Egregiously One-Sided White House Report on Obama Executive Action

When I first started reading the White House report on the projected economic impact of President Obama’s executive action on immigration, I was pleased to see it cite my UC Davis colleague, economics professor Giovanni Peri.  While I tend to disagree with Professor Peri, it was nice to see someone from UCD involved in White House policymaking. However, that institutional pride quickly faded when I saw that Giovanni and his coauthors were basically the ONLY ones cited. The report does make one token reference to Harvard’s George Borjas, who is generally on the other side of the immigration issue, but the report quickly dismisses that work.  The few remaining non-Peri citations are all of the pro-immigration genre, such as Berkeley professor David Card’s famous work on the Mariel boatlift. (Card found that the 1980 influx of Cuban refugees to Miami had no adverse impact on, for instance, jobs for low-skilled blacks.)

It turns out that Cardiff Garcia at the prestigious British business newspaper Financial Times had a similar reaction:

…the CEA report does cherry pick from within the existing literature on immigration economics. For instance there are thirty-three mentions of Giovanni Peri, all of them favourable. Peri is the pro-immigration economist’s pro-immigration economist. (Disclosure: FT Alphaville very much likes Peri’s work and we have been happy to feature it.) The report only mentions George Borjas, who is well known for his scepticism about the employment and wage effects of immigration, three times — and does so to contradict his findings.

Whether you like Obama’s executive action or not, such obvious bias in selling the policy to the American people is unconscionable.  This is especially true in light of the fact that the report says it is based partly on the earlier CBO report — which acknowledged feedback from both Giovanni and George.  (Harvard’s Lawrence Katz and pro-H-1B professor Gordon Hansen of UCSD were thanked as well.)

Most researchers on immigration issues are known to be either pro or con on the topic.  Giovanni is pro, George is con, and so on.  In the H-1B issue, I’m of course known to be critical of the program.  Some are more impartial than others, but in the end, almost everyone has a clear point of view.

Giovanni absolutely has a lot to contribute, and Obama’s Council of Economic Advisers (CEA) did well to make use of his work.  But it’s outrageous that CEA basically looked ONLY at his work.  This is particular true in light of the fact that some of his work has been sponsored by business interests.  Consider for instance his report for the lobbying group PNAE, which by the way shows the same lack of balance — it has essentially no citations to research critical of H-1B, and the companion working paper uses overly strong language such as claiming to have found “causal” effects.

In discussing the substance of the CEA report, I will of course focus my comments here on what the report has to say about high-skilled immigration, i.e. H-1B and related issues.   In that area, CEA relies on a single Peri paper, ignoring a mountain of negative research.  Two items of particular significance that CEA ignored were congressionally-commissioned reports, one by the NRC and the other from the GAO.  Both found that underpayment of H-1Bs is commonplace, and the NRC report warned that the sheer size of the H-1B IT workforce forces wages down.  And given all the research showing lack of a STEM labor shortage, that latter finding is especially significant.

An aspect of H-1B that especially concerns me is quality.  I’ve mentioned occasionally that I’ve always driven Japanese cars, as I believe they are made better, and I’ve always strongly supported bringing in “the best and the brightest” engineers from around the world.  However, the overall average quality of the H-1Bs is lower than that of their American peers.  My EPI report, for instance shows this in the case of workers who first came to the U.S. as foreign students studying computer science.  Among other things, my work confirmed an NBER report that found that foreign students in the sciences tend to study at less-selective universities; and work by Jennifer Hunt of Rutgers that found that the foreign students have a lower patenting rate than comparable Americans.  (See a qualifier in my EPI article.  Also, CEA cited earlier work by Hunt, but  that research did not make this comparison; in essence, it found that immigrant STEM workers file more patents than American non-STEM people, not surprising.)  When combined with the displacement issue (to be discussed below), this means a net loss for the U.S. economy, something that should alarm the CEA.

The paper by Giovanni that CEA relied upon for its projections regarding high-skilled immigration takes a city-by-city comparison approach.  As I explained recently, regional-comparison analyses are notorious for producing conflicting results, often due to lack of data on key covariates, and there are numerous other problems with this paper, in my opinion.  One issue in particular is that the paper does not take into account displacement of U.S. citizen/permanent resident workers.

Ironically, Giovanni concedes that U.S. STEM workers are displaced by immigration:

…we assess whether native-born workers with graduate degrees
respond to an increased presence of highly-educated foreign-born
workers by choosing new occupations with different skill content.

…we add to evidence from past studies by showing that [U.S.]
native occupational adjustment in response to immigration occurs
among highly-educated workers and occurs for those already employed.

As the foreign-born share of highly-educated employment rises,
native-born employees respond by moving to jobs with less
quantitative and more interactive content.

The wage consequences of immigration were not estimated in this
paper…If the evidence from the labor market for less-educated
workers is an indication, the occupational skill response among
highly-educated natives is likely to mitigate their potential wage
loss from highly-educated immigration.

Giovanni also agrees that immigrant (from context, he seems to mean legal) labor is cheap, and indeeds lauds it as a boon to employers:

One common empirical finding in the literature is that immigrants
are paid less than natives with similar characteristics and skills.
This is in part due to the fact that many immigrants, because of
less attractive outside options (such as having to go back to
their home country), have lower bargaining power with the firm. In
this case firms pay immigrants less than their marginal productivity,
increasing the firms’ profits.

Interesting that a Democratic CEA would rely on such a Republican-sounding researcher, celebrating cheap labor.  Of course, the “lower bargaining power with the firm” is something I’ve emphasized repeatedly in my writings.

Once again, I have no problem with CEA using Giovanni’s work.  He’s a major figure in the field, and also a great guy, who by the way graciously agreed to give a guest lecture in the freshman seminar I taught on immigration a few years ago.  And as seen above, he and I do agree on the issues of displacement and cheap labor. 🙂  But the CEA one-sided report to the American people is an outrage.

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CWA Suit Against OPT Extension Advances

In my last post, I discussed the foreign tech worker provisions in President Obama’s recently announced plan for executive action, part of which involve the Optional Practical Training (OPT) part of the F-1 student visa.  OPT may turn out to be a key feature in terms of the ultimate impact of Obama’s actions.  I explain this here, and report some news on the lawsuit brought by CWA.

OPT was designed (back in 1947, apparently) to supplement a foreign student’s book learning with practical work experience.  For years, the policy was to allow the student 12 months of such training before returning home.  During the George W. Bush administration, that period was extended to 29 months for STEM students, and Obama is planning to extend it again, possibly to 48 months.  (I erroneously stated in my last post that the statutory period is 12 months, but it turns out that that was simply a regulation, as was the OPT program itself, according to an immigration law expert who contacted me.  In other words, OPT was originally created by the executive branch in the first place, out of whole cloth.)

The original intent of OPT was to strengthen the foreign student’s ability to help his home country, typically in the Third World.  I’ve known about OPT since the late 1980s, when I served as faculty adviser to graduate students in my department.  When students graduated and applied for OPT, I was actually required to write a paragraph in their application form, explaining how OPT would help the student contribute to his home country.

In recent years, though, OPT has been used to circumvent the H-1B work visa cap, as openly stated by the government.  This is the motivation for the time extensions.  There was a lawsuit filed in 2008 against the first extension, which was rejected on grounds of standing.  The current lawsuit, however, recently had standing established for most of the counts in the suit.  Among other things, the judge pointed out that the government itself said that the extension to 29 months added tens of thousands of IT workers to the labor pool, presumably with an adverse impact on American workers.  I must add, as always, that the impact is especially heavy on older American workers, i.e. those over age 35, since the OPT workers are overwhelmingly young.

In my view, there has been much written in the last few days about OPT that is misleading or dangerously irrelevant, such as in this Washington Post article.  Though it is correct that OPT does not require the employer to pay prevailing wage, the fact that OPT workers are fully mobile limits abuse in that sense.  And the notion that prevailing wage affords protection for American workers is a joke anyway, as I’ve explained before; that wage value is typically well below the actual market value of workers similar to the given foreign worker.

I also strongly disagree with the emphasis in the article on the loose oversight of the OPT program, at least in economic terms.  Foreign workers with degrees from fly-by-night schools are not competitive with American graduates of real colleges and universities.  I view focus on the “less real” schools as a dangerous distraction away from the core issues, just like the unwarranted emphasis on the Indian bodyshops regarding H-1B.  As I’ve explained before, these distractions are going to come back to bite the activist critics of foreign tech worker programs.

Note carefully another point I’ve made before:  Even though computer industry employers are concentrating on hiring the new college graduates (both domestic and foreign), in order to get a good job the student must generally have gotten internship experience during her college years.  Well, guess what?  OPT covers that too; a foreign student can use part of the OPT time for working as an intern during school, thus competing with American students for hard-to-get internshis.  So there you see further harm to Americans.

Hopefully the press will give good coverage now to the CWA suit.  Now that the Obama people can’t argue so much on procedural grounds anymore, they’ll have to actually address the core issue of the case itself — the negative impact of OPT on U.S. citizens and residents.  It will be interesting to see what arguments the administration can come up with.  Judging from the White House report on the projected economic impact of Obama’s executive action, the administration may cite the work of my UC Davis colleague, economics professor Giovanni Peri.

And that report will be the subject of my next post.  The report is one of the most blatantly biased government documents I’ve ever read, dramatically raising the bar for the definition of chutzpah.  Stay tuned.

The Obama Plan for Executive Action on Foreign Tech Workers

Though the main attention on Obama’s speech on immigration last night will be on his plans for the unauthorized immigrants, he definitely included provisions regarding foreign tech workers, specifically regarding H-1B, employer-sponsored green cards and the F-1 foreign student visa.  His proposals have something for the employers, something for the foreign workers, but nothing to help American workers. In this post, I’ll explain the proposed changes and their likely impact, and also discuss what executive action a labor-friendly president could have taken.

From my point of view, the President’s plan has three major elements:

  • Granting work rights to spouses of H-1Bs.
  • Further extending the Optional Practical Training (OPT) part of F-1.  OPT gives foreign students the right to work for a period after graduation.  For years, the period was 12 months, but George W. Bush used executive action to change that to 29 months, and there are reports that Obama may change this to 48.
  • Allowing green card sponsors to switch employers much earlier in the green card process.

There are obvious adverse impacts here to American workers, by swelling the labor market, thus reducing job opportunities and wages for Americans.  This is especially true in that the foreign workers are overwhelmingly young, thus exacerbating the rampant age discrimination that we already have in the tech world.

Some readers may be surprised to hear that I strongly support one of those proposals, but they shouldn’t be surprised at all.  I’ve been stating for years (e.g. in my 2003 article in the University of Michigan Journal of Law Reform) that, for many tech employers the appeal of hiring foreign workers is to have not just cheap workers but even more important, immobile ones.  As a result, employers often hire a foreign worker over an equally-qualified U.S. citizen or permanent resident.  The third point in Obama’s proposal above would actually be beneficial to American workers, as it would make the foreign workers’ period of de facto indentured servitude much shorter, thus rendering the foreign workers less attractive to hire in the first place.

However, the key word in the last sentence is would.  For the reasons I’ve given, employers will NOT like that provision, which by the way, the foreign tech worker organization Immigrant Voice is taking credit for.  So, the employers may work behind the scenes to quash it.  In doing so, they would have to speak carefully, as they don’t want to admit that they prefer hiring foreign workers for their indenturability.  But the lobbyists are very good at spin, and they will likely say something like “Why would any employer pay $10,000 in legal fees for green card sponsorship if the worker can jump ship to another employer?”  One mitigating factor is that the employers do want the potential foreign workers to find work in the U.S. attractive, and freedom of movement would help in that regard, but again, it’s vital to keep in mind that indentured servitude is hugely valuable to many employers.  I don’t think they’ll go quietly on this one.

Now, what actions could Obama have taken to help the American worker?  In a more positive tone, what could he still do now?

  • He could roll back the OPT period to the original 12 months,  instead of extending it.
  • He could enforce the section of green card law (note:  NOT H-1B law) that states that the Secretary of Labor must ascertain that employer-sponsored immigration does not adversely impact American workers.  This could be applied to the definition of prevailing wage, the defining of jobs by employers to be entry-level (negatively affecting Americans over age 35), and so on.
  • He could apply federal age discrimination laws to the foreign tech worker issue.  I mentioned one example in the previous bullet, and here is another.  While most H-1B employers are not required to give priority to American workers, those employers are still subject to age discrimination laws like anyone else.  Since a large part of the wage savings accrued by hiring H-1Bs comes from their youth, enforcement of age discrimination laws could really reduce H-1B usage; they wouldn’t want to hire older foreign workers in most cases.  Of course, those laws are complex and subtle, but much could be done with this.
  • He could direct federal agencies to give contracting preference to those vendors who hire large percentages of American engineers and programmers (no, NOT American secretaries,  janitors, accountants and marketers).

But all indications are that the Obama administration simply doesn’t care about American workers, so the above is just blue-skying.

The Trouble with State-by-State Analyses of H-1B

A number of researchers on H-1B and related issues rely on state-by-state, or city-by-city, comparisons.  Notable in the genre are my UCD colleague Giovanni Peri, HBS’ Bill Kerr (and his coauthors) and Madeline Zavodny.  The latter, who wrote on H-1B as a member of the Dallas and Atlanta Feds, is currently a professor at Agnes Scott College.

A couple of weeks ago, R. Davis, a Silicon Valley software developer, contacted me regarding Prof. Zavodny’s  2011 research, sponsored by industry groups.   She found:

The data comparing employment among the fifty states and the District of Columbia show that from 2000 to 2007, an additional 100 foreign-born workers in STEM fields with advanced degrees from US universities is associated with an additional 262 jobs among US natives.

Skeptical of those findings, Davis asked my opinion of the study, and exactly how Zavodny had done the analysis.  I’d been critical of the research in the past, but suggested that Davis write to Zavodny and interact with her.  He did so, and she replied instantly, sending him her data and Stata code.   This showed real class on her part, as most researchers would not send their code and data, unless required by law.

Davis set to work.  Stata is an expensive commercial product, but I steered him to the R language, which is both free and very high-quality.  R is the lingua franca of the statistics community, and I’m quite active in the R world.  Davis has now posted his analysis of the Zavodny research, replicating her numbers but also uncovering a fascinating story underlying the data, which I’ll explain shortly.

But first, I wish to emphasize quite strongly that I’ve never thought highly of the “H-1B creates x jobs” kind of analysis, as it suffers from a huge issue of causality.  Zavodny is careful to use the phrase “is associated with,” which is a lot better than Peri’s repeated claims of finding a “causal” relation in his April 2014 report, but let’s be real, folks:  The industry paid for Zavodny’s work, and are surely representing it as causal as they spread it around Capitol Hill.

Association is NOT causality.  Any decent undergraduate who’s worked with data knows that.  In Zavodny’s case, for instance, what would happen if employers were to hire 100 additional U.S. citizens and permanent residents instead of H-1Bs?  (See qualifier coming up.)  Would they not “cause” 262 jobs to be created?  Indeed, given the poorer average quality of the H-1Bs, wouldn’t hiring 100 more Americans produce MORE than 262 new jobs?  (The industry lobbyists, of course, claim there aren’t 100 more Americans available, but research by Salzman, Lowell, Kuehn, Costa,Teitelbaum and so on has pretty much laid those claims to rest, as even some pro-industry economists seem to concede.)   Actually, this was one of my major criticisms of a paper by the Kerrs and Wm. Lincoln.

Worse, region-by-region analyses are notorious for being unreliable and misleading.  For example, there have been numerous studies on capital punishment, both pro and con, based on comparing states that do and do not have capital punishment., in terms of murder rates and so on.  They can’t all be correct.

The other point I wish to make before turning to the Davis analysis is her use of the terms foreign-born and native-born.  In addition to objecting before to the industry lobbyists’ calculated, labored use of the term foreign-born instead of foreign, such an analysis is highly misleading.  There are many STEM students who are foreign-born but are either naturalized U.S. citizens or permanent residents.  So a lot of STEM workers in her “foreign-born” category are actually Americans, and were never H-1Bs or foreign university students.  Zavodny does not make this clear (and likely is unaware of it), and while she has a separate number for H-1Bs (183 instead of 262), again we all know that on the Hill and in the press, people will take “foreign-born” to mean “H-1B.”  Indeed, this is basically the thrust of Zavodny’s Recommendation 3:

Recommendation 1: Prioritize immigration by workers in STEM fields who hold advanced degrees from US institutions.

Well, then, what about the Davis analysis?  I was floored by his figure titled, “Foreign STEM Workers, 2000-2007.”  Look at the states with big H-1B usage, such as California, New York and New Jersey.  The data are basically flat!  Within states, an increase in the number of foreign-born STEM workers with advanced degrees is NOT associated with a trend of increasing STEM employment for natives.  On the contrary, Davis finds that the foreign-born are replacing the natives, something that even Giovanni has written (which may come as a surprise to those who cite his work).

So, basically we have a situation in which, within groups, the graph of mean Y vs. X is flat, yet after aggregation it appears that increases in X are associated with increases in mean Y — Simpson’s Paradox.   In other words, Davis has uncovered a fundamental flaw in Zavodny’s work, which may well apply upon closer inspection to other region-by-region research on H-1B and related issues.

One more point:  While she was in the immigration neighborhood, Zavodny threw in an analysis of the famous “They pay more in taxes than they take in services” claim so popular among advocates of expansive immigration policies:

Highly educated immigrants pay far more in taxes than they receive in benefits. In 2009, the average foreign-born adult with an advanced degree paid over $22,500 in federal, state, and Federal Insurance Contributions Act (FICA, or Social Security and Medicare) taxes, while their families received benefits one-tenth that size through government transfer programs like cash welfare, unemployment benefits, and Medicaid.

To begin with, the whole “net fiscal gain/loss” issue is a can of worms.  There are so many effects, effects of effects and so on, that it really is an impossible question to answer.  I wish Zavodny had not tried to do so.

But now that she has, let’s take a closer look.  First, the obvious problem — she hasn’t factored in the LOST tax revenue resulting from H-1B and related programs.  Cheaper workers pay less in taxes (some actually pay NO income taxes, due to U.S. tax treaties with their home countries); a glut of workers brings down overall wages, again reducing tax revenue; and the displaced American STEM workers are generally making less (after being forced to change fields) than they used to before displacement, and thus making smaller tax contributions as well.

But less obvious is that a large number of immigrant STEM workers consider one of the major benefits of naturalizing the ability to sponsor their elderly parents for immigration, and later put them on welfare — cash payments, Medicaid, subsizied senior housing and so on.  In Silicon Valley, this is absolutely standard among Chinese and Indian immigrants.  I and others have quantified this, such as in my 1996 Senate testimony.

But that’s a side issue.  I recommend that everyone read Davis’ analysis.  In the future, every time you hear about a state-by-state or city-by-city analysis of the wondrous benefits of H-1B, keep that Davis figure in mind.

Why the CIR Report Isn’t the Good News the Activists Think It Is

The Center for Investigative Reporting (CIR), is a very prestigious organization that prides itself on doing in-depth investigations that the mainstream press lacks the resources — or the journalistic stomach — to pursue.  The organization is headed by the distinguished Bay Area editor Phil Bronstein, and I’ve always been one of CIR’s admirers.

Yet I was highly disappointed by a recent piece on the H-1B work visa  that CIR did with NBC Bay Area, with a focus on illegal behavior by certain employers.  I generally have no interest in reports involving violations of H-1B law, which I believe are counterproductive, in a very real sense:   Such investigations actually harm the chances of attaining real, fair reform of the H-1B program.  I will explain why below, but first let’s look at what happened with CIR.

Actually, I had suggested to CIR back in March 2013 that they look into the H-1B issue.  I’m one of the organizers of the Bay Area R Users Group (R is a programming language), and we held our meeting that month at CIR.  After the meeting, I briefly explained to CIR’s Coulter Jones the problems with H-1B, and he promised to look into it.  I don’t know whether this led to the recently-published report, but I’m told by another researcher that CIR started working on it more than a year ago, so maybe they did heed my suggestion.

But if so, that was the last advice CIR took from me.  Their reporter, Matt Smith, contacted me in May 2014, outlining the scope of his project for me, which focused on illegal behavior of Indian “bodyshops” (rent-a-programmer agencies, sometimes called “IT staffing firms” or “outsourcers”).  He had listened to the media briefing on H-1B organized by Sen. Sessions’ staff, in which I had been a participant.

Smith was particularly interested in my point that H-1Bs, at least those being sponsored for green cards, are immobile, “handcuffed” by their employers.  Smith mistook that to mean the Indian bodyshops, rather than the Silicon Valley class of employers I had discussed.  (The bodyshops rarely sponsor their workers for green cards.)  I corrected him, and explained that I could not participate in investigations like his, as they amount to unwarranted scapegoating of the Indian firms while ignoring the abuse that pervades the entire industry.

I told Smith,

The handcuffing I was referring to involves the Googles and the Intels, NOT the [Indian] H-1B-dependent firms. If the employer sponsors the H-1B for a green card, the H-1B is basically immobile. As I said this morning [in the Sessions briefing], the Silicon Valley firms hugely value this, even more than having cheap labor.

The (mainstream) industry lobbyists have engaged in a conscious effort to demonize the Indian firms, so as to deflect attention from themselves. For this reason, I make it a principle to NOT discuss the H-1B-dependent firms with the press…

You may find the following of interest: “Stop Blaming Indian Companies for Visa Abuse,” Bloomberg View, Aug. 26, 2013.

Smith should have known that my remarks in the briefing concerned the Silicon Valley firms, not the bodyshops, because I had emphasized the point.  In fact, there was an exchange on this during the briefing between Michael Teitelbaum and me.  I never heard from Smith again, and there is not even a single mention in the CIR report of abuse by the Silicon Valley firms.

The green-card based handcuffing is well-known, having been noted for instance in the congressionally-commissioned NRC report.  Prominent immigration lawyers pitch handcuffing as one of the most attractive features to employers of hiring foreign workers, as seen in this posting by the former designer of Texas Instruments’ immigration policy.  All legal, of course.

It’s ironic that CIR quotes a Cisco spokesperson as saying the firm has the highest ethical standards and would not knowingly allow such abuses.  If CIR had chosen to do a broader investigation, it would have found that Cisco itself had been investigated by the Dept. of Labor for its own direct hiring of H-1Bs (not its use of the bodyshops), in which it had been placing deceptive job ads that apparently had the goal of excluding Americans from the jobs in question.  DOL found the practice to be legal, which unfortunately is true.  As I’ve often said, the only difference between the Silicon Valley firms and the bodyshops is that the former hire lawyers and lobbyists who wear more expensive suits.

Now, why does it matter?   The answer is simple — Senate Bill 744, the immigration reform bill.  Reports like CIR’s send the message that though there is some egregious abuse by the bodyshops, the H-1B program is fundamentally sound, and it is used responsibly by the Googles and Intels (and Ciscos).  If you were a member of Congress, armed with this information and the further claim by the Googles and Intels that H-1B is crucial to the tech industry, wouldn’t you vote to expand foreign tech worker programs, as proposed in S.744?  The bill would greatly increase the yearly H-1B cap, and establish a new green card program that is in effect a backdoor H-1B increase in its own right.  Meanwhile, the minor restrictions on the bodyshops could be circumvented in various ways.

Though I have strong views on H-1B, I don’t consider myself to be a political activist on the issue.  But I do offer advice to the activists (who unfortunately don’t heed it any more than Matt Smith did 😦 ), and for the reasons presented above, I tell them that they are shooting themselves in the foot by highlighting reports like this one by CIR.  S.744 would make wages and job opportunities for U.S. citizens and permanent residents in the tech field WORSE, not better.  And all because the activists, the press and so on essentially gave Congress “permission” to expand H-1B in the manner of S.744, by supporting the notion that the H-1B program is fine except for use by the bodyshops.

The industry lobbyists are well aware of this dynamic, and consciously build this image of “Intel Si!, Infosys No!”  Instead of being embarrassed by revelations such as CIR’s of illegal actions, the lobbyists exploit it, by saying that fines of bodyshops for illegalities show that “the system is working,” and that if anything, Congress should appropriate more funding for enforcement.  This deftly distracts attention from the central systemic problems of the H-1B program itself.

But what might explain this highly selective reporting by CIR? There may be various factors at work, but the fact that CIR’s board of directors includes executives from Twitter, Square, and several tech-oriented venture capital firms must be considered a possibility.  Such entities may or may not have put pressure on CIR concerning this report, but at the very least, one does not offend friends of one’s boss, right?  It’s easier to take the “safe” route, by limiting the report to the bodyshops.  In any event, my previous admiration for CIR — which by the way has been a leader in use of computers for graphic visualization in reporting — has greatly declined.