H-1b, the “Outsourcing Visa”

An email referring to Down with Globalization asks if Kathy's narrative there is accurate. My response:

Kathy seems accurate as far as she goes, but she doesn't describe the whole problem.  There are about 1 million H-1b and L-1 visa holders in the US at any one time, but there are at least 1 million more that have come here on those temporary visas to get trained and then went home taking with them the jobs of the American trainers, many of whom were then fired.  From an EPI report last year:

For several years, Congress has debated revising high-skill immigration policies as part of larger comprehensive immigration reform legislation. An important consideration is what to do about two major high-skill guest worker programs, the H-1B and L-1 visa programs, which account for an estimated 1 million guest workers.

Both of these visa programs need immediate and substantial overhaul. The goals of the H-1B and L visa programs have been to bring in foreign workers who complement the U.S. workforce. Instead, loopholes in both programs have made it too easy to bring in cheaper foreign workers, with ordinary skills, who directly substitute for, rather than complement, workers already in the country. They are clearly displacing and denying opportunities to U.S. workers.

The loopholes also provide an unfair competitive advantage to companies specializing in offshore outsourcing, undercutting companies that hire American workers. For at least the past five years nearly all of the employers receiving the most H-1B and L-1 visas are using them to offshore tens of thousands of high-wage, high-skilled American jobs.

Offshoring through the H-1B program is so common that it has been dubbed the "outsourcing visa" by India's former commerce minister.

Inside, part of the Executive Summary says this:

1. Neither visa requires a labor market test. Employers can and do bypass American workers when recruiting for open positions and even replace outright existing American workers with H-1B and L-1 guest workers.

2. Wage requirements are too low for H-1B visas, and they are non-existent for L-1. The programs are extensively used for wage arbitrage. Employers have told the GAO that they hire H-1Bs because they can legally pay below-market wages. The Department of Labor has certified wages as low as $12.25 per hour for H-1B computer professionals. The arbitrage opportunities for L-1 visas can be even greater because employers pay home-country wages. In the case of workers from India—the largest source country for L-1 visas—this can mean a 90% discount for importing an L-1 guest worker compared to hiring an American.

3. Visas are held by the employer rather than the worker. H-1B and L-1 visa workers can be easily exploited and put into poor working conditions but have little recourse because the working relationship is akin to indentured servitude.

4. Program oversight and enforcement is deficient. Department of Labor review of H-1B applications has been called a "rubber stamp" by its own Inspector General. A DHS IG report found that one in five H-1Bs were granted under false pretenses. The L-1 visa program has not been reviewed for more than four years even though the last DHS IG report found that there were "significant vulnerabilities to abuse."

Manufacturing & Technology News started with the EPI report and did its own reporting: 

There has been no growth in IT employment for a decade, with the total number of U.S. IT workers (including lower skilled workers like computer specialists and call center employees) holding steady at 3.8 million. Wages are stagnant.

That has not been the case for companies that offer IT outsourcing services. Tata was expected to hire up to 50,000 workers in 2010. Infosys is hiring between 7,000 and 8,000 workers per quarter. By comparison, Google's total worldwide employment is 20,000. Foreign outsourcing firms "are growing by Google's number in one year," says Hira. "If you had a company with that kind of growth in the United States, Obama would be all over it. But there is not a single company in the U.S. that is growing like that, certainly not in high-tech services."

Other U.S. technology companies that have embraced the outsourcing model and are actively hiring H-1B workers. Accenture, Cognizant, Larsen & Toubre Infotech and IBM India Private Ltd. are all major users of the H-1B visa program.

IBM now has more people working in India than it has working in the United States, according to data compiled by The Economist magazine. In 2003, IBM's U.S. headcount was 135,155, while it had 6,000 workers in India. By 2009, its U.S. headcount had shrunk to 105,000, while its Indian workforce numbered 100,000. Deloitte has tripled its headcount in India, from 11,000 to 33,000. "None of this gets reported in the United States," says Hira.

India now has 2 million workers employed in the IT offshoring and business process offshoring industries. An estimated 65 percent of those workers directly serve the U.S. market, according to data from the NASSCOM, the Indian IT trade association.

"You are talking about 1.3 million jobs offshored to India," says Hira. "Part of the problem is that because no one is paying attention to what is going on, the industry can make up whatever statistics it wants. So the U.S. Chamber of Commerce is using the mass layoff figures [from the Bureau of Labor Statistics] claiming that only 10,000 jobs have been offshored and they are able to get away with it."

In the meantime, U.S. companies like Accenture, IBM, EDS, HP are reporting record profits. Accenture's headcount in India surpassed its U.S. headcount in 2007. The company has 50,000 workers in India.

The companies that utilize the H-1B and L-I visas have business models that "shift as many American jobs as possible offshore," according to Hira. Eight of the top 10 H-1B employers were offshore outsourcing firms or had significant offshoring operations," according to Hira. The same held true for the top 10 L-I employers.

"The data show that the H-1B and L-I visa programs are being used to speed up the offshoring of high-wage, high tech jobs, contradicting the claims by those who argue that expanding the programs would prevent offshoring," says Hira. The Commerce Minister of India even referred to the H-1B visa program as the "outsourcing visa" in a 2009 interview with the New York Times.

Infosys has stated in its financial reports to the U.S. Securities and Exchange Commission that it is dependent on the H-1B and L-1 visas and that if they were discontinued it "would pose a significant risk to its business model," Hira reports. In its 2010 SEC filing Infosys states: "The vast majority of our employees are Indian nationals." These workers are employed at client locations. "The ability of our technology professionals to work in the United States, Europe and in other countries depends on the ability to obtain the necessary visas and work permits," writes Infosys.

Infosys revenues increased to $4.8 billion in 2010, up from $203 million in 2000. Its workforce has increased from 5,400 to 113,800. It has 10,700 H-1B and LI visa holders on its payroll.

India has transformed the entire American high-tech sector in a way that has demoralized U.S. workers, Hira argues. Companies like Pfizer, Siemens, Wachovia and Bank of America have all reportedly required their U.S. workers to train foreign replacements that have H-1B or L-I visas. "This practice, unfortunately enough, appears to be perfectly legal under the current sets of regulations and laws," writes Hira. "We do not know how widespread it is because employers have threatened workers with lawsuits and conditioned their unemployment insurance and severance packages to guarantee silence. Each new report, however, further reduces the attractiveness of IT to students of American universities."

Corporate CEOs and President Obama constantly implore more Americans to study science, technology, engineering and math, but the top concern of people working in technical fields is the negative impact of offshore outsourcing on their job prospects. A recent survey done by Information Week found that offshoring of technology jobs "is discouraging young Americans from pursuing tech careers and [is] shipping innovation abroad." The survey found that most IT workers, managers and students believe that the practice has led to the United States losing its leadership position in technology, "with 66 percent -- the single highest percentage -- citing offshore jobs movement as one of the top three reasons."

Says Hira: "I give lectures at RIT's Engineering School, and one of the classes is for a masters in product development for working mid-level engineers. They said they voted for Obama not because of health care but because they expected him to do something on offshoring, and they were sorely disappointed."

With gaping holes like this below our waterline, I can't see how it's possible for America to avoid chronic joblessness, real wages for almost everybody converging downward to those in Chindia, declining provision of public goods like education and infrastructure, substantial elimination of our middle class, and rising class barriers. I welcome any comment that explains why that's wrong.