H1B Visas: the $12,000 question

You may recall the feisty debate on the H1B Visa and outsourcing issue here and here last year.  With the 2008 campaigning now in full swing, the "O" issue is noticeably absent from the candidates’ agenda and our old friend Lou Dobbs is waiting in the wings to shoot pot-shots at any of the candidates who say anything that remotely supports offshoring, outsourcing or increasing H1B visas.  Step up Hillary Clinton (see video clip below, taken from Lou Dobbs’ CNN show last year).

Yes, she’s supporting Silicon Valley businesses and has them contributing substantially to her campaign, but at least she’s openly discussing the issue and – more importantly – attempting to tie together the realities of outsourcing, offshoring, immigration and the need for the US government to invest in developing technical and engineering talent.  I respect Lou Dobbs a great deal – he’s a passionate man who sincerely believes in his vision for American workers, has a great sense of humor, and conjures up some excellent – and entertaining – political discussion.   However, this H1B argument just isn’t holding up. 

One key reason is the fact that the average salary differential between a "domestic" worker and his/her supplanted job to an H1B worker is….$12,000 per annum.  Having advised on several offshoring and outsourcing engagements over the last three years, I can state categorically that I have yet to see companies go through an offshoring or outsourcing process – driven by the goal of cost containment – at such a low cost-saving per FTE.  Most companies will not entertain outsourcing business cases if they cannot achieve cost savings in excess of 25% from their original budget – it’s simply not worth the transition cost, complexity and risk to many firms.  I would add that some companies have moved into outsourcing engagements at cost-savings lower than 25% from original budget, but their reasons for outsourcing were nearly always driven by motives beyond mere cost-reduction (for example, the need to re-design and standardize processes and drive rapid change to their enterprise that an outsourcing environment could bring).  Bottom-line, most companies can’t be hiring H1B workers for the sole purpose of saving a few bucks… they generally need these staff.  More key points regrading this issue:

  • Clinton’s policy is to increase the current (and already reached) H1B Visa cap from 65,000 to 115,000.  Er… is this a big deal – will this type of increase in temporary workers cripple the US economy?
  • Clinton wants to increase the H1B Visa fees for sponsoring companies.  The current cost of sponsoring an H1B Visa for an organization is about $6,000 – which covers USCIS fees and typical attorney costs.  Clinton wants to re-invest these fees into grants for training and education of US graduates in these specialized professions.  Why not raise these fees to $10,000?  This would have the effect of nullifying any minimal "cost-savings" of bringing in a skilled immigrant worker, and would incent the sponsoring US organization to focus on sponsoring higher caliber staff which are really worth the effort of bringing over (normally US firms will have to cover relocation costs, flights home for their H1B staff and devote HR time to administering the whole process).
  • H1B is "legal immigration" and represents a very small fraction of the total number of immigrants in the US. 
  • The H1B cap is a year-by-year renewable policy.  It provides short-term solutions for businesses which need skilled staff. 

Dobbs makes the argument that "7 out of 10 H1Bs are going to Indian companies for outsourcing".  Let’s not beat around the bush here, but most of the FORTUNE 1000 firms have been outsourcing some elements of their IT services or business processes to firms that have offshore staff in India.  As discussed here on this site on many occasions, outsourcing providers – and firms that have their own captive offshore resources, must have strong "bridging" teams that can help manage the work being carried out offshore, particularly for complex tasks such as application development, implementation services, and BPO processes such as accounting, claims processing etc.   These bridging teams need native staff from the offshored location who can communicate effectively with the offshore staff, oversee the day-to-day operational issues and manage the knowledge transfer activities, and understand the cultural, management and communication issues that are crucial for ensuring the ongoing success of the offshore work.  Without many of these H1B staff, US businesses will suffer as a result of poorly managed outsourcing and offshore captive work.  If Lou Dobbs is so desperately unhappy about this high ratio of Indian-centric staff holding H1Bs, then he needs to focus his attacks on the vast majority of today’s FORTUNE 1000 leadership, which made the decisions to use Indian offshore staff in the first place.  This high proportion of Indian staff is not the cause of the problem, but merely a symptom of what is happening.  The root causes of US firms needing to use offshore resources are set deeply in the culture of corporate America, and the political and educational manifestations of the Unites States over the last three decades. I’m going to tackle the key issues the government needs to address in my forthcoming post "the Outsourcing Equalizer", if it wants to accelerate the development of local IT and business process services centers.

Lou and Hillary going at it again….

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8 Comments

  1. Joel MacAuslan
    Posted January 21, 2008 at 10:58 am | Permalink

    First, just to clarify something in your question: The $12K represents the average difference between the salary of someone that the company claims they CAN’T FIND (or the H1B is not available to them anyway!) and the price they pay to an H1B employee? What is the price of someone who isn’t available? Or did I miss something?

    As for the open-ended question:
    My take is that I’m glad if any of the main candidates are discussing the issue. I’m always skeptical when employers in a free labor market claim that they “can’t get” people: In ANY free market, it’s very rare that this represents anything other than an unwillingness to pay what the market demands.

    It’s difficult to imagine the H1B program being needed for any individual job description (e.g., DSP hardware-design engineers), over anything longer than a few years. Beyond that time, people can train themselves and present themselves to companies that really ARE willing to pay the rates that a free market demands. If companies continue to state that such people are unavailable, it looks to me like prima-facie evidence that the market itself has been seriously distorted by the H1B program.

    I like the specific idea of re-investing the H1B fees into education. An even better solution might be to let companies bid up the price for the existing number of H1Bs, however high that price might go; and to have a president who would veto any attempt to increase that number as an end-run around the market. But that’s probably asking too much.

  2. Posted January 21, 2008 at 11:05 am | Permalink

    Joel,

    When you apply for an H1B, there is a service that runs a salary check for that particular type of job is that state, and comes up with a typical wage. As an H1B holder myself and having gone through this process a couple of times, it seems relatively accurate, although can deviate substantially for some specialist positions. I am assuming the $12K number is the differential between the estimates “local” wage average and the wage being paid to the H1B holder.

    Phil.

  3. Joel MacAuslan
    Posted January 22, 2008 at 7:23 am | Permalink

    Hi, Phil.

    OK, not a bad estimator, in principle, though it presumably has limitations in particular states (northern vs. southern California, say), and it could easily become out of date very quickly in certain situations (Lockheed-Martin gets a huge new defense contract, and suddenly the number of avionics engineering jobs in Connecticut doubles and the salaries jump). Just my speculations, though.
    -Joel

  4. Posted January 22, 2008 at 7:43 am | Permalink

    America’s economy grew up on its immigrant society, and having a guest worker program, such as the H1B visa, was designed in this spirit… allowing talent from overseas to help stimulate the economy and help US businesses.

    Yes, the system is clearly flawed, and several companies abuse it. I have been sent several examples (since I posted) of how this is the case.

    A third of all F1000 firms have now ventured into major business process outsourcing engagaments and 80% of them have moved portions of their IT services offshore. I would estimate that is already 200,000 jobs. These arrangements tend to be permanent – they are jobs that are likely never coming back to the US. That’s also 200,000 less jobs to stimulate the US economy. Bringing temporary skilled workers over may, in some instances, deny a US person that job (but I am still skeptical that US worker would have taken this job in the first place, even in some of the flawed cases of which I have been made aware), but at least that work is staying in the country and the income from that worker being reinvested in the local economy. What’s more. that worker may be bring over skills and knowledge that are transferred to other staff within that company.

    Overall, I agree that the system needs tightening up to stop some companies who are only using it to get lower cost workers, but the overall concept of the temporary worker program is healthy for corporate America, and far less concerning that having that work eliminated altogether,

    PF

  5. Alisdair Stewart
    Posted January 24, 2008 at 1:51 pm | Permalink

    I have personally experienced applying and working in the US via a H1B visa. The following is based on my experience:

    • It can cost thousands of dollars
    • The H1B application candidate needs to have a related 4 years degree from a recognized institution. No valid degree no visa.
    • It can take several months (3-4) to process
    • Without an authorized H1B visa the company / talent will need to wait
    • There is no guarantee that it will be approved
    • After 3 years a new visa needs to be applied for and issued
    • After an additional 3 years the visa needs to be applied for and issued annually
    • It should also be noted that even with a valid visa the person being recruited is not tied to the US Corporation…they can move

    So, if the purpose of raising the cap from 65,000 to 115,000 is to compensate for the pending US brain drain there are a few questions that should be asked:

    • Has the H1B application process been streamlined? If not, would increasing the cap just slow the authorization process down?
    • What % of US immigrants are likely to receive recognized degrees?

    Based on the above, a possible solution for a US Corporation with an offshore operation based in India (for example) would be to use a L1 visa. This would tie the talent to the US Corporation for 1 year during this time H1B visa could be applied for.

    Looking into the future:
    Due to globalization, baby boomers retiring, a pending workforce short fall (approximately 20-30% in the US) corporate recruitment efforts will increasingly become global. The key to success will be sourcing / retaining talent while managing a mobile workforce to generate continual growth. The brand image of a US corporation will also impact recruitment efforts.

    Thanks,

    Alisdair

  6. Petra
    Posted February 16, 2008 at 12:00 am | Permalink

    Found some more interesting information at Techbanyan http://www.techbanyan.com/archives/181 regarding how companies recruit workers from outside, have them pay all the associated fees, get them to US, make them work like indentured workers, pocket substantial cuts from the money eared by these alien workers.

    No wonder these guys work for less.

  7. Posted February 17, 2008 at 11:12 am | Permalink

    Petra,

    It depresses me to see this practice of subcontracting H1Bs. While many of us agree that the spirit of the H1B visa can add a lot of value to US businesses struggling to find the talent they need, this type of practice you identify needs to be stamped out. There’s no reason why a recruitment agency shouldn’t receive commission for finding a successful candidate, but this must be paid by the sponsoring company, not the applicant.

    On the IT side, much of the top talent in India and China is now opting to work for providers in their home countries. I have many Indian friends, for example, who have left the US in recent years to work for firms back in their homeland, where they have an excellent standard of living and get to be with their families. Experieced programmers and architects can earn $30-50K annual salaries in offshore locations now – which is probably the equivalent of earning five times that in Silicon Valley or New York.

    With the offshore outsourcers now looking to have more aggressive onshore strategies, they are under pressure to find staff in US locations. If we are moving into a recession, they surely this will create job opportunities for local US IT staff. Will we start to see some positive ramifications from IT offshoring for the US IT worker?

    Phil.

  8. Posted June 8, 2011 at 6:06 pm | Permalink

    The whole economics of outsourcing is based on the cost/labour arbitrage and also the productivity gains associated with it.

    Indian IT and BPO companies like us are constantly working on finding ways to serve our clients with great ACCURACY, PRODUCTIVITY and MOST IMPORTANTLY affordable pricing.

    Say you can hire a full-time rural bpo agent from companies like us at a price that might be one-tenth to that of someone doing it on-shore. So in that case not only the Fortune 1000 but the smaller companies too will be willing to outsource some of these tasks to countries like India.

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