Proof by Internship Data

Following a BusinessWeek article quoting researchers who claim the tech labor shortage is a myth, tech entrepreneur Yuri Sagalov has responded with a blog post, “Immigration is about talent, not costs.”  The shortage is real and H-1Bs really are hired purely on the basis of talent rather than wage savings, insists Sagalov.  As “proof,” he cites the generous salaries some Silicon Valley companies are paying some of their interns.  I did use the qualifier some here twice, but let me assure you, if you are, say, an MIT student interning at Google, the firm is going to pay you quite handsomely.  But of course, Sagalov has set up a straw man here, a variation of the old “programmers make more than bus drivers argument.”

As I’ve often pointed out, the attraction of the H-1B program, at least in Silicon Valley, stems mainly from two factors:

  • The program supplies them with a YOUNG labor pool, and since younger is generally cheaper, H-1Bs are cheap relative to older (over age 35) U.S. citizens and permanent residents. Yes, young H-1Bs do also come somewhat cheaper than Americans of comparable quality (verified by, among others, two congressionally-commissioned employer surveys), but the real wage savings comes from the young nature of the H-1Bs.
  • Green card sponsorship provides employers with IMMOBILE labor, which is extremely valuable to the firms.  In fact, this is pitched by immigration attorneys as a major virtue of hiring foreign workers.

So, hiring H-1Bs is indeed more than an issue of simply obtaining talent.  I’d add, as I sometimes do, that another factor is convenience; firms like Sagalov’s like just recruiting foreign students from a local university, rather than having to spend genuine effort finding Americans to hire.

Worse, Sagalov’s firm, and his comments, follow the pattern so familiar by now in the industry:  His company defines a Senior Software Engineer title as corresponding to only 4 years of experience, so you can see that 35 is way past “senior.”  Sagalov says (if it was indeed he who wrote this, rather than a lobbyist supplying this boilerplate prose) that the law requires that H-1Bs be paid the prevailing wage, but he doesn’t tell you that the legally defined prevailing wage is a lowball figure, typically well below the real market value of the worker, given his/her talents, skill sets and so on. He cites $8,000 in legal fees as “evidence” that employers are not hiring H-1Bs to save money, but do the math: If the employer is saving, say, $25,000 per year over the 6 or more years it takes to get a green card, a one-time cost of $8,000 is nothing.

As my favorite quote of Sen. Grassley goes, “Nobody should be fooled.”

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9 thoughts on “Proof by Internship Data

  1. I want to make another comment here – are these intern salaries high? Or low? Um, hold on just a second here, what are these big companies doing HIRING INTERNS? Are these summer jobs? Or are these really probationary periods for new employees, being paid 20% less than real salaries – and no benefits – before hiring?

    IF they are summer jobs, just PR hiring of promising students with no real connection to permanent hiring, then yes the rates are high. In fact, the rates are VERY HIGH as the ACTUAL OUTPUT of a summer intern is approximately net zero. However, companies that use internship, even summer jobs, as an advanced recruiting tool have often paid something close to full-time wages for “internships”. I suspect that is what is going on here. It need not reflect *anything* about the state of the labor market, just a little proactive enthusiasm by the HR department.

    Finally, if they are using these “interns” INSTEAD OF PERMANENT HIRES, then these salaries, with no benefits, are LOW, and these people are being exploited under the poor excuse of getting some padding for their resumes.

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    • The internships are, in effect, “auditions.” I’d rather use that terms instead of “probationary periods,” because the students are actually still in school. But yes, in almost all cases, the employer wants to identify who is really good, and then make permanent offers to them after graduation.

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      • Back in the day, standard professional, white-collar hiring was done with a “probationary period” of anywhere from 30 days to a year, during which you could be let go for no particular reason. Apparently this just doesn’t work legally anymore, even though California and many other states are 100% “at-will employment” on a *permanent* basis. So many places hire people on a contract-to-hire basis, and although that typically is W-2 through a third party (in keeping with “the Microsoft decision”), it is usually at a slightly higher rate per hour cash for the employee than is the permanent position (and is a much higher price for the employer, because the third party marks stuff up 30% or more for various reasons).

        Therefore, if probation and contract is now replaced by “internship”, the stated compensation is actually LOWER than it would be on a straightforward basis.

        “Intern” traditionally means someone there as a courtesy, not expected to be seriously productive, probably not even fully qualified yet, and paid either zero, if the law and decency allow, or something like a minimum wage. This is simply the abuse of the term. Once again, STEM workers are abused and underpaid, and trying to use this as an argument pro-H1B is entirely mistaken.

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        • I’ve long felt that internships are legitimate, good for both employer and student. The former gets to see what the latter is really like (high grades often mask near-total lack of insight), and the latter gets to see what real life is like. After graduation, the employer will extend an offer to the student if he/she was found to be talented during the internship.
          These days, internships ARE being abused in some sectors of the economy. They are now used to hire people who have already graduated, and who are often not really “hired,” in the sense that they are either unpaid or paid a token honorarium. There have been lawsuits on this, against some prominent employers, such as the New York Times.
          If Google et al want to hire student interns for high salaries in order to attract them as permanent employees later on, I say good for them. But again, pointing to this as evidence of a STEM “shortage” is simply setting up a straw man.

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  2. To add you your ‘convenience’ point: recently I was staffing a project that a large US bank was running in four US cities. I was told by several consulting firms that the H-1B candidates we hired could work in ANY of the US locations we were staffing (by state, CA, NY, OH, NJ). Contrast this with US citizens who would demand a relocation package or refuse to work (or demand a premium) in high cost areas like San Francisco or NYC. The ability to staff multiple teams in large cities or out of the way towns, then make them go somewhere else when the project is over is tough to match with locally sourced candidates.

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    • I meant convenience in terms of how much/little effort an employer needs to take to hire someone. The situation you’re referring to, which is indeed common, is yet another sense in which employers save money by hiring H-1Bs.

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  3. > As “proof,” he cites the generous salaries some Silicon Valley companies are paying some of their interns. I did use the qualifier some here twice, but let me assure you, if you are, say, an MIT student interning at Google, the firm is going to pay you quite handsomely. But of course, Sagalov has set up a straw man here, a variation of the old “programmers make more than bus drivers argument.”

    I agree that “some” is a key qualifier. The article that Sagalov refers to concludes lists the alleged salaries and concludes “Which basically means that we should just all learn how to code”. That would be like listing the salaries of the top stars in Hollywood and concluding “Which basically means that we should just all learn how to act”! No attempt is made to measure the typical internship offers. In fact, it appears that these offers are all unverified as the article disclaims their validity with the following update: “Of course, these companies don’t usually release salary information, so there’s no way to know if these numbers are exactly accurate. But given previous reporting and rumors, they seem entirely plausible — and that’s even more depressing”. It’s hard to believe that anyone would cite this as evidence of anything.

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  4. Touche. I’d add a 3rd and 4th reason for hiring H1B Visa workers.

    3. H1B Visa workers are more compliant: so if they are told to do “x”, they do “x”. They want to live here very badly, they want to bring their family here, so they are extremely reluctant to “rock the boat”. They also don’t know their legal rights, and those rights may be more limited as an H1B visa holder. This then gets into labor law, where I am no expert.

    I once spent a weekend skimming through the entire California labor code, and many of the work requirements that apply to average everyday workers don’t apply to H1B Visa workers as they are seen as doing high level “design” work in the “architecture” of new software applications. They throw around a lot of fancy lingo, and these workers are required to make a decent wage for their skills. But with respect to all of this high level “design” work that they are required to execute, almost all of the software programmers I worked with were primarily coding. Ironically, that was one of their chief complaints, that designs weren’t well thought out, and the results and often change in design half way down the road required a lot of busy and tedious work in changing / modifying said code.

    I think this definition of what is a software architect (or another similar term) is another area where the law is being violated so that regular labor law doesn’t apply to these individuals, furthering their status as indentured servants.

    Another example. Workers were often promised shares in the company, but it was never put in writing, and never delivered. This was seen as bait to keep employees from complaining / leaving.

    4. H1B Visa workers logged more work time, at least in my experience. This ties into no. 3 above. I know in my case, programmers worked a minimum of 6 days per week, and 7 days a week wasn’t uncommon. I know this because I was there of my free will (in another department). It was a smaller start up, but I have also heard that visa holders also logged a lot of hours at other companies.

    A 10 hour day was normal, and 5-6 hours on a Sunday was SOP, unless there was a new release coming out, and then it might be another 10-12 hours on Sunday, and 12 hours a day during the work week.

    Some of these issues also occurred in the non-programming area. At another company, a friend was a highly paid H1B management consultant from Europe. When he was jerked around for the umpteenth time, he got on the network, poked around at some documents, and discovered that the people in his organization who were there on a H1B visa were paid 20-25% less than citizens. (He was logging up to 100 hours per week, though he only billed his clients typically for 40-60 hours per week.) In-house legal counsel handled the green card process, and they coincidentally always seemed to have (nonsensical) delays in filing basic paperwork and forms.

    He got so fed up with our system and constant delays and “game playing”, that he picked up and moved back to Europe.

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