more the number of jobs will grow. And that’s why a number of studies find that allowing in more H-1B workers actually increases job opportunities and wages for native-born workers of all education levels. H-1B workers also produce lots of innovation, which helps maintain U.S. technological leadership over rivals like China.

There’s still basically two problems with the H-1B program. The first is that the visas often go to workers who don’t really help grow the U.S. tech-industry. The program is dominated by outsourcing and consulting firms, which generally do lower-value work, pay lower wages, and don’t produce innovation themselves. In 2019, six of the top 10 companies getting H-1B approvals were outsourcing or consulting firms.

Where the Visas Go

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Where the Visas Go

Allowing outsourcing and consulting firms to hire cheap foreign labor in the U.S. is not a bad thing. It results in some increased investment, and those foreign workers spend their money locally, which boosts local economies. But it’s far from an optimal use of the H-1B program, and it crowds out far more innovative companies and higher-value workers.

The easiest way of addressing this problem would be to simply raise the cap on the total number of H-1Bs, from the current level of 85,000 to the 195,000 that prevailed in the early 2000s. In addition, it makes sense to raise the minimum salary that employers are required to pay H-1B workers. In a world where super-high-value workers are clamoring to enter the U.S., requiring higher wages means that lower-productivity outsourcing and consulting workers will be replaced with higher-value engineers and researchers.

The U.S. Labor Department has just done this, implementing a 30% increase in the required salary for H-1B workers. This effectively eliminates the lowest-skill tier of H-1B jobs, and will mean more spots available for the higher tiers. That will raise the program’s productivity and innovation output, and potentially quiet populist fears that H-1Bs represent low-paid replacements for U.S. workers.

Unfortunately, the Trump administration, which probably sees the move as advancing its general assault on skilled immigration, is unlikely to take the additional step of raising the H-1B cap. But a Joe Biden administration might.

Raising the minimum salary is only a start. The H-1B program has another well-known problem, which is that some H-1B workers have difficulty changing employers. Many visa holders use the program as a springboard to an employer-sponsored green card. But while they’re in the process of applying for permanent residency, workers have a tough time switching companies, since that would threaten to delay or even jeopardize their green card application. This so-called tethering effect means that some H-1B workers have very little leverage to bargain for higher wages, which fuels the fear that they represent cheap foreign replacements.

The solution, as leading immigration economist William Kerr has written, is to allow H-1B workers to sponsor themselves for green cards, instead of relying on their companies to do so. That would allow them to change jobs easily even while in the middle of an application, and increase their ability to demand competitive wages. An additional measure would be to allow state and local governments to sponsor H-1B workers’ green card applications.

Overall, the H-1B program is a boon to the U.S. and to native-born American workers. It certainly doesn’t deserve the fear and animosity that it sometimes receives. But by raising minimum salaries and allowing visa holders to sponsor themselves for green cards, the program can be made even more beneficial, while reassuring some of the critics that smart, hard-working foreigners are here to help Americans instead of steal their jobs.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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