President Donald Trump's views on illegal immigration have been widely circulated and commented upon, and the Muslim ban led to protests. But it's his position on highly skilled foreigners working in the U.S. that has a few companies and their investors concerned.
The Trump administration has been gradually updating policies to align them with the Presidential Executive Order on Buy American and Hire American. Last month, the United States Citizenship and Immigration Services (USCIS), a component of the Department of Homeland Security, announced tighter restrictions for third-party consulting firms, which are some of the visa program's biggest users.
"Based on the agency’s experience in administering the H-1B program, USCIS recognizes that significant employer violations—such as paying less than the required wage, benching employees (not paying workers the required wage while they wait for projects or work) and having employees perform non-specialty occupation jobs—may be more likely to occur when petitioners place employees at third-party worksites," said the memorandum.
Employees, employers and investors are braced for more announcements in the coming months, but the Trump administration has a delicate balancing act to perform so as to not adversely affect industries that rely on these visas.
Buy American, Hire American
Trump has called the temporary nonimmigrant H-1B visa program, which allows foreigners with advanced degrees to be employed here, "a cheap labor program." Critics of the program say companies are replacing Americans with people hired from abroad, mainly young Indians with computer skills willing to do monotonous work for less pay than their American counterparts.
The president has promised to protect American trade and bring back jobs, but he also wants to make sure American jobs are not being stolen with the nation's own visa program. But the solution isn't as simple as canceling it altogether. (See also: Trump Executive Orders)
Many tech giants rely on foreign talent. According to the Bureau of Labor Statistics, employment in the computer and information technology field is projected to grow 12% from 2014 to 2024, faster than the average for all occupations. That amounts to 488,500 new jobs. What's more, researchers from the University of California, Davis and Colgate University found that temporary workers on these visas actually end up creating more jobs for American-born workers. Facebook (FB) CEO Mark Zuckerberg and Apple (AAPL) co-founder Steve Jobs both argued that the U.S. needs to be able to increase its supply of tech workers to Silicon Valley.
The issue came up during Trump's meeting with tech leaders in December 2016 at the Trump Tower in New York City. According to Recode, Microsoft (MSFT) CEO Satya Nadella, who moved to the U.S. from India for grad school and was most likely on the H-1B visa program himself, stressed the need to bring in and keep talent in the U.S.. Trump responded: "Let's fix that."
According to author Michael Wolff's latest book, when asked about the meeting, Trump told Rupert Murdoch the tech giants “really need these H-1B visas." Murdoch reportedly pointed out that Trump's willingness to grant more visas wasn't compatible with his hardline position on immigration, and Trump said, "We'll figure it out."
Employee Shortage or Untamed Capitalism?
The H-1B visa program was launched in 1990, when President George H.W. Bush signed the "Immigration Act of 1990." It is intended to help American firms deal with labor shortages in rapidly growing fields that demand specialized skills, such as research, engineering and computer programming. Each application or "petition" is submitted by a sponsoring company that foots the bill on behalf of a candidate it seeks to employ. The program has an annual cap of 65,000, and an additional 20,000 visas are granted to employees with master's degrees from American universities. If the number of applications exceeds the cap, the government conducts a "lottery" to decide who gets to stay. Every year 6,800 visas are reserved for workers from Chile and Singapore in accordance with free trade agreements those countries have signed with the U.S.
In 2016, the government said it received 236,000 H-1B petitions in April when the filing period began. This was despite a fee hike of $4,000 for certain petitioners. Either this demand for H-1B visas is a sign of a desperate shortage of eligible workers in the U.S. – or alarm bells should be going off since companies could be abusing the system.
There are provisions in place to make sure employers are paying their workers the prevailing wage and not replacing American workers. However, a giant loophole makes companies paying $60,000 and above per employee – or hiring employees with master's degrees – exempt from this rule. An author of the 1990 Act that created the H-1B program, Bruce Morrison, told The Atlantic it was "a dastardly deed," and he blamed lobbyists for the caveat. The caveat is greatly relevant since more than half the approved petitions in 2014 had master's degrees or higher making it perfectly legal for them to be paid less than an American worker they were replacing. (See also: Getting A U.S. Visa for Entrepreneurs & Investors)
Prominent companies such as Walt Disney (DIS) and Southern California Edison have been accused of replacing American workers with cheaper foreign labor. A New York Times report showed that outsourcing companies were "gaming the visa system." A study from the Economic Policy Institute showed that H-1B workers were underpaid at Indian IT firms providing outsourcing services in the U.S. for American companies. These companies saved more than $20,000 a year per worker when they hired Indians instead of Americans.
Companies that may be seeking visas for employees on a more legitimate basis are also cheated out of them because of the lottery system. Large outsourcing firms are able to flood the system with applications every year. For the fiscal year of 2015, the top 10 employers that received visas accounted for 36% of the total granted, according to the Department of Labor. More than 70% of H-1B petitions approved for the fiscal year 2016 were for candidates from India, and the majority of the petitions were for computer-related occupations, according to USCIS data. (See also: How To Retire In the U.S: The Visas, The Process)
Tech Industry Most Affected
According to the most recent report from the DOL, the top three occupations for which H-1B visas are certified, Computer Systems Analyst, Software Developer and Computer Programmer, account for 50% of all occupations. For fiscal years 2012 to 2015, almost half of all applications certified were from companies in five states namely California, Texas, New York, New Jersey and Illinois.
Satya Nadella's concerns are reflected in his company's lobbying activities in Washington. According to OpenSecrets.org, Microsoft is one of 551 organizations that lobbied the government on the issue of immigration last year, along with others like Alphabet Inc. (GOOG), Cognizant Technology Solutions (CTSH), and Qualcomm Inc. (QCOM).
Amazon Inc. (AMZN), which announced its decision to add 100,000 U.S. jobs including software developers and computer programmers last year, also lobbied the House and Senate on "issues related to high-skilled immigration."
Companies apply for green cards for employees on temporary visas they wish to retain. According to the DOL's data for the fiscal year 2015, the employers with highest green card applications certified were Cognizant Technology Solutions, Google, Intel Corp. (INTC), Cisco Systems (CSCO) and Microsoft Corporation. If the stream of H-1B visas are cut, it directly affects the number of long-term employees from abroad these companies can employ. If H-1B visa holders aren't allowed to receive extensions while they wait to be approved for green cards, they will no longer be allowed to stay and work in the U.S..
The current discourse is making Indian IT firms 8,000 miles away nervous as well. Top employers in recent years include Infosys (INFY), Tata Consultancy Services, and Wipro Limited (WIT). Companies like these provide outsourcing services to American firms for which they employ thousands of H-1B workers. Infosys CEO Vishal Sikka told the Press Trust of India newswire: "We have quite a bit of H-1Bs and we also have a lot of local hires. We had articulated that we have to become much more local and locally-oriented in our strategy in the market and globally. So ultimately, regardless of the visa policies or so forth, the right thing to do for innovation is to have a lot of rich local talent," he said. The chief executive of another Indian outsourcing firm, Tech Mahindra's CP Gurnani, told CNBC, "The Trump administration is against displacing low-skilled workers, but I hope and pray that Tech Mahindra is able to prevail and able to convey that what we bring to the table is high-skilled technology entrepreneurs, technology-skilled workers and we invest in the local economies."
On April 18, Trump signed an executive order calling for strict enforcement of all laws governing entry into the U.S. for the sake of employment. The order also asked the Departments of Labor, Justice, Homeland Security and State to recommend changes to the H-1B temporary worker visa program and protect the interests of American workers by making sure only the highest-paid and most-skilled applicants receive visas. The White House is looking to replace the current lottery system, according to a senior official who briefed reporters on the order.
Earlier in April, the government began accepting H-1B visa applications for 2018 with no changes to the program, but the Department of Homeland Security announced that it is adopting a targeted approach to prevent fraud and abuse. The number of applications received during the filing period in 2017 fell to 199,000 from 2016's 236,000. (For more see: Trump Admin Begins Crackdown on H-1B Abuse)
In October, the USCIS made it so that extension applications aren't a done deal and officers have to apply the same level of scrutiny to extension applications as they do to new visa applications.
In the first week of 2018, an internal memo circulated in the Department of Homeland Security (DHS) sparked worries about stricter H-1B visa regulations once again. According to McClatchyDC, the Trump administration was considering disallowing H-1B visa extensions after the first three-year extension. Extensions are requested by employers on behalf of immigrant employees with pending green card applications. In response, the U.S. Chamber of Commerce said such a policy "would harm American business, our economy, and the country. Further, it is inconsistent with the goals of a more merit-based immigration system."
The USCIS later released a statement saying it is not considering such a policy change, and even if it were, "employers could request extensions in one-year increments under section 106(a)-(b) of AC21 instead." Multiple sources speaking with McClatchyDC claim that the administration was in fact considering such a proposal and changed its position due to the harsh and negative reaction from the business community.
The Way Forward
Ensuring companies aren't able to bring cheap labor on American soil is the crux of the matter. Trump's website says he aims to "establish new immigration controls to boost wages and to ensure that open jobs are offered to American workers first." Bernie Sanders was the only 2016 presidential candidate to come out against the program and also highlight that workers on the program are ripe for abuse and exploitation as they are dependent on the employer to stay in the country.
Trump's executive order did not offer any solutions, but asked U.S. government departments to come up with a replacement for the current lottery system and ensure strict enforcement of laws.
Attorney General Jeff Sessions made headlines when he told a Senate Committee, “It’s simply wrong to think that we’re in a totally open world and that any American with a job can be replaced if somebody in the world is willing to take a job for less pay." In 2016, he had co-sponsored a bill with Senator Ted Cruz that would require companies to pay H-1B employees an annual wage of $110,000 or the average paid to an American in a similar position, whichever is higher.
Another bill called Protect and Grow American Jobs Act introduced in Congress last January proposes to amend the original Act that created the H-1B program. It will close a loophole by raising the minimum salary requirement for H-1B workers to $100,000 a year, up from $60,000, and remove the master's degree exemption that allowed the replacing of American workers with foreign workers with master's degrees. The House Judiciary Committee approved it in November.
Last January, two more bills to fix the H-1B problem were also introduced. The bipartisan H-1B and L-1 Visa Reform Act of 2015 was reintroduced by Senator Chuck Grassley and aims to overhaul the system in many ways, including eliminating the lottery system and making sure the USCIS favors foreigners with U.S. degrees. The High-Skilled Integrity and Fairness Act of 2017 introduced by Representative Zoe Lofgren looks to eliminate loophole mentioned earlier by getting rid of the master's degree exemption and raising the minimum wage from $60,000.
The Bottom Line
It's extremely unlikely the H-1B visa program will ever be scrapped completely. Aside from being the only way for firms to attract the best talent in the world, the H-1B visa is also treated as a pathway to citizenship for qualified employees who contribute to the American workforce in a positive way.
It's also worth noting what Indian IT firms operating here bring. Indian tech companies in the U.S. paid $22 billion in taxes from 2011 to 2015, according to a report by India's software and services trade association Nasscom. Indian temporary workers on the H-1B and L1 visas alone contribute $3 billion in social security funds annually, even though many don't stay long enough to benefit from it. There's also the question of those 488,500 new jobs created by 2024 and if the U.S. education system is capable of filling them.