Startups Go Belly Up: Some Implications for H-1B

One of the industry lobbyists’ favorite arguments for H-1B is that immigrants fuel the creation of tech startups. You can imagine how much this idea appeals to members of Congress and the President, quite apart from the influence of the industry’s largesse in campaign contributions.

What is almost never mentioned, though, is that the vast majority of tech startups fail. Accrding to this news report on the demise of Homejoy Inc. the failure rate is 90%. Homejoy, “the Uber of the home cleaning sector,” went down in flames in spite of an excellent pedigree, the report points out:

The company, which emerged from the legendary Y Combinator, had secured $38 million in venture funding in late 2013 from prominent backers including Google Ventures, Redpoint Ventures and Max Levchin, PayPal Inc.’s former chief technology officer.

The government data show that Homejoy did employ H-1Bs. The foreign workers were not necessarily underpaid (remember, this must be gauged relative to wages for Americans with the same qualifications, impossible to tell from the data), but there certainly is a suggestion that Homejoy seemed to know how to exploit its workers. Like Uber, Homejoy has been embroiled in a controversy over whether their drivers/cleaners are their employees. One Web report, titled “Silicon Valley startups too often exploit the defenseless”, has this comment:

Whether it’s Homejoy or Alfred Club, well-funded Silicon Valley startups are seriously exploiting the impoverished and using dubious ploys not to pay employment taxes and insurance.

Homejoy cleaners gets $19 per house and at least some of them are homeless. Alfreds are servants that run errands for you and keep the house clean for $99 a month. Even though they are at the beck and call of the startup and the client, they are independent workers and thus the startup pays no employment tax and provides insurance. And the pay is a pittance.

Granted, I’m using circumstantial evidence here to paint Homejoy with the H-1B-abuse brush, and  again, they do seem to have paid their H-1Bs above the legal prevailing wage, though as I have explained before, the latter is a lowball figure, typically well below what the worker would command in the open market. I will simply say that this is the “Let them eat cake” attitude I find common in Silicon Valley, both in public (see the Dalgaard remark) and in private.

But in any event, the salient issue is that Homejoy failed. Again, the high-pitched claims by the industry lobbyists about the U.S. needing H-1Bs to fuel a startup boom must be viewed in this context.

Moreover, what happens to the H-1Bs who had been employed by Homejoy? Well, some of Homejoy’s workers were picked up by Google, and if any were H-1Bs, then they were “freebies” for Google. Under H-1B policy, workers who transfer from one firm to another, or who renew their visa, are exempt from the H-1B cap. So it’s in the interests of Google and the other big guys to have a large number of startups out there; when the startups fail, as the vast majority do, Google and the others get to circumvent the H-1B cap.

Often things are not as they seem on the surface, especially if that surface was created by PR specialiists.


3 thoughts on “Startups Go Belly Up: Some Implications for H-1B

  1. Sometime back I stumbled onto this:

    8,474 start ups.
    Each seems to have on avg 10 employees.

    That is only 84,740 employees.

    Folks, we lay off more per year than that.

    We need millions of jobs, and the tech industry is wasting our time with less than 100,000 jobs.


  2. Norm, I think I am missing the point to this one. Why was a startup maid service company interested in hiring H1-B’s? Why is google interested in hiring a bunch of maids? I know that a lot of immigrants are used as maids, but they aren’t usually H1-B’s.


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