Recently Tech Crunch ran an article with the intriguing title “How Google, Facebook And Others Pay Their H-1B Employees,” by Kiran Dhillon. It was an ambiitious, I might even say daring, attempt, and though its numbers are consistent with my contention that Silicon Valley firms underpay their foreign workers, it was severely flawed. In this post, I’ll explain the problem with Ms. Dhillon’s analysis, and then show how to fix it, presenting newly updated data from my previous papers. (Note that I’m using the term Silicon Valley as shorthand for famous mainstream high-tech firms, as opposed to the Indian IT services companies.)
I believe you will find these analyses to be valuable, but it does require that you understand how their approach works. Both Dhillon’s analysis and mine center on the fact that H-1B and green card law require that the foreign worker must be paid the prevailing wage, a legal term defined to be the average wage for the given occupation, region and level of experience. Both she and I get our data from the FLC Data Center, which has data both for H-1Bs and green card sponsorees. For reasons that I and others have explained before, the latter data set is more reliable, and that is what I used exclusively in my analyses.
Dhillon reasoned that firms paying much more than prevailing wage are treating their H-1Bs fairly. She identified some that seemed suspect, writing, for instance, “Foreign systems software engineers may want to avoid Microsoft…” In her detailed analysis, she finds that Intel pays “Very Low [Green Card] Salaries: $85,176 Median Salary (18% lower than the median for employers in the same city and industry).”
Given that both Microsoft and Intel have long been in the vanguard of pushing Congress to expand foreign tech worker programs, these are intriguing numbers. However, Dhillon’s numbers cannot be correct. Employers must by law pay at least the prevailing wage (flawed though its legal definition is), so it cannot be true that Intel is paying below that value. The Wage Ratio (WR), i.e. wage earned by the worker divided by the prevailing wage, must be at least 1.00. (Before 2004, a firm could legally pay 5% under prevailing wage, and the data showed many cases in which Intel was doing so.) Judging from Dhillon’s description of her calculation methods, her problem seems to be that she improperly FIRST aggregated wages and prevailing wage figures across occupations, and THEN took the ratio of wages to prevailing wage. In other words, she took a “wage ratio of medians” rather than a “median of wage ratios.”
Moreover, some firms stated their wages in terms of ranges, typically with quite a spread between the two. It’s not clear how Dhillon handled this. My approach has been to limit my analyses to records specifying a single wage. I did this in my Migration Letters and EPI papers, and will present updated data below. But first, it is vital that readers understand the concept, as follows.
The employers claim to hire foreign workers who are “rare” in one of two senses:
- Skills: They possess “hot” skill sets, e.g. Android programming.
- Talent: They have high levels of intellectual talent, i.e. are “the best and the brightest.”
Thus the employers should be paying much more than prevailing wage. How much more? Well, I was able to quantify these notions in the above two papers, conservatively at about 20% and 30%, respectively. In other words, if an employer is paying a substantial number of its foreign workers well under, say, 1.20 or 1.30, then either
- the foreign workers are underpaid or
- the foreign workers don’t possess “rare” traits after all, so it was not justified to hire them.
Either way, it would suggest that the industry is not being very honest with us. This is what I found in the two papers cited above, based on 2011 data. Let’s see what the situation is today. Data for 2014 seem to be available only for Quarters 3 and 4; but as the results are similar for all of 2013, let’s look at the 2014 numbers:
Again, the small samples for Cisco etc. are due to reporting salary as a range. The 2013 data have the same problem, though with similar results, i.e. one could get a decent sample size for firms like Cisco by aggregating over several years.
To reinforce the premises behind the analysis, look at eBay. Typically it is paying its foreign workers only 8% above prevailing wage, with the word “only” alluding to the fact that this actually represents UNDERpayment of 10-20% below the market worth of the workers.
Google, on the other hand, is typically paying 19% over prevailing wage. This is much better, but given the firm’s extremely stringent hiring process, it should be getting “the best and the brightest” (and the people I know there, both foreign and domestic, eminently fit that description), Google is UNDERpaying its foreign workers by something like 10%.
The case of Marvell is interesting, in that the founders, a husband and wife team, are from India and China, respectively. It seems to have the worst record among the firms shown above, suggesting that the founders are overly relying on hiring the countrymen. (I’ll give a breakdown by countries in another post.)
In viewing the above data, keep two key points in mind:
- The really big wage savings accruing from hiring H-1Bs is avoiding hiring the older (35+) Americans, a factor not reflected above.
- For many of these companies, wage savings is secondary anyway. What they really like about hiring foreign workers is that the latter are immobile; as I’ve explained before, this is viewed as a huge advantage by many tech companies.
One more point: The numbers for the entire F14 Q3/Q4 data are
Remember, this is green card data, and thus basically excludes the Indian IT services firms, who only rarely sponsor their H-1Bs for green cards. In other words, in the mainstream industry as a whole, the foreign workers are typically being paid 20-30% below market. This illustrates the point I’ve made repeatedly: Abuse of the H-1B program pervades the entire industry, not just the Indian bodyshops.