Trump Administration Makes Major H-1B Reform

In the 2016 election campaign, Donald Trump promised to reform the H-1B work visa program. That should have been the least controversial of his plans, as the visa has long been recognized by both major parties as having major problems. Almost all the major candidates in 2016 — Trump, Cruz, Rubio, Clinton and Sanders — were critical of the program.

However, very little reform had come until this week. Trump did issue various executive orders, but as I’ve written here, they haven’t addressed the major problems. But yesterday, the administration announced a new policy, one that in my view is the first genuine reform of the visa in its 30-year history.

The H-1B statute (as well as the one for employer-sponsored green cards), imposes wage floors on employers who hire the visa workers. The new policy substantially raises these prevailing wage levels. To understand the implications of the change, one must first look at how prevailing wage works, and at its relation to the “Infosyses vs. Intels” metaphor I often use in these discussions.

There are four prevailing wage levels. Though they are described in terms of experience and expertise, they are actually pegged to different points in a wage distribution. Under the old policy, the Level I prevailing wage was set to the 17th percentile of the wages of all workers in a given occupation and a given region. These will now increase to the 45th and 62nd percentiles, respectively. (There are relatively few visas awarded at Levels 3 and 4, so I’ll limit my discussion here to Levels 1 and 2).

I mention the “Infosyses” and “Intels” in almost everything I write about H-1B, and consider it central to the entire issue. It’s the source of much confusion among (read “deliberate obfuscation by”) some of the players.

By “Infosyses” I mean the firms, mainly India-based, that hire H-1Bs and then “rent” them to US firms. The “Intels” are the employers who hire H-1Bs directly, typically foreign students studying at US universities. Note that the Intels are not just the big household name firms, just any company hiring H-1Bs from US campuses.

The Infosyses tend to hire at Level 1, while the Intels’ H-1Bs are typically at Level 2; the latter stems from the fact that the Intels typically hire at the Master’s degree level, which the regulations say should be Level 2.

It is often claimed that the main abuser of the visa are the Infosyses, while the Intels use the program responsibly. It would be easy to come to that misconception by simply noting the fact that the Intels hire their H-1Bs at Level 2, a higher wage. But as noted, the Intels hire at the Master’s level, thus a higher-quality worker. They are still getting a bargain in hiring the foreign workers, relative to US citizens and permanent residents of that quality; I’ll return to this point momentarily.

The DoL report explaining the move on prevailing wage is quite good. Frankly, I was prepared to see poor reasoning and not much detail, but the DoL looked at the issues in very fine, incisive detail, definitely one of the most carefully-reasoned government reports I’ve ever read. Whether you agree with their conclusions or not, the report is very carefully reasoned, and it’s clearly the result of a ton of time spent.

Will it help? Will more US tech workers be employed as a result of this move? The reason I use such phrasing is that many proposals to fix H-1B seemingly would be useful if implemented but in reality would not move the needle in terms of employment of Americans. Even shutting down the Infosyses entirely would have very little effect, as the employers would still want to save on labor costs, and have alternate ways to do so, as I’ve written before.

At any rate, yes, it would help, but more at Level 2 than Level 1, again due to the existence of alternatives in the case of Level 1. There really are no such alternatives at Level 2, so this new policy is big news.

However…another recurring theme in my writings on H-1B is that the visa is fundamentally about age. Younger workers are cheaper than older ones, and most H-1Bs are young. Though it is also true that young H-1Bs are cheaper than young Americans, the biggest wage savings arise from the age factor.

As noted above, the four-tier prevailing wage system is supposed to be a proxy for amount of experience, thus in turn a proxy for age. In other words, the prevailing wage core of H-1B is actually a government enabler for age discrimination, not to mention discrimination against US workers. Thus the new policy, which by statute must retain that age-related structure, does not solve the H-1B issue, though it’s a much-appreciated first step.

Another flaw is that the new policy does not account for the level of talent of a foreign worker. Take a company like Google. They hire only “the best and the brightest” — so they should pay more. But the prevailing wage structure cannot take talent into account, so Google can pay what in essence is “average” salary (at the given experience level) for much-better-than-average talent.

In that sense, Table 2 in the DoL report is misleading in saying that most of Google’s H-1Bs make more than prevailing wage. It was misleading to begin with, as those figures are based on the old prevailing wage, which the DoL found was substantially too low. But in addition, the table doesn’t take into account that Google workers, domestic or foreign, are of top quality.

Bottom line, data like that in Table 2 does NOT imply that Google is paying its H-1Bs fairly. The foreign workers could be making less than comparable Americans and yet still be making more than prevailing wage.

This is similar to a finding in the 2003 employer survey conducted by the Government Accountability Office that “Some employers said that they hired H-1B workers in part because these workers would often accept lower salaries than similarly qualified U.S. workers; however, these employers said they never paid H-1B workers less than the required wage.”

Another important point is that one must consider wage raises given subsequent to hire. The Intels typically sponsor their H-1Bs for green cards, essentially rendering them immobile. Employers love that their H-1Bs can’t jump ship to another firm, and Google stated in a meeting with several of us researchers that this is a key reason to hire H-1Bs. Among other things, immobility means the H-1Bs are in no position to demand big raises (also noted in the employer survey conducted by the National Research Council, commissioned by Congress), thus yet another way employers save money.

Some press reports quote industry officials as threatening to sue to block the new policy, on administrative law grounds. I won’t speculate on their chances for success, but hope this new prevailing wage policy, uh, prevails. 🙂 It’s a very solid, well-justified change, 30 years overdue. My hat is off to DoL.