President Trump's Executive Order Targeting Foreign Techies Will Hurt American Companies and Workers
Spurning talent is never a road to greatness.
Immigration authorities opened up the annual H-1B visa lottery for American companies that want to hire foreign tech professionals on April 3. And this week they announced that they received 199,000 petitions—or more than double the number allowed. Clearly, current law fails to meet the needs of American employers. But instead of relaxing this program as would befit a president who promised to remove the regulatory handcuffs on
American businesses, President Donald Trump has issued a "Buy American, Hire American" executive order that will pass new regulations making it even more difficult to recruit high-skilled foreign workers—never mind the overwhelming evidence that these workers help, not hurt, American jobs and wages.
The H-1B cap is reached every year because the annual 65,000 limit—0.04 percent of the U.S. labor force—was set in 1990. Since then, technological advances like the World Wide Web and smartphones have turbocharged the demand for high-skilled technical labor. "Mobile app developers"—a highly prized job today—didn't even exist 15 years ago. However, when companies recruit for tech talent at U.S. universities, they find Americans, to be sure—but the vast majority consists of international students, who make up an astounding 77 percent of the full-time graduate students in electrical engineering and 71 percent in computer science.
An H-1B visa is often the only way for these students or high-skilled foreign nationals educated abroad to work legally in America. That means new restrictions on H-1B visas would likely block the only feasible means for any foreign-born computer specialists, engineers, doctors or scientists to work in the United States.
Despite this, several conservative bills in Congress are trying to squash even this meager program. A bill co-sponsored last year by Sen. Ted Cruz (R-TX) and now-Attorney General Jeff Sessions wanted to force employers to pay well above market rates for these tech professionals and also require international students from U.S. universities to work for 10 years outside the United States before they could work in America. Another bill co-sponsored by Sen. Charles Grassley (R-Iowa) would require companies to prove to labor authorities that they tried to recruit an American before hiring a foreign national, which will expose employers to massive legal liability for every such hire.
Meanwhile, the Trump administration's pledge to build a wall around excessive regulation has a giant hole in it when it comes to immigration, as his executive order directing federal agencies to implement new rules and policies discouraging the hiring of H-1Bs shows. Part of this will no doubt involve stepped up site visits by Department of Labor investigators to companies with H-1Bs in their employ. "The moves seemed designed to appease President Trump's supporters, who urged him to make good on campaign promises to eviscerate the H-1B program," reported the Washington Times.
To discredit the hiring of all high-skilled foreign nationals and set the stage for draconian legislative and regulatory measures, Congressional critics and anti-immigration activists have skillfully publicized stories alleging that companies lay off U.S. workers and replace them with H-1B visa holders. However, in these stories—and the same ones involving Disney or Southern California Edison have received repeated media attention, including recently on 60 Minutes—what is actually happening is that companies are focusing on their primary business line and contracting out functions considered either non-essential, underperforming or technologically out of date.
Everyone sympathizes with the U.S. workers at Disney and Southern California Edison who lost their jobs. The question is whether these personal misfortunes require changes in the law. After all, the U.S. Department of Labor reports that every year in America approximately 20 million people are laid off or discharged from their jobs for all kinds of reasons.
I interviewed nearly a dozen advisers who evaluate bids and help companies figure out whether to contract out work and they confirmed the following:
First, companies decide whether to outsource and, therefore, on the need to make layoffs, before a contract is put out for bids, meaning they would be unlikely to know details like whether or to what extent visa holders will service the new contract.
Second, experts in outsourcing say companies are replacing the employees with new systems and technology, often with an offshore element, not making one-for-one replacements. H-1B visa holders generally play a limited, specialized role, primarily in gathering information from existing employees to help the transition from the old to the new contract, according to Alex Kozlov of the management consulting firm Alsbridge. So, experts say, whatever the appearance, the laid off employees are not actually training their foreign replacements, as is often alleged.
Third, new technologies, such as cloud computing and automation, affect far more jobs than anything related to foreign nationals on skilled visas.
There is no evidence to support the central claim of H-1B critics that Disney, Southern California Edison or other companies decided to lay off workers because they found a "loophole" in U.S. immigration law.
Consider what happened at Southern California Edison: Its decision to outsource, as Computerworld pointed out, was preceded by a highly critical outside management report that the company commissioned following a tragic shooting of two managers in its IT department in 2011. The report revealed "dysfunction" in the department, prompting the company to outsource its IT functions. Likewise, a source at Disney told me the 2014 decision simply continued Disney's long history of contracting out IT services, including a $1.3 billion deal with IBM and Affiliated Computer Services back in 2005, nine years earlier, that resulted in a reported 1,000 layoffs.
Setting aside those stories, none of the 40 economists polled in February 2017 by the University of Chicago's Booth School of Business believed that scaling back H-1B visas would lead to a material rise in jobs for U.S. workers. To the contrary, nearly all economists think the entry of high-skilled foreign nationals benefits the U.S. economy as a whole. And many believe that cutting back on H-1Bs would hurt American worker themselves.
Estimates by University of California-Davis' Giovanni Peri and Kevin Shih and Colgate University's Chad Sparber suggest that the presence of foreign STEM (Science, Technology, Engineering and Math) workers accounts for about 30 to 50 percent of the aggregate productivity growth in the United States between 1990 and 2010. Furthermore, they found a percentage point increase in the share of foreign STEM workers in a city's employment mix "increased the wage growth of native college-educated labor by about 7 to 8 percentage points."
Similarly, Madeline Zavodny, a professor of economics at Agnes Scott College, found that foreign and U.S. workers complement each other, with each additional 100 approved H-1B professionals being associated with an additional 183 jobs among U.S. natives. Likewise, a paper by economists William R. Kerr (Harvard Business School) and William F. Lincoln (University of Michigan) examined patenting and concluded, "Total invention increases with higher [H-1B] admission levels primarily through the direct contributions of immigrant inventors."
A few outlier and rather flawed studies have excited restrictionists, however. One published by John Bound and Nicolas Morales of the University of Michigan and Gaurav Khanna at UC-San Diego in February argues that native computer worker wages and jobs would have risen more during the 1990s if all H-1B visa holders had been blocked from the U.S. But what restrictionists fail to mention is that the study also concludes that the entry of H-1B visa holders makes essentially everyone else—namely, consumers and businesses—in America better off. More to the point, the authors concede there was actually great improvement for computer workers during this period. Employment of computer scientists and software developers rose by 161 percent from 1990 to 2000, and median real wages rose by 18 percent. In effect, their claim only is that wages and jobs among U.S. natives would have gone up a little more, not that either actually fell during the 1990s.
But even this modest impact is debatable. That's because the authors assumed that during the eight years they examined—1994 to 2001— the U.S. was "the only producer of IT" in the world, thereby eliminating the most obvious response companies would (and did) have: hiring outside the United States. That assumption strains credulity, since faced with current and past immigration restrictions, nearly all major and even mid-sized U.S. companies have set up or expanded offices and placed high-skilled people abroad. Policymakers who support restrictions on high-skilled immigration by assuming U.S. companies will not respond by placing even more work abroad are mistaken.
Restrictionists also cite a 2016 study by the University of Notre Dame's Kirk Doran, UC- Berkley's Alexander Gelber and the Treasury Department's Adam Isen that argued that H-1Bs lead at best to a modest increase in overall employment and patents for a company. But only 25 percent of the H-1B visa holders in the study's sample had a master's degree or higher, even though published government data show more than twice as many new H-1B visa holders typically in a year (57 percent in FY 2006) have a master's degree or higher. Whatever the reason for their problematic sample, the significant bias away from graduate degree holders is important, since their unrepresentative sample undercounts the people most likely to patent (the focus of the study).
The central flaw in arguments alleging a negative impact on native employment due to the presence of foreign scientists and engineers is that they are based on the "lump of labor fallacy" – or the notion that there is a fixed number of jobs in the economy. Hence, the argument goes, if you increase the number of workers, you get lower wages and rising unemployment. But high-skilled tech workers grow the economic pie by boosting productivity, encouraging more investment and increasing entrepreneurship. Overall, they create jobs.
My research last year found that 51 percent, or 44 out of 87, of the country's $1 billion startup companies had at least one immigrant founder. These companies created an average of 760 jobs each and many are still growing. Seventy percent of the $1 billion companies had an immigrant in a key job-producing position, such as vice president of engineering.
What is ironic is that conservatives of all people—who are supposed to champion free markets and competition—should be falling for this fallacy. Should they succeed in shutting the door to foreign-born scientists, engineers and others from India, China and elsewhere, whose options in their own countries are increasing, America will be the big loser. America wins when it confidently welcomes talent, not spurns it.
Stuart Anderson heads the National Foundation for American Policy, a think tank that focuses on immigration and trade issues