National Academies Press: OpenBook

Building a Workforce for the Information Economy (2001)

Chapter: Foreign Workers in the IT Workforce

« Previous: Older IT Workers and Possible Age-Related Discrimination
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

5

Foreign Workers in the IT Workforce

The IT sector and the IT-intensive industries are global: nations other than the United States consume and supply IT products and services, and nations other than the United States have individuals with the talent, motivation, and desire to work in the IT sector and IT-intensive industries. For this reason, it is necessary to understand the foreign dimensions of the IT workforce.

5.1 THE IMPACT OF FOREIGN WORKERS ON THE U.S. ECONOMY AND WORKFORCE

The impact of foreign individuals on the U.S. economy and workforce is a controversial subject, and the debate is complicated because of unspoken feelings and hidden agendas on the part of various stakeholders.

As the world's economy becomes increasingly global, so too does the workforce of many U.S. firms. Among the reasons for using foreign workers is the fact that the United States does not have a monopoly on productive, knowledgeable, and motivated individuals; rather, such workers are found all over the world. Foreign workers can make positive contributions to the U.S. economy in a number of different ways:

  • Foreign IT workers may bring to the United States the language,

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

cultural, or specialized engineering skills needed for the internationalization and localization of software products.1

  • They bring knowledge and expertise obtained in their home countries for which the United States did not pay, certainly for K-12 education and in some cases for higher education. That is, the United States reaps the benefits of their education without paying its cost, because their home nations paid for their education.

  • They facilitate trade with their countries of origin and links between domestic technology businesses and those in their countries of origin. Box 5.1 illustrates the impact of immigrants on an economically important region of the United States: Silicon Valley.

  • They increase the level of talent in the U.S. workforce, because foreign workers coming to the United States for IT jobs tend to have higher educational levels compared to the average foreign (or U.S.) worker).2

  • To the extent that companies need individuals with adequate formal training in computer science, they may well turn to foreign workers who have the necessary formal training if they are unable to find domestic workers with such training.

  • U.S. firms may be able to reduce significantly their labor costs to the extent that foreign workers are willing to work for less than comparable U.S. workers when these foreign workers are located abroad in relatively low-wage countries. (Other reasons for U.S. firms to locate work abroad are discussed in Section 5.3.2.)

  • They contribute to national output. To the extent that foreign workers specialize in activities that would not otherwise exist domestically (and given growing use of IT throughout the U.S. economy, they clearly play some role in meeting demands that arise from growth), the native population benefits overall because it can consume the output of that production.3

1  

Specialized engineering skills could entail changes in the display routines of an operating system to allow Arabic or Hebrew characters to display from right to left, without any loss of formatting, hyphenation, and page breaks, or changes in drivers to accept input from a keyboard designed for Japanese characters (Kanji). (The Japanese keyboard uses Kana, a Japanese phonetic alphabet to prompt the display of several Kanji characters from which the user can select.)

2  

See, for example, Ellis, Richard, and B. Lindsay Lowell. 1999. “Foreign-Origin Persons in the U.S. Information Technology Workforce, ” Report III of the IT Workforce Data Project. New York: United Engineering Foundation. Available online at <http://www.uefoundation.org>.

3  

See, for example, National Research Council. 1997. The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. James P. Smith and Barry Edmonston, eds. Washington, D.C.: National Academy Press.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.1 Illustrative Contributions of Immigrants to the U.S. Economy

“[F]oreign-born engineers in Silicon Valley's technology industry make a substantial and growing contribution to regional job and wealth creation . . . . The entrepreneurial contributions of these skilled immigrants are impressive. In 1998, Chinese and Indian engineers, most of whom arrived in the United States after 1970 to pursue graduate studies, were senior executives at one-quarter of Silicon Valley's new technology businesses. These immigrant-run companies collectively accounted for more than $16.8 billion in sales and 58,282 jobs in 1998. Moreover, Chinese and Indian immigrants started companies at an accelerating rate in the 1990s.

“The economic contributions of immigrants are not limited to their direct role as engineers and entrepreneurs. Although Silicon Valley 's new immigrant entrepreneurs are more highly skilled than their counterparts in traditional industries, like those counterparts they have created a rich fabric of professional and associational activities that facilitate immigrant job search, information exchange, access to capital and managerial know-how, and the creation of shared ethnic identities. The region's most successful Chinese and Indian entrepreneurs rely heavily on such ethnic resources while simultaneously integrating into the mainstream technology economy.

“These networks are not simply local. Silicon Valley's new immigrant entrepreneurs are building far-reaching professional and business ties to regions in Asia. They are uniquely positioned because their language skills and technical and cultural know-how allow them to function effectively in the business culture of their home countries as well as in Silicon Valley. A transnational community of Chinese—primarily Taiwanese—engineers has thus fostered two-way flows of capital, skill, and information between California and the Hsinchu-Taipei region of Taiwan. In this process, Silicon Valley-based entrepreneurs benefit from the significant flows of capital that these immigrants coordinate, as well as from the privileged access that they provide to Asian markets and to Taiwan's flexible, state-of-the-art semiconductor and personal computer manufacturing capabilities. Silicon Valley 's Indian-born engineers have played a similar, but more arm's-length role, linking technology businesses in Silicon Valley with India's highly skilled software programming and design talent. These long-distance social networks enhance economic opportunities for California and for emerging regions in Asia.

“[S]killed immigrants contribute to the dynamism of the Silicon Valley economy, both directly, as engineers and entrepreneurs, and indirectly, as traders and middlemen linking California to technologically advanced regions of Asia.”

SOURCE: Excerpted from Saxenian, AnnaLee. 1999. Silicon Valley's New Immigrant Entrepreneurs, Executive Summary. San Francisco: Public Policy Institute of California. Available online at <http://www.ppic.org/publications/PPIC120/ppic120.sum.html>.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
  • As do domestic entrepreneurs, scientists, and engineers, so also foreign entrepreneurs, scientists, and engineers create jobs.4 Entrepreneurs create businesses that hire others, while scientists and engineers—through the science and engineering that underlies new technologies—create jobs for other scientists and engineers working with those technologies.

At the same time, foreign workers in the United States can have negative impacts as well:

  • Learning from U.S. IT sector firms, they may bring back to their home countries expertise and knowledge that they can use to compete more effectively against U.S. companies.

  • The availability of foreign workers to U.S. employers raises the supply of labor for those jobs that foreign workers will fill. As with any increase in the supply of available workers, the use of foreign workers may have deleterious effects on the wages and job security of U.S. workers who might otherwise do the work entrusted to foreign workers. To the extent that foreign workers compete with native U.S. workers, economic principles suggest that (a) the foreign workers may displace the domestic workers and (b) the presence of the foreign workers may hold down wages in those jobs.5 Wages may be depressed even if all employers paid temporary nonimmigrant workers the wages prevailing for the jobs for which these nonimmigrant workers are hired.

This remainder of this chapter discusses in more detail the use of foreign IT workers in the United States and in their native lands by U.S. firms.

4  

For example, foreign-born individuals have been instrumental in starting major U.S. hardware, software, and semiconductor firms, including Wang, Intel, Sun, and Computer Associates.

5  

This outcome was endorsed by Federal Reserve Chairman Alan Greenspan when he argued in testimony before the House Banking Committee on February 16, 2000, that the availability of foreign workers was a critical factor in holding down wage inflation during a long period of economic growth. Specifically, he stated that ”. . . imbalances in the labor markets perhaps may have even more serious implications for inflation pressures. While the pool of officially unemployed and those otherwise willing to work may continue to shrink, as it has persistently over the past 7 years, there is an effective limit to new hiring, unless immigration is uncapped. At some point in the continuous reduction in the number of available workers willing to take jobs, short of the repeal of the law of supply and demand, wage increases must rise above even impressive gains in productivity. This would intensify inflationary pressures or squeeze profit margins, with either outcome capable of bringing our growing prosperity to an end.”

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
5.2 FOREIGN WORKERS IN THE UNITED STATES

For many foreign IT workers, the United States is more attractive than other nations as a place to work. One reason is that English is by far the dominant language of information technology, and many foreign IT workers already have some basic fluency with English. Thus, in choosing a nation in which English is the language of social and business interaction, they do not need to learn another language to function well in that (new) country. The United States has a reputation as a land of free enterprise where individuals can start new businesses and achieve great success,6 or, perhaps more realistically, find attractive job prospects and maximize their earning potential. And, historically the United States has been much more tolerant of ethnic diversity than have many other nations.

5.2.1 Foreign Workers Overall

For purposes of this report, a foreign worker is a foreign-born individual who is either a temporary nonimmigrant worker or a permanent resident of the United States. Foreign workers enter the U.S. workforce through two different channels: direct recruitment from abroad and change or adjustment of the status of an individual already in the United States.7 And, the sponsoring party can be a U.S. firm that employs the worker directly, a foreign company that has a branch office (unincorporated) in the United States, or an intermediary U.S.-based organization that employs the worker on behalf of a U.S. firm. In some cases, the intermediary organization has close ties to a foreign IT firm that is doing work outsourced from the U.S. firm; in other cases, the intermediary organization functions as a “temp agency” that places its workers in assignments of varying length with U.S. firms, who then use these temporary placements as a way of trying out these workers and possibly selecting them for permanent hires.

Flows of foreign workers into the United States have remained roughly constant over the last decade, though the mix of permanent immigrants and temporary nonimmigrant workers has varied. In general, foreign-born individuals constituted about 17 percent of the Category 1 IT workforce in 1998, compared to about 10 percent of the total U.S. popula-

6  

See, for example, Spaeth, Anthony, 2000, “The Golden Diaspora,” Time, June 19; Chabria, A., “Silicon Raj,” Upside, July 25, p. 155.

7  

A change of status refers to a change from one nonimmigrant visa status to another (e.g., from F-1 to H-1B); an adjustment of status refers to adjusting one's status from that of a nonimmigrant (e.g., an H-1B) to that of a permanent resident or immigrant by submitting an adjustment application to a local INS office.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

tion.8 In addition, they tend to cluster geographically, living in just a few states, most of which have large concentrations of other foreign-born individuals.

5.2.2 Foreign Worker Programs

Because differences between permanent residents (also known as green-card holders) and temporary nonimmigrant workers are an essential nuance of the policy debate over the use of foreign talent in the United States, the next two subsections address these programs in more detail.

Permanent Residents

A permanent resident of the United States is a noncitizen who is entitled to remain and work in the United States indefinitely.

Numbers of Permanent Residents By law, 140,000 permanent residents can be admitted to the United States each year based on their job skills. This figure is subject to numerical limits based on country of origin and categories of workers. It also includes both the principal alien and his immediate family, so the actual number of “workers” is significantly lower than 140,000. The major categories of workers are the following:

  • Priority workers. Up to 40,040 of the employment-based visas may go to workers of “extraordinary ability,”9 professors and researchers who are internationally recognized as outstanding in a specific academic field,10

8  

See, for example, Ellis, Richard, and B. Lindsay Lowell. 1999. “Foreign-Origin Persons in the U.S. Information Technology Workforce, ” Report III of the IT Workforce Data Project. New York: United Engineering Foundation. Available online at <http://www.uefoundation.org>. (The term “foreign-born” as defined in this report includes foreign workers, foreign students in the United States, and naturalized U.S. citizens. Thus, the Ellis and Lowell estimate of foreign-born IT workers is higher than the percentage of H-1B workers in IT, which is estimated at 10 percent. See discussion at footnote 19.)

9  

“Extraordinary ability” in the sciences, arts, education, business, or athletics must be demonstrated by sustained national or international acclaim and achievements that have been recognized in the field through extensive documentation. INS regulations suggest that only a small percentage of aliens will have risen to the very top of their field of endeavor. Workers of “extraordinary ability” are essentially limited to Nobel Prize winners, world-renowned entertainers, and individuals of similar stature.

10  

Under this category, individuals must have a minimum of 3 years of experience in teaching and/or research in that field and enter the United States in a tenure or tenure-track teaching or comparable research position at a university or other institution of higher education, or in a comparable research position with a private employer, and have a record of outstanding teaching or research.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

and executives and managers of foreign companies who are permanently transferred to the United States.11

  • Professionals with advanced degrees and/or exceptional ability in the sciences, arts, or business. Up to 40,040 of the employment-based visas may go to workers who are “members of the professions holding advanced degrees or their equivalent,” or workers “who because of their exceptional ability in the sciences, arts, or business will substantially benefit prospectively the national economy, cultural or educational interests, or welfare of the U.S.” (8 USC 1153).

  • Skilled workers, professionals, and other workers. Up to 40,040 of the employment-based visas may go to skilled workers with at least 2 years of experience, professionals with a baccalaureate degree, and other workers with less than 2 years of experience. (An additional 19,880 visas are reserved for so-called special immigrants and employment creation visas, neither of which is relevant here.)

Obtaining a Green Card In order to obtain permanent residency (a “green card”) most workers in the above categories must first obtain a permanent labor certification (PLC) from the Department of Labor (DOL).12 To obtain a PLC, a prospective employer must test the U.S. labor market under DOL supervision to ensure that there are no minimally qualified U.S. workers interested in and available for the position for which an alien is sought and that the employment will not adversely affect the wages and working conditions of similarly employed U.S. workers.13

11  

The executive must manage the organization or a department, subdivision, function, or component of the organization; supervise and control the work of other supervisory, professional, or managerial employees or manage an essential function within the organization, or a department or subdivision of the organization; have the authority to hire and fire; and exercise discretion over the day-to-day operations of the activity or function for which the employee has authority. In concept, it is similar to the requirements imposed on individuals in the L nonimmigrant category.

12  

The primary exception is for individuals of extraordinary ability, for whom no job offer need exist and no permanent labor certification is necessary. In addition, a PLC is not required if the prospective immigrant can show that his or her employment would be in the “national interest” (although the INS has dramatically limited national interest waivers since issuing a restrictive decision in August 1998).

13  

Note a significant unintended consequence of this requirement. While the PLC application is pending, the employer cannot materially change the job duties of the applicant, even if the applicant is already working in the job (e.g., on an H-1B visa), because INS rules require the applicant to be performing the job duties described in the approved labor certification at the time he or she applies for adjustment of status. And the employer cannot change the location of the job at all (unless the new location is in the same metropolitan area as the old) because of the potential impact on wages.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

A labor certification consists of two steps.14 First, the prospective employer files an application with the local state employment office describing the position and its minimum requirements and the foreign worker's education and experience, and stating a prevailing wage for persons similarly employed in the area of intended employment. The local office supervises this recruitment phase of the labor certification, which generally requires that employers place specialty job advertisements in newspapers and trade journals and interview qualified candidates. Second, this office forwards the case to the regional DOL office, which either approves the case or issues a notice listing possible deficiencies in the job requirements or recruitment (in which case the employer must delete these contested requirements and re-advertise to avoid a denial).

After the PLC is approved, the employer files an immigrant visa petition with the Immigration and Naturalization Service (INS). The immigrant visa petition establishes that both the job in question and the sponsored worker meet the relevant definitions for experience and/or education as well as any job requirements specified in the labor certification.

Finally, the foreign national must apply for immigrant status, either at a U.S. consulate abroad or—more commonly—by submitting an application at the local INS office to adjust his or her status from that of a nonimmigrant (e.g., an H-1B) to that of an immigrant. A foreign national must satisfy many requirements to qualify for adjustment of status, a process that generally takes about 12 to 18 months (due to backlogs in security checks provided by the Central Intelligence Agency and other processing delays).

One of the most important requirements is the applicant's immediate eligibility for an immigrant visa under the numerical quota system, and an applicant's position in the queue is established by the date on which the PLC is filed (the priority date) (Box 5.2). Applicants who bump up against the per-country quotas (because their priority date is too late) must wait until additional slots are made available in subsequent fiscal years.

The time required to obtain permanent residence for professional workers is measured in years. At best, it takes about 2 to 3 years. In the worst-case scenario (which is not limited to isolated cases), it may take 8 to 10 years.15 The steps and intervals are as follows:

14  

In cases where the position in question appears on a list of occupations considered in short supply by DOL (including nurses, physical therapists, and certain aliens of exceptional ability), an automatic labor certification is granted.

15  

While an H-1B visa holder is in the middle of the green-card process, he or she usually retains an H-1B status for both work authorization and travel purposes. If the H-1B visa expires first, a number of complex scenarios can play out. However, a detailed description of these scenarios is not relevant to this report.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.2 Per-Country Quotas

In general, the allocation of immigrant visas is controlled by a system of worldwide numerical limitation based upon country of origin and the chronological order of the date of filing a labor certification or immigrant visa petition, depending upon the requirements of the visa category. (This date is called the “priority date.”) As noted in the main text, the maximum quota for all employment-based immigration is 140,000 per year. About 70,000 of these visas are reserved for the two categories of professional workers requiring labor certifications.

In FY1998, the Immigration and Naturalization Service admitted fewer than 50,000 immigrants in these categories, but this number was artificially low due to severe delays (1 to 2 years) in processing adjustment-of-status applications; as INS begins to approve these delayed cases, and the increased numbers of H-1B workers admitted in FY1999 to FY2001 begin to apply for permanent resident status, the 50,000 figure will skyrocket, likely resulting in visa backlogs in these two visa categories.

Additionally, persons born in certain high-demand countries (such as India and China) also must contend with per-country limitations of less than 10,000 visas per country per year. Beginning in 1996 for India and 1997 for the People's Republic of China, per-country backlogs have resulted in visa waiting periods of 1½ to 3 years for Indian nationals and from 2 to 4 years for PRC nationals. In other words, even though there are 20,000 unused employment-based visas, a visa backlog arises in any year during which the demand for such visas from Indian or PRC nationals exceeds 10,000 per year (including the foreign worker's spouse and children). Whenever this occurs, visa applicants from these countries must wait until more visas become available in subsequent fiscal years before they can complete their quest for permanent residence.

  • Labor certification, 1/2 to 4 years;

  • Immigrant visa petition, 1/2 to 1 year;

  • Adjustment of status, 1 to 11/2 years; and

  • Delays due to per-country limits, 0 to 3 years.

Temporary Nonimmigrant Workers

The United States allows those on temporary visas to enter the United States for periods of limited, but varying, duration for a number of purposes, including employment, study, and tourism. These individuals are generically categorized as nonimmigrants because nonimmigrants, in contrast to immigrants, are not expected to remain in the United States permanently. Many nonimmigrant categories permit aliens to work while they are in the United States; such individuals are classified as temporary

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

nonimmigrant workers. For purposes of this report, the most significant nonimmigrant visa category is the H-1B visa. (Box 5.3 describes other important nonimmigrant visas.)

H-1B visas are available for a maximum of 6 years to foreign persons with skills in a “specialty occupation,” i.e., those that require both (a) theoretical and practical application of a body of highly specialized knowledge and (b) attainment of a bachelor's degree or higher (or its equivalent) in the specialized field as a minimum for entry into the occupation. Some of the fields included in “specialty occupation” include architecture, engineering, computer programming, accounting, medicine, teaching, and so on.

The theory underlying the H-1B program is that temporary workers play an important role in helping to meet workforce needs in times of labor market tightness. However, during slack labor markets, the presence of such workers can complicate efforts to ensure that qualified U.S. workers are able to find work. The time lines built into the H-1B program (6-year maximum, renewable once after 3 years) allow for a significant reduction in the H-1B workforce in 3 years (to 65,000 admitted per year, or a total of 390,000 H-1B visa holders in the steady state), assuming a concurrent decision to refrain from converting H-1Bs to permanent residency.16 Thus, in principle though perhaps not in practice, the program has a degree of built-in flexibility that policymakers can use to respond to serious recessions, during which labor markets tend to slacken.

Numbers of H-1B Visas and Workers The American Competitiveness and Workforce Improvement Act of 1998 (ACWIA) temporarily raised the level of temporary nonimmigrant H-1B visas from 65,000 (the cap level established in 1990) to 115,000 in FY1999 and FY2000, dropping it to 107,500 in FY2001, and then reverting to 65,000 in FY2002. Currently, proposed legislation would raise these caps again.

While data on H-1B visa holders are scarce, in February 2000 the INS released the results of a one-time study of H-1B visa holders,based on a random sampling of approximately 4,200 H-1B holders admittedduring the 15 months from May 1998 to July 1999.17 According to this survey, approximately 56.7 percent of H-1B visaholders were employed in occupations

16  

Note that under international commitments that the United States has formalized under the General Agreement on Trade in Services, the United States is barred from lowering the H-1B limit below 65,000. This commitment is expressed in the U.S. Schedule of Commitments and List of MFN Exemptions in the Final Texts of the Uruguay Round of Multinational Trade Negotiations, signed on April 15, 1994, in Marrakech, Morocco.

17  

U.S. Immigration and Naturalization Service. 2000. Characteristics of Specialty Occupation Workers (H-1B). Washington, D.C.: Immigration and Naturalization Service, February.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.3 Major Non-H-1B Nonimmigrant Visa Categories

“E” Treaty Traders and Investors

E visa holders enter the United States under the provisions of a specific treaty of commerce and navigation (or a bilateral investment treaty) between the United States and the alien's native country. An E-1 visa holder enters to engage in trade between the foreign country and the United States. An alien may also qualify as a treaty investor to develop and direct the operations of an enterprise in which he or she has invested, or of an enterprise in which he or she is actively in the process of investing a substantial amount of capital. The E category also allows certain key employees (executives, supervisors, and persons with essential skills) to enter in treaty-trader or treaty-investor status.

“F” Foreign Students

F visa holders are primarily undergraduate and graduate students at U.S. colleges and universities. After 1 year in F visa status, a foreign student becomes eligible for on-campus work or off-campus work if he or she can prove financial hardship, primarily in nonskilled positions. F-1 foreign students are also eligible for “practical training” during which they may work for a U.S. employer in the field of their studies, either in a work/study program or internship, during annual vacations, or after completion of a course of study.

“J” Exchange Visitors and Spouses

J visa holders include a wide variety of foreign nationals whose purposes in the United States range from students to trainees to summer camp counselors to au pairs. However, they are generally prohibited from remaining in the United States

that are explicitly computer-related (mostly in systems analysis and programming); an additional 4.9 percent were employed in “electrical and electronics engineering” occupations, and a significant fraction of these individuals certainly work in the IT field. H-1B visa holders in systems analysis and programming received a median wage, not including bonuses or benefits, of $47,000 (Table 5.1). Nearly half of all H-1B visa holders (47.5 percent) came from India, with 9.3 percent coming from China. As for formal education, 41 percent of all H-1B visa holders had post-baccalaureate degrees; of those employed as systems analysts and programmers, about 34 percent had a master's degree or higher. Finally,

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

beyond the period covered by their initial admission. Unlike F students, who can change status to H-1Bs and eventually to permanent residents, many J visa holders are required to return to their home countries for 2 years before they can return to the United States. In addition, the spouse and dependents of a J visa holder are permitted under certain circumstances to work in the United States, which is not true of the spouse and dependents of F visa holders.

“L” Intracompany Transferees

L visa holders have worked abroad for 1 continuous year within the preceding 3 years in an executive, managerial, or specialized knowledge capacity for a qualifying, related business entity and are transferred temporarily to the United States to work in an executive, managerial, or specialized knowledge capacity for a qualifying, related business entity. The limit on duration of stay is 5 years for the “specialized knowledge” category (i.e., employees with special knowledge of their firm's product, service, and/or research and their application in international markets) and 7 years for L-1 executives and managers. Spouses and children of L-1 visa holders are not allowed to work.

Trade-NAFTA Visas (“TN”)

TN visa holders are certain Canadian and Mexican nationals who can enter the United States under the “TN” nonimmigrant category. The major benefits of TN status to Canadian citizens otherwise eligible for H-1B visa status are the streamlined application procedures at ports of entry, the lack of any limit on the number of extensions of stay or applications for readmission, and the absence of a limit on the total number of TN admissions that may be granted. Restrictions on Mexican applicants for TN visas are more stringent.

60 percent of H-1B visa holders originated outside the United States, while 22.9 percent represented conversions from F-1 student visas.18

The committee's best estimate of the number of H-1B workers in the Category 1 IT workforce is about 255,000, or about 10 percent of the Category

18  

Note, however, that the data do not allow the determination of the share of “new” H-1B applicants who had previously studied in the United States, but had returned home prior to applying for an H-1B visa.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

TABLE 5.1 Characterization of H-1B Visa Holders in the United States, 1998

Fielda

Percentage in Field

Median Wage (not including bonuses or benefits)

Systems analysis and programming

53.3

$47,000

Electrical/electronic engineering

4.9

$54,000

Computer-related occupations, not elsewhere classified

3.4

$49,400

College and university education

3.0

$35,000

Accountants, auditors, and related occupations

2.8

$36,000

Architecture, engineering, surveying, not elsewhere classified

2.3

$51,000

Other

30.3

$40,000

Note on methodology: The INS took random samples of approximately 1,100 approved petitions from each of the four INS service enters (in Vermont, Texas, Nebraska, and California). All petitions were approved during the period from May 11, 1998, to July 31, 1999, and all were potentially recorded against the H-1B cap from FY 1999.

aField of H-1B worker is as indicated by the sponsoring employer on the Labor Condition Application.

SOURCE: Immigration and Naturalization Service. 2000. Characteristics of Specialty Occupation Workers (H-1B). Washington, D.C.: INS, February.

1 IT workforce.19 However, it cautions that this estimate is built on the assumptions of footnote 19 below as well as the premise that the fraction of recent H-1B visas that have been granted to IT workers has

19  

As indicated above, about 58 to 62 percent of H-1B visa holders work in Category 1 IT-related fields; for computational simplicity, the discussion below uses 60 percent. An estimate of the total number of H-1B visa holders in the United States is provided by the assumption that all H-1B visa holders remain in the United States for the full 6 years allowed by law, and that the cap on H-1B visa holders was exhausted in each year of the program's operation: this calculation (65,000 × 5 + 115,000 in FY 1998) yields 440,000 H-1B visa holders in the United States at this writing, a number consistent with the Lowell estimate of 425,000 (see, for example, Ellis, Richard, and B. Lindsay Lowell. 1999. “Foreign-Origin Persons in the U.S. Information Technology Workforce,” Report III of the IT Workforce Data Project. New York: United Engineering Foundation. Available online at <http://www.uefoundation.org>). Using the Lowell figure of 425,000 and an estimate of approximately 60 percent, an estimate of 255,000 H-1B visa holders working in the Category 1 IT professions is obtained. This figure, combined with the assumption of a Category 1 IT workforce of 2.5 million as discussed in Chapter 2, results in an estimate of about 10 percent as the fraction of the Category 1 IT workforce occupied by H-1B visa holders.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

been approximately the same throughout the life of the H-1B program. Because it is unlikely that employers of IT workers made greater use of the H-1B visa program in its earlier days than they do today, the estimate of 10 percent most likely represents an upper bound on this figure. H-1B workers may be directly employed by the firm that obtains the H-1B visa— the H-1B worker is paid by the firm for which he or she is doing the work. Or these workers may work for a third party—a personnel supply or business service firm—and perform services at a customer 's work site, as described in Box 5.4.

Obtaining an H-1B Visa A U.S. employer seeking to fill a position with an H-1B worker must satisfy requirements of the Department of Labor and the Immigration and Naturalization Service. When the worker applies for a travel visa to enter or reenter the United States in H-1B status, engagement with the Department of State is necessary as well. With the DOL, all employers must file a labor condition application (LCA), on which they must attest that the H-1B worker will be paid the higher of the actual wage at the employer's work site or the prevailing wage for the particular position in the geographic area, that the working conditions of U.S. workers similarly employed will not be adversely affected, and that there is no strike or lockout. Further, the employer must post a notice of the need for an H-1B worker for other employees to review. (Box 5.5 describes other worker protections as well as additional LCA requirements targeted at employers whose workforce contains a significant fraction of H-1B workers.) Employers are required by law to offer H-1B workers benefits (health and other forms of insurance, retirement and savings plans, bonuses, and stock options) on the same basis as they are offered to U.S. workers. Once it has reviewed the LCA, DOL “certifies ” it and returns it to the employer for the next step in the process. 20

The second step is for the employer to submit the LCA (certified by DOL) along with a more detailed petition sponsoring a specific individual to the INS. The petitioner must be a U.S. employer or a U.S. branch or subsidiary of a foreign employer, and the job may be either a temporary position or a permanent position that is filled on a temporary basis. At this stage of processing, employers must submit substantial documentation regarding the potential worker' s education and accomplishments. A fee of $610 is required, which must be paid by the employer, not the alien.

20  

On one LCA an employer can obtain certification for hiring several potential H-1Bs into several potential positions. Further, at this point, the employer need not have identified a specific individual he or she would like to hire.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.4 Different Business Models for Third-party Use of Nonimmigrant Foreign Labor

Personnel Supply Firms

Personnel supply firms (PSFs) provide temporary labor to their client firms. Though the workers that the PSF supply to a client firm formally work under the supervision of a PSF manager, the client firm provides overall direction for those workers. Billing of the client company by the PSF is almost always by the hour (i.e., for the worker's time rather than for a product or for performance). Sometimes, small, discrete projects are given to a PSF (which might then use one or more of its workers to perform the work), but such projects would typically be done on the premises of the client, and under the overall direction of the client. Firms providing temporary labor for IT are more logically classified as employment agencies and help-supply agencies (e.g., like Manpower or Kelly services) rather than as software producers. This characterization of PSFs holds true whether the firm employs domestic or foreign workers.

PSFs have strong economic incentives to pay any given worker a lower salary than s/he might otherwise receive, while charging the client firm a rate more reflective of that individual's true skills and abilities. By doing so, the firm increases its profit margin. A PSF that employs H-1B workers is required to pay them the higher of the actual wage paid to other similarly qualified employees of the PSF at the work site (typically, the customer's place of business) or the prevailing wage for the position in question.

Demand for temporary services in IT has grown because of tightness in the IT workforce. As a result, the demand for workers willing to accept the economic realities described above (perhaps in exchange for a variety of other benefits) has increased—and this category includes nonimmigrant foreign IT workers from nations in which prevailing wages are low.

Firms that supply temporary labor appear to fall into two separate market niches. One niche involves providing low-cost labor. In this niche, temporary staff firms are more likely to employ workers at below-market rates, have less favorable working conditions, and attract workers with lower skill levels as compared to those provided by firms in the second niche. Firms in the second niche provide temporary IT staffing with more highly skilled, high-quality workers who have the potential to be permanent workers or who could conduct their work at a level closely comparable to the firms' own staff. Client firms establish long-term relationships with these temporary firms because they can provide consistently good-quality and reliable workers in sufficient numbers.

At its public meetings, the committee heard substantial oral testimony about firms that allegedly violated the terms of the H-1B program by paying H-1B workers at a level that undercut the salaries of domestic workers. Without detailed information about the specific employers involved, it is not possible to determine if these charges are true or to identify with certainty the niche into which any particular firm whose compensation practices were challenged may fall, but the economic incentives suggest that it is more likely that they fall into the first niche described above. Because firms in the second niche often serve a recruiting function for U.S. clients, it seems less likely that such firms would pay workers far below market rates. In fact, a number of U.S. client firms reported that when they wanted to hire the temporary workers permanently, a nontrivial number of the temporary workers

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

refused because they were making higher wages as temporary workers. This is not to say that U.S. clients do not take advantage of whatever lower costs the firms in the second niche can lawfully provide—but as a rule, lower costs do not appear to be the sole or primary factor in use of this temporary staff.

Business Service Firms

Business service firms (BSFs) provide IT services that clients wish to outsource (e.g., running a computer room, involving mostly hardware and operating systems maintenance, or LAN administration or PC maintenance). They also provide software maintenance and supplemental staffing for projects, although the latter would tend to be defined more by project area than by job. They might also provide consulting services, such as SAP implementation. And they may undertake the development of software products specifically customized for their clients.

A number of these firms have strong foreign ties. One rationale for the existence of firms with such ties is that they can offer their services to U.S. clients at substantially lower cost than would be charged by U.S.-only firms. These firms take advantage of lower wage structures available abroad (e.g., in Asia) to do the bulk of the necessary development work. However, because substantial interaction is required to understand client needs and requirements, it makes a great deal of sense to establish a U.S. presence through which ongoing contact, requirements analysis, testing, and liaison functions can be done in direct, physical contact with the client at the client site, while design, programming, testing, documentation, and other functions can be done abroad. Firms using this model find that a substantial amount of total project effort can be done in this manner.

To use the BSF model for H-1B workers, a U.S. employer is needed. In some cases, the U.S. employer is the parent firm, which subcontracts work to a foreign IT firm or subsidiary in, for example, India. In other cases, it is the Indian firm that is the parent, which then establishes a U.S. subsidiary to serve as the U.S. employer of record. In any event, because of the need to translate requirements into specifications that can be fed into the development process, there is a high premium on selecting for work in the United States individuals who are compatible with those abroad. Under these circumstances, it is understandable that the U.S. employer would try to use individuals from the foreign nation to perform the interface function—and these individuals are often nonimmigrant foreign workers on H-1B visas in the United States.

Payments to these U.S. employers are for practical purposes part of the fee that the U.S. client pays to the consulting or custom development firm. Because their primary goal is to provide IT products and services, these firms have less incentive to underpay workers relative to their talents compared to firms whose role is solely to provide labor. In particular, their incentives seem to be no higher or lower than those of any other IT-sector or IT-intensive firm in the United States to use nonimmigrant foreign labor.

Note that ACWIA includes several new LCA requirements designed to eliminate economic incentives for personnel supply or business service firms, and other firms that rely heavily on H-1B workers, to hire foreign born workers. These requirements are listed in the second half of Box 5.5.

SOURCE: The description of PSFs and BSFs is based largely on Salzman(Salzman, Hal, with Radha Roy Biswas, University of Massachusetts-Lowell,“The Indian IT Industry and Workforce,” commissioned paper prepared for the Committee on Workforce Needsin Information Technology, March 2000).

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.5 Additional Requirements of the H-1B Program

In addition to the requirements described in the main text, there are three other requirements levied on all employers of H-1B visa holders:

  • If an H-1B nonimmigrant is dismissed before the end of the period of authorized stay, the employer is liable for the reasonable costs of the beneficiary's return transportation “abroad,” i.e., to the beneficiary's last place of foreign residence. Any dismissal is covered, including one for cause. The exception is that when the beneficiary voluntarily terminates employment; the individual is then responsible for his or her own return travel costs.

  • An H-1B employer cannot impose a financial penalty on an H-1B employee who chooses to leave his or her position prior to an agreed date. This provision is designed to ensure that employees are free to terminate their employment if they so choose. (Employers found guilty of imposing such a penalty are subject to a $1,000 fine.)

  • However, employers are permitted to collect liquidated damages under state law provisions that permit the parties to agree by contract for the payment of liquidated damages in the event one party breaches, but only if the H-1B employer and the H-1B worker are parties to a contract authorizing same.

  • Employers cannot fail to pay an H-1B worker who is in nonproductive status due to the lack of work or the lack of a permit or license for the alien. This “nobenching” provision was intended to discourage the hiring of foreign professionals for speculative employment by requiring the continued payment of wages and benefits even when the work does not materialize and the employee remains available for work.

Further, additional requirements are placed on “H-1B-dependent” employers:1 These requirements—adopted in 1998 in the ACWIA—include:2

Of that fee, $500 goes primarily for education and training programs for U.S. workers and for enforcement purposes. 21

21  

Specifically, of the $500, 56.3 percent is for DOL demonstration programs and projects described in section 414(c) of the American Competitiveness and Workforce Improvement Act of 1998; 28.2 percent is for National Science Foundation scholarships aimed at low-income students enrolled in a program of study leading to a degree in mathematics, engineering, or computer science; 4 percent is for National Science Foundation grants for programs that provide opportunities for enrollment in year-round academic enrichment courses in mathematics, engineering, or science; 4 percent is for National Science Foundation systemic reform activities; 1.5 percent is for DOJ actions to decrease the processing time for petitions made for nonimmigrants; and 6 percent is for DOL action in reducing processing times for various applications related to the use of foreign labor in the United States.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
  • A “no-layoff” provision under which the employer must promise that in hiring H-1B workers, it is not laying off a U.S. worker from a job that is “ essentially the equivalent” of the job for which the H-1B worker is being hired. U.S. firms that place an H-1B worker at a third-party work site “where there are indicia of an employment relationship” (including PSFs that fit into the second niche described in Box 5.4) also must determine that their customers have not and will not lay off any workers in equivalent positions.3

  • A “prior recruitment” provision under which the employer must promise that it has taken good-faith steps to recruit for the position in the United States using industry-wide standard practices, and has offered the job to any U.S. worker who applies and is equally or better qualified than the H-1B worker.4

1  

Under ACWIA, an H-1B-dependent employer is one who has (a) 25 or fewer full-time equivalent (FTE) employees employed in the United States and employs more than 7 H-1B non-immigrants, (b) 26 to 50 FTEs employed in the United States and employs more than 12 H-1B nonimmigrants, or (c) 51 or more FTEs employed in the United States and employs H-1B nonimmigrants as 15 percent or more of the number of FTEs.

2  

In testimony to the committee, a number of individuals asserted personal knowledge of business practices that these provisions are intended to prevent. However, because these provisions do not go into effect until after both DOL and the INS have issued final regulations implementing ACWIA, there is not yet any indication of their effectiveness in addressing such business practices to the extent that they exist. And while INS issued final regulations on February 29, 2000 (see Fed. Regist. 65:10678), DOL but has yet to issue a final rule (although it issued proposed rules on January 5, 1999; see Fed. Regist. 64:627).

3  

In addition, ACWIA provides for strict liability on the part of the H-1B employer if the customer (i.e., the company in control of the worksite) proceeds to displace a U.S. worker or has actually displaced a worker before the date of placement.

4  

Initially, the employer determines qualifications but ACWIA allows any U.S worker who applied and was rejected to file a complaint with the attorney general to allege that he or she was rejected in favor of a less-qualified foreign worker.

After the INS approves the petition, one of two things may happen. If the alien is already in the United States (e.g., under a student visa), the INS can also approve a change of status from the former visa to an H-1B. If the alien is outside the United States, the approved H-1B petition is forwarded to an American consulate post near the alien's foreign residence, where the alien makes formal application for an H-1B visa. Upon receipt, the consulate reviews the final application for the H-1B visa and

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

may schedule an interview with the worker.22 And, even if the consular officer issues the applicant an H-1B visa, INS airport or land-border inspectors must then make the final determination of H-1B admission.

As a general rule, H-1B approvals are available within a few months from the date of filing the LCA.23 DOL action on an LCA is required by statute to occur within 7 days of filing, and INS review of the H-1B petition (and change of status application when appropriate) typically takes 10 to 12 weeks. Finally, if the H-1B worker is outside the United States, it may take an additional week or two to obtain an H-1B visa from a U.S. consulate.

Once the H-1B worker is admitted to the United States, he or she must work solely for the sponsoring employer of record. H-1B workers may change employers freely as a matter of law, although the new sponsoring employer must file an amended petition with the INS, accompanied by a new LCA (certified by DOL).

5.2.3 Issues Regarding the Foreign Worker Programs24
The Permanent Residence Program

Although a detailed analysis of the permanent residence program is beyond the scope of this report,25 there are at least two significant consequences to extremely slow processing times for green cards:

22  

Unlike applicants for many other nonimmigrant categories, applicants for H-1B visas (and L visas) are not required to prove that they have strong ties that would motivate them ultimately to return to their home countries.

23  

However, if the cap has been reached, an additional delay is incurred. In the past 3 fiscal years, the H-1B cap was reached several months before the end of the fiscal year, and employers were unable to hire foreign workers under H-1B status until visa numbers became available again on October 1 (the start of the new fiscal year).

24  

Critics of programs to bring foreign workers (both temporary and permanent) often cite a DOL inspector general report issued in 1996 (Joseph Fisch, DOL Assistant Inspector General for Audit, The Department of Labor's Foreign Labor Certification Programs: The System Is Broken and Needs to Be Fixed, Final Report No. 06-96-002-03-321). This report concluded that the permanent labor certification (for permanent residents) and the labor condition application (for H-1B visas) programs were not meeting their legislative intent. This report itself generated some criticism, based on assertions that the DOL IG report misunderstood congressional intent for both the permanent and the temporary programs, and that it made inferences without considering certain relevant evidence (see, for example, Anderson, Stuart. 1996. “Widespread Abuse of H-1Bs and Employment-Based Immigration: The Evidence Says Otherwise, ” 73 Interpreter Releases 637 (May 13). Also, Bell, Steven. 1997. Analysis/Rebuttal of DOL Inspector General Report. Washington, D.C.: NAFSA, Association of International Educators. Executive Summary available online at <http://www.ailf.org/global/clearing/110499a.htm>).

25  

For a critique of labor certification, see Papademetriou, Demetrious, and Stephen Yale-Loehr, 1996, Balancing Interests: Rethinking U.S. Selection of Skilled Immigrants, Carnegie Endowment for International Peace, pp. 48-70 (labor certification fails to perform its intended function of protecting U.S. workers) and 101-113 (labor certification is inherently flawed and should be abolished).

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
  • Many employers with immediate job openings who testified to the committee reported that they are unable to use the green-card process to hire foreign workers, because a time scale of years for putting someone to work is not responsive to the demands of the IT market. As a result, they have turned to the H-1B process, which allows them to put a foreign worker on the job in as little as 10 to 12 weeks.

  • H-1B visa holders whom an employer sponsors for a green card are, for the most part, unable to change employers without restarting the green-card process. Because the H-1B visa is limited to 6 years, H-1B holders who change employers run a significant risk that their visas will expire before the green-card process is completed. They are thus “indentured” to their original employer to a large extent. This point was made on several occasions to the committee during open testimony.

Partly for these reasons, employers, foreign nationals, and many advocates for domestic labor dislike the labor certification program. Employers dislike it because the labor certification processing is inefficient, inconsistent, overly bureaucratic, and in some instances fails to reflect real-world recruitment and hiring practices. More specifically, it forces some employers who have hired H-1B workers through their normal recruitment process to engage in “post-hiring ” recruitment of U.S. workers for labor certification, particularly when the employer's “prehiring” recruitment does not satisfy DOL's recruitment requirements.26 Foreign nationals dislike it because the process is so lengthy (often 3 years or longer in some areas of the country) and prevents them (on pain of having to begin the process all over again) from changing employers or even taking on significantly different assignments with the same employer until the labor certification is approved and they receive a green card. Advocates for domestic labor dislike it because they are skeptical about the aims of the program, its fairness to American workers, and the ability of DOL to administer the program given its budget and resulting lack of staff.

The H-1B Visa Program

It is uncontested that the H-1B program is popular among employers,

26  

In recent years, DOL has promulgated a “reduction in recruitment” (RIR) process that is intended to take into account recruitment practices normal to industry today, and thus to reduce the time needed to process labor certifications.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

although many IT workers are more critical. This section reviews the claims of both sides of the debate and then discusses a few key issues regarding the program.

The Employer Perspective Employers argue primarily that they need foreign labor because of difficulties recruiting qualified U.S. workers. And, as discussed above, they seek primarily H-1B visas because they cannot wait the years that it takes to obtain a green card for foreign workers. Another reported reason that employers support the H-1B program is that it allows them to obtain workers with better qualifications for the same job. For example, a common path to employment as an H-1B worker in IT is for the H-1B worker to first obtain an undergraduate degree in his or her home country and then come to the United States for a master's degree, after which the individual's visa is converted from an F student visa to an H-1B worker visa. Interviews conducted for the committee27 with several hiring managers resulted in the observation that these managers often see foreign nationals with master's degrees from U.S. universities in applicant pools consisting primarily of domestic workers with bachelor's degrees.

Despite these advantages to hiring foreign workers through the H-1B program, employers—especially smaller employers—also argue that hiring foreign workers entails substantial costs, such as fees for lawyers, visa fees, higher relocation costs, and associated difficulties with “visa maintenance.” These costs are often better managed by larger companies that are able to create procedures and expertise to minimize such overhead.28 Further, employers argue that the H-1B application process entails delays and uncertainties that are not present when a domestic worker is hired. As a result, many employers—large and small—argue that all else being equal (equal pay, equal qualifications), they would prefer to hire domestic workers and only choose to hire foreign workers when the benefits outweigh the costs.

The Worker Perspective H-1B critics essentially deny (or at least minimize) a significant need for foreign labor, arguing that there are sufficient

27  

Salzman, Hal, with Radha Roy Biswas, University of Massachusetts-Lowell, “The Indian IT Industry and Workforce,” commissioned paper prepared for the Committee on Workforce Needs in Information Technology, March 2000.

28  

Employers also highlight that those who violate the terms of the H-1B program (e.g., by failing to pay the required wages and/or benefits) face serious penalties including not only fines but also debarment from filing future employment-based immigrant or nonimmigrant visa petitions for up to 3 years, which is a strong disincentive for many employers against engaging in proscribed conduct.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

domestic IT workers to meet employer needs if employers will broaden their recruiting to underrepresented groups (e.g., minorities and women), older workers, and those workers who with little retraining could obtain the necessary skills. They further assert that the use of H-1B workers undermines the status and bargaining position of U.S. workers for several reasons.

First, many critics argue that some of the requirements of the H-1B program are poorly enforced (e.g., those requiring the payment of prevailing wages to H-1B workers). In particular, critics note that by law, DOL may review the LCA only for accuracy and completeness; it may not initiate investigations unless a complaint is filed against the employer.29 Because of DOL's limited authority, critics argue that it is relatively “easy” for employers to violate one or more of the program's requirements, creating the opportunity for significant financial incentive to employ H-1B workers.

Critics also argue that this financial incentive extends beyond the salary level. In particular, they argue that even if the foreign workers are paid the same salary as domestic workers, foreign workers may be more willing than domestic workers to work long hours, especially if they do not bring their families with them. Critics also point to impediments in the H-1B worker's mobility in the labor force—something they regard as an “indenture.” As noted above, an H-1B worker seeking permanent resident status (and these individuals are numerous) is reluctant to change employers because doing so is likely to invalidate all previous efforts and waiting time spent on processing his application for permanent residency. If the worker leaves the employer and has to begin the process all over again with a second employer, the process may not be finished before the worker is forced to leave the country at the expiration of his H-1B status.30 (Box 5.6 illustrates a hypothetical scenario.) Further, some H-1B workers are subject to the payment of liquidated damages, which may be substantial enough to provide a disincentive for leaving one's original sponsoring employer. (Unfortunately, there are no data available on the extent to which H-1B visa holders change employers.) Because of these impediments to mobility, an employer may have greater latitude in its treatment of these individuals than it would have in dealing with domestic workers, and thus may well prefer to hire such individuals when there is a choice.

29  

Section 413(e) of ACWIA gives DOL authority to investigate an employer without a complaint having been filed if DOL receives “specific, credible” information from a source who is likely to have knowledge of an employer's practices regarding employment conditions or an employer's compliance with the employer's labor condition application.

30  

In addition, the H-1B worker must find a second employer before he leaves the first employer, or else he faces the risk of deportation for violating the terms of the visa.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.6 A Plausible Scenario for How the H-1B Visa Holder's Dilemma Arises

Assume that Company A employs K, an Indian national, as a software engineer under H-1B status. K is anxious for Company A to file his labor certification because (a) the date of filing establishes his priority date and (b) per-country limits have created severe backlogs for persons born in India, making an early priority date of the utmost importance to K if he is to complete the steps for obtaining permanent resident status before his H-1B visa status expires.

In order to employ K on a permanent basis, Company A must first obtain a labor certification of a particular job, with specific duties and skill requirements, at a prevailing wage that is appropriate for the particular time and place of employment. Company A begins the labor certification process, but K soon realizes that neither his job nor his salary nor his future prospects are satisfactory to him. If K changes jobs prior to approval of the labor certification, however, its continued validity is questionable. Although DOL permits “substitution ” of a new employer on the labor certification, substitution must occur before a final determination of the labor certification and the new job must be essentially the same in its duties, requirements, and salary as the previous job with Company A. Because these conditions are rarely met, and DOL rarely approves such substitutions, K risks forfeiting his priority date and having to restart the labor certification process if he accepts an otherwise more attractive job offer from Company B.

If K has an approved labor certification, he may also be reluctant to change jobs for two reasons. First, even if Company B agrees to sponsor him for a green card, there is no guarantee that a new labor certification will be successful; second, even if it is successful, he may not complete all three steps in his new case (labor certification, immigrant visa petition processing, and adjustment of status) prior to the expiration of his H-1B status. Again, DOL rules permit K to preserve the priority date of his labor certification with Company A, but only if his new job is in the same metropolitan area (thereby ensuring that the prevailing wage for the job with Company A is still valid for the new job with Company B). Of course, if the specific job opportunity with Company A becomes unavailable (because Company A has gone out of business, moved to a new location, or withdrawn the job offer), the previously approved labor certification is rendered invalid.

These complex rules for determining the continued validity of a labor certification pose a dilemma for K: If he remains at his current job, his employer may take advantage of the fact that his mobility is very limited; if he leaves and has to begin all over again, he may not finish in time to avoid leaving the country at the expiration of his H-1B status. Even changes in his job duties with Company A may jeopardize his chances of obtaining permanent residence (because INS rules require K to be performing the job duties described in the approved labor certification at the time he applies for adjustment of status, while DOL rules generally make it difficult if not impossible to amend the job requirements in an approved labor certification).

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

Third, according to interviews with H-1B employers conducted for the committee,31 some foreign workers—especially from Asia—are willing to take jobs entailing work “below their qualifications” as a means of entry into the United States because the pay in such jobs is better than that in jobs available in their home countries. Thus, to the extent that foreign applicants for a given job bring better (more advanced) credentials than do their domestic counterparts, the foreign applicant has a natural advantage.

Fourth, critics assert that without a ready supply of foreign workers, employers would be forced to make greater use of the existing domestic labor pool by increasing salaries, training opportunities, and other aspects of job compensation and “attractiveness.” This argument has been especially focused on the available pool of older IT workers.32

Discussion As should be clear from the two perspectives on the program, a key question in the debate is whether employers have a financial incentive to employ H-1B workers rather than domestic workers. Unfortunately, the evidence on this point is mixed, and the data poor. For example, based on interviews with some H-1B employers, Salzman reported that H-1B workers in jobs requiring lower levels of IT skill received lower wages, less senior job titles, smaller signing bonuses, and smaller pay and compensation increases than would be typical for the work they actually did.33 However, it is unclear whether these employers are representative of all IT employers. Similarly, while violations of existing law governing the employment of H-1B workers (such as payment of the prevailing wage) obviously happen to some degree, the number of documented violations is small.34

31  

Salzman, 2000, “The Indian IT Industry and Workforce,” commissioned paper.

32  

See, for example, Matloff, Norman. 2000. Debunking the Myth of a Desperate Software Labor Shortage, University of California at Davis, April 8. Available online at <http://heather.cs.ucdavis.edu/itaa.real.html>.

33  

Salzman, 2000, “The Indian IT Industry and Workforce,” commissioned paper.

34  

Since FY 1992, when DOL was first assigned the responsibility for investigating alleged violations of the H-1B program, through the end of FY 1999, the agency (per its own data) handled 448 complaints, commenced 304 investigations, and closed out 159 cases. Of the 159 completed investigations, 134 of them resulted in a finding of a violation; 25 involved no violations. Since the inception of DOL 's H-1B oversight, 15 employers have been statutorily debarred for at least a 1-year period from obtaining employment-based nonimmigrant work visas and sponsoring workers for permanent resident status. An additional 12 employers agreed in consent decrees to a period of voluntary debarment. During this 7-year period (FY1992 to FY1999), the agency ordered repayment of back wages in 107 cases totaling $2,667,880 (or a cumulative average of $381,125 per year or a per employee average of $3,675) and required payment of civil monetary penalties of $221,250 (a cumulative yearly average of $31,607). During this 7-year period, the INS approved 409,834 H-1B visa petitions. Thus, documented violations do not provide evidence that large numbers of H-1B employers have failed to maintain compliance with LCA requirements. The magnitude and the extent of undocumented violations are unknown.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

That said, it is the judgment of the committee that direct employers of H-1B visa holders—especially large ones—are probably less likely than others to violate the laws and regulations that govern the H-1B program. The reason is that large employers are likely to have the internal human resources expertise to directly manage H-1B workers in their companies in a manner consistent with their corporate values and with the law.

However, employers may also turn to outside personnel service firms such as those described in Box 5.4 to meet needs for temporary labor. And firms providing temporary labor have strong economic incentives to pay any given worker a lower salary than s/he might otherwise receive, while charging the client firm a rate more reflective of that individual's true skills and abilities. By doing so, the firm's profit margin increases. As demand for temporary services in IT has grown (because of tightness in the IT workforce), the demand for workers willing to accept lower wages (perhaps in exchange for a variety of other benefits) has increased —and this category includes nonimmigrant foreign IT workers from nations in which prevailing wages are low. These forces imply that these outside personnel service firms have a greater incentive to violate the law regarding the payment of prevailing wages than do firms that hire H-1B workers directly.35

A second key question in the debate over the H-1B program is what would happen in its absence. The committee believes that the number of H-1B workers in the Category 1 IT workforce is large enough that without these workers there would likely be a slowdown in the rate of growth in the IT sector.

A related issue is the effect of the program on the wages (or more generally, compensation, which includes benefits as well) and employment of domestic workers. In theory, even if all employers did comply with the law, the hiring of H-1B workers could have an effect on wages. To see this, assume that an employer—seeking to comply with the law—does in fact offer an H1-B worker the same wage that it pays for a domestic worker doing the same job. On the face of it, such an action both complies with the law and is regarded as “fair” treatment. (Another reason for paying comparable wages rather than higher ones —whether to

35  

These incentives are greatest for such firms without a “brand” that could lose value if the schemes are uncovered. Well-established personnel firms are less likely to violate the law than are “fly-by-night ” firms that can easily operate under a variety of corporate identities.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

incoming domestic workers or to foreign workers—is that they may well influence the wages that must be paid to others in the firm.)

However, if the H-1B worker were not available, the employer would have to seek a domestic worker. Under tight labor market conditions, the employer might well have to offer a domestic worker wages or hours or conditions of employment that are better than those for others in the company. If so, the effect of the H1-B program is not necessarily to depress wages and working conditions but rather to keep them from rising as rapidly as they would if the program did not exist.

Unfortunately, the magnitude of such an effect is hard to estimate with confidence. In a study of the economic impact of immigrants, the National Research Council used an empirically based elasticity of demand for labor of about 0.3, suggesting that a 10 percent increase in the size of the labor force would result in the wage of competing workers being reduced by about 3 percent below what it would have been in the absence of that labor pool increase.36 However, this estimate is based primarily on studies that have focused on all foreign-born individuals and not only “highly skilled” foreign workers, such as those with H-1B visas. As such, the committee has not found sufficient evidence on the magnitude of wage and employment effects to make a judgment about the effects of the program on domestic IT workers.

This discussion also highlights the fact that the committee has not found an analytical basis on which to determine the optimal number of H-1B visas. Without such a basis, decisions to reduce or increase the cap on H-1B visas are fundamentally political, and outcomes in such a process depend primarily on political balances of power. That said, the committee notes that an increased number of H-1B visas will likely result in future additional pressure on the already beleaguered permanent immigration program unless Congress also adjusts the various numerical limits on permanent residents.

Table 5.2 summarizes the various pros and cons of changing the level of H-1B visas.

5.3 AVAILABILITY OF FOREIGN IT WORKERS TO U.S. FIRMS

U.S. firms can use foreign IT workers in two ways: they can be brought to the United States (in which case other nations can compete for their services), or they can be used in their home nations.

36  

See National Research Council. 1997. The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Smith, James P., and Barry Edmonston, eds. Washington, D.C.: National Academy Press.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

TABLE 5.2 Pros and Cons of Changes to H-1B Levels

 

Reduced H-1B Levels

Increased H-1B Levels

Pros

  • Encourages effective use of U.S. workers, raising skill levels through training

  • Boosts wages for employees

  • Provides immediate relief for labor market tightness

  • Allows more rapid growth of IT sector

  • Dampens wage costs for employers

  • Increases supply of IT workers

Cons

  • Opportunities lost, growth forgone

  • Increased wage costs for employers

  • Possibility that work may be exported

  • Dampens wage growth for employees

  • Sends potentially wrong messages to workers and educational establishments

  • In case of recession, could lead to unemployment and repatriation problems

  • Increases demand for permanent visas

5.3.1 Competition for Foreign Workers

The United States is not the only nation with a strong IT sector, and demand for overseas IT workers is expected to increase as other developed countries face tightness problems in their IT labor markets. Germany has established an allocation of 10,000 “green cards” for highly qualified immigrants from outside the European Union as part of its efforts to relax restrictions on the use of nonindigenous IT talent.37 Japan plans to hire up to 10,000 Indian software engineers to meet a shortage of qualified IT workers.38 In the United Kingdom, the government is looking to initiate a new immigration policy to help end skill shortages in the U.K. economy, signaling a break with the “closed-door” policy on economic immigrants in place since the early 1970s.39

Furthermore, the IT industries of the countries from which these workers come are also growing. Particularly important in this context is

37  

See Tagliabue, John, 2000, “Sprechen Sie Technology? Europeans Try to Relax Borders for Skilled Workers,” New York Times, May 5, Business Section, p.1 ; Bröll, Claudia, 2000, “Indonesia Technician Accepts Green Card,” Frankfurter Allgemeine, July 31.

38  

“Japan to Hire 10,000 Indian Software Engineers,” Times of India, May 16, 2000.

39  

Adams, Christopher, and Rosemary Bennett. 2000. “Immigrant Policy Aims to Close Skills Gap,” Financial Times, August 11.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

the Indian IT industry, given that about half of the H-1B visas for IT are held by Indian nationals. According to the initial findings of a study by the National Association of Software and Service Companies (NASSCOM), 340,000 software professionals were employed in the Indian software and services industry in March 2000, more than double the number employed 3 years before.40 Despite expectations of strong growth in the Indian software industry, the study predicts no shortage of skilled IT workers in India until 2002-2003, when the IT labor market there will become very tight unless immediate steps are taken by the Indian government and the Indian software industry.

Growth in the IT industries abroad and the accompanying competition for talent from nations such as India may restrict the supply of foreign workers to the United States. Of course, because the trajectory of future demand for foreign IT workers here and abroad is unknown, as is that of production rates of qualified foreign IT workers, this outcome is by no means a certainty.

5.3.2 Locating IT Work Abroad

Another way for U.S. firms to use foreign IT talent is to locate work abroad. One approach is for a U.S. firm to outsource work to foreign IT companies or to give it to a foreign subsidiary. For example, a U.S. IT-intensive company may contract with a foreign IT firm to develop a needed business system. A U.S. IT-sector company may contract with a foreign IT firm to handle product testing or documentation or even program coding.

A second approach is for a U.S. firm to establish its own presence (e.g., through a subsidiary) in a foreign land. In some instances, companies establish a foreign presence in order to be closer to customers and more in touch with their needs and to develop new products for a wider audience (i.e., products that are not targeted just to U.S. customers). Often, marketing to foreign countries is more effectively undertaken with local presence. And, sales, support, and servicing are much easier through local offices. A U.S. firm might establish an R&D laboratory near foreign centers of excellence, so as to monitor technological developments occurring in the host nation and to tap into the expertise that would now be local and develop familiarity with new science and technology.41

40  

“NASSCOM for Immediate Action to Increase Supply of Knowledge Workers, ” NASSCOM press release, New Delhi, April 17, 2000.

41  

According to the U.S. Department of Commerce, the IT industry is less likely, on average, than other R&D-intensive industries to carry out R&D abroad. When the intensity of R&D globalization is defined as the ratio of foreign to domestic R&D spending by U.S. companies, the industry with the highest level of R&D globalization is drugs and medicines (globalization ratio = 33 percent). The computer (ratio = 4.2) and electronic/electrical equipment (ratio = 5.6) industries have the lowest levels of R& D globalization. (See Dalton, Donald H., and Manual G. Serapio. 1999. Globalizing Industrial Research and Development. Washington, D.C.: U.S. Department of Commerce, Technology Administration, Office of Technology Policy.) Nevertheless, a number of major U.S. IT firms have R&D labs abroad; these firms include Microsoft, Intel, IBM, and Hewlett-Packard.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

Or a firm that wishes to develop a new product line may locate work abroad because of opportunities afforded by its relative isolation—such isolation may help to insulate the unit undertaking the development from “cultural” dimensions extant in the mother firm's U.S. locations that are incompatible with developing the new product line.42 At other times, U.S. investment in overseas locations is part of a large package that a U.S. company has negotiated with a foreign country. For example, a U.S. company might agree to locate a facility in another nation as part of a sales agreement with that nation. A foreign facility might be established to reduce costs (e.g., through the use of cheaper labor, or by taking advantage of subsidies or incentives provided by the foreign host nation, or by overcoming locally imposed tariff barriers). Finally, the public relations value of being seen as a “local” company and the intellectual opportunities to collaborate in foreign research consortia should not be underestimated. 43

Box 5.7 provides some historical perspective on overseas investment.

For U.S. employers that wish to take advantage of lower foreign labor costs (which may be lower by factors of 3 and 4 in certain Asian countries), locating work abroad is the most effective approach to doing so. In some cases, a firm may move abroad to take advantage of a greater certainty in the rapid availability of qualified IT workers. On the other hand, locating work abroad can have many costs. When work can be cleanly partitioned from other work so as to minimize communication between parties doing each type of work, location abroad is likely to be successful. But when large amounts of communication are needed, location abroad becomes much more problematic.44

42  

For example, a firm may have an engineering culture that values high performance and sophistication, with cost being a relatively secondary issue. If that firm wishes to develop products that are less expensive, it may well make sense to conduct the development of such products in an environment where that culture is not operative—which may call for geographical separation.

43  

More discussion of these rationales can be found in Dalton and Serapio, 1999, Globalizing Industrial Research and Development.

44  

Some of the following is discussed in greater detail in Callan, B., S. Costigan, and K. Keller. 1998. Exporting U.S. High Tech: Facts and Fiction about the Globalization of Industrial R&D, Study Group Report. Washington, D.C.: Council on Foreign Relations.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.7 Investment Abroad by the IT Industry

An Early 1990s Perspective1

Foreign Facilities

“The globalization of the [IT] industry also is reflected by generally increasing foreign direct investment by all U.S. computer hardware manufacturers except supercomputer firms, which remain firmly placed in the United States. U.S. firms' cumulative foreign direct investment in computer-related facilities stood at $20.6 billion in 1991. By positioning facilities near foreign customers, companies improve customer service and reduce transportation costs on increasingly price-sensitive goods.

“U.S. foreign direct investment likely will continue to expand in the future because some foreign markets are growing more rapidly than the U.S. market. Between 1988 and 1991, for example, the average annual growth rates of Asian and European computer markets consistently exceeded 10 percent, compared with average annual growth rates of less than 5 percent over the same period in the United States. Customers outside the United States now account for 65 percent of global computer purchases.

“Although small by comparison, foreign firms' direct investment in the United States has been growing at a relatively steady pace as these companies pursue advanced technologies and research facilities in this country. Foreign firms' cumulative direct investment in the U.S. computer industry totaled $2.9 billion in 1991.”

Strategic Alliances

“Joint ventures, collaborative research programs, and formal technological alliances involving U.S. and foreign computer hardware manufacturers have proliferated in recent years. In many instances, U.S. firms have allied themselves with foreign competitors. One of the primary reasons for establishing a cooperative alliance is to share the costs and risks associated with research and product development. Companies competing within the same product segment occasionally form alliances to conduct precompetitive research. For example, IBM has formed a joint research venture with Toshiba and Siemens-Nixdorf to develop a new generation of memory chips. In other cases, companies look beyond their immediate competitors and cooperate with firms capable of supplying complementary technology. For example, Apple Computer combined its considerable computer design skills with Sony's expertise in manufacturing and miniaturization to produce the 3-pound PowerBook notebook computer.

1  

Text extracted from U.S. International Trade Commission. 1993. Global Competitiveness of U.S. Advanced Technology Industries: Computers, Investigation No. 332-339, Publication 2705.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

“Strategic alliances are also used to increase a company's involvement in and knowledge of a foreign market. Because consumer demands and expectations may vary in different markets, many firms prefer to enter new geographic markets by forming alliances with companies having a long-standing regional presence. IBM, for instance, has entered a marketing alliance with Hitachi to distribute IBM notebook computers in Japan, a country in which long-standing distributor contacts are reportedly essential.

“Finally, the number of strategic alliances has increased in direct proportion with company cost-cutting and streamlining efforts. Some companies have narrowed their business focus to manage costs more effectively, and consequently have formed partnerships that allow them to rely on other firms to perform important production, sales, and delivery tasks. Sun Microsystems' alliance with Fujitsu in the development and production of workstation microprocessors typifies such alliances.”

A Mid-1990s Perspective: Employment in U.S. Parent Companies and Their Affiliates Abroad

Comparison of employment at U.S parent companies with employment at their foreign affiliates over the period from 1994 to 1997 indicates the following for the industry groupings most relevant to the IT industry (data from a finer categorization are not published):2

  • For computer and office equipment, employment at U.S. parent companies totaled around 400,000, while employment at their foreign affiliates grew to approximately the same number (Table 5.7.1).

  • For electronic components and accessories, employment at U.S. parent companies grew at a rate of 3 percent per year, and employment at foreign affiliates was about three-quarters of the employment at U.S. parent companies.

  • For computer and data-processing services (including software), employment at U.S. parent companies grew at a rate of 23 percent per year, while employment at foreign affiliates grew even faster. Employment at foreign affiliates as a percentage of employment at U.S. parent companies grew from 29 percent in 1994 to 39 percent in 1997.

Thus, the IT industry has invested heavily abroad, particularly in the computer and office equipment industries and the electronic components and accessories industries. The computer and data-processing services industries have invested less heavily, although employment in U.S. parent companies is growing rapidly and employment in their foreign affiliates is growing even more rapidly.

2  

These data, taken from the annual “U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates” produced by the Bureau of Economic Affairs at the Department of Commerce, give some appreciation of recent investments abroad by the U.S. IT industry.

TABLE 5.7.1 Number Employed (thousands) in U.S. Parent Companies and Foreign Affiliates by IT Industry Sector, 1994 to 1997

 

Computer and Office Equipment

Electronic Components and Accessories

Computer and Data-Processing Services (including Software)

Year

At U.S. Parent

At Foreign Affiliates

At Affiliates as Percentage of Parent

At U.S. Parent

At Foreign Affiliates

At Affiliates as Percentage of Parent

At U.S. Parent

At Foreign Affiliates

At Affiliates as Percentage of Parent

1994

430.2

379.8

88

407.5

n/a

 

196.1

56.9

29

1995

395.2

373.1

94

423.5

303.3

72

251.3

88.4

35

1996

417.9

373.0

89

438.6

313.6

72

355.3

126.4

36

1997

408.7

433.4

106

444.5

338.8

76

363.6

143.0

39

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
This page in the original is blank.
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
  • Different time zones (and 6- to 12-hour time differences) inhibit regular communication. (At the same time, they can facilitate around-the-clock operation when the work is easily transferable from one location to another.)

  • The use of different spoken languages can lead to difficulties in communication. Even if the spoken language is nominally English, American English and Indian English are not the same, and cultural references and idioms are clearly different.

  • Informal communication is dramatically reduced, with the result that formal channels of communication (e-mail, phone calls, voice mail, teleconferencing) become necessary to communicate what could be communicated over lunch or in a chance hallway encounter.45 This in turn adds to overhead. Creativity and spontaneity may also suffer, since these are often the result of chance interactions.

  • Foreign nations may lack an adequate IT infrastructure to support active collaboration over large distances. Nevertheless, certain foreign nations, notably India and Ireland, have sought to nurture nascent IT industries by paying a great deal of attention to infrastructure.

  • Many foreign nations operate under legal regimes that are very different from that which characterizes the United States. For example, some foreign nations have laws (or practices) that allow for the routine surveillance of business communications, the results of which are passed to indigenous businesses in an attempt to seek competitive advantage. Anticorruption laws may be weak, placing U.S. businesses operating in foreign lands at a disadvantage.

This is not to say that technological innovations could not help to mitigate some of these difficulties, but it is safe to say these innovations have not yet materialized in a form that eliminates most such difficulties.

Location of work abroad also has disadvantages for the U.S. economy. Dollars spent abroad do not contribute directly to the U.S. gross national product and do not contribute to the number of domestic jobs, and other jobs associated with the use of foreign workers here in the United States might well follow these individuals overseas. 46

45  

Cockburn finds that remote collaboration often entails the loss of physical proximity, multiple communication modalities (e.g., gestural or facial communication), vocal inflection, and timing that may emphasize the importance of a sentence, or interactive questions and answers that can help to reveal ambiguities in someone's explanation. See Cockburn, Alistair. 1999. “Characterizing People as Non-Linear, First-Order Components in Software Development,” Humans and Technology Technical Report, TR 99.05, October. Available online at <http://members.aol.com/humansandt/papers/nonlinear/nonlinear.htm>.

46  

Although the decision to locate work abroad involves both benefits and costs and is determined by many factors, an inability to hire adequate numbers of workers in a timely fashion may encourage more firms to locate work abroad. (For example, companies may be stymied in their hiring because the cap on H-1B visas is reached early in the fiscal year, necessitating a longer-than-expected delay in hiring an H-1B visa holder until the start of the next fiscal year.)

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
5.4 INTERACTION BETWEEN THE USE OF FOREIGN WORKERS AND LOCATING WORK OFFSHORE

The previous two sections describe the domestic use of foreign workers and location of work offshore as though they were alternatives to each other. In some cases, they are—if the benefits of using foreign labor outweigh its costs, a domestic absence of foreign workers will inevitably lead to location of work abroad.

On the other hand, the use of foreign workers can complement the location of work offshore. As described in Box 5.4, a U.S. firm may contract for IT work with a foreign IT company with a U.S. subsidiary that serves as a domestic interface to the U.S. firm. (The same argument could apply as well to a stand-alone U.S. corporate entity with close corporate and personal ties to the foreign work performer.) Given the requirements for close communication with the work-performing firm, the workers for the U.S. company serving as interface are likely to be foreign workers from the country in which the work performer is located—and they are most likely to be brought to the United States on H-1B or L-1 visas.47

This arrangement puts pressure on wages for domestic workers, but for an entirely different reason than that offered by most H-1B critics. Compared to domestic work performers who could do the same job, it can take advantage of a lower wage structure (i.e., that of certain foreign nations such as India or Taiwan) for the entire project. This is likely to provide the foreign work-performing firm with a cost advantage that domestic work performers will be hard-pressed to beat. Thus, to the extent that foreign firms are more attractive to U.S. firms with work to outsource, they take away work from domestic work performers, with all of the wage consequences that that implies (Box 5.8). Note also that the same wage considerations apply when the U.S. company establishes a foreign subsidiary, even if it has done so for reasons entirely unrelated to labor costs.

The use of foreign labor versus location of work abroad cannot always be reduced to a simple choice between the two possibilities. Employers understanding the complexity of these issues are likely to make choices

47  

Note that the use of L-1 visas is small compared to the use of H-1B visas. One important reason is that an L-1 visa requires the visa holder to be an incumbent employee of the company that wishes to transfer him or her to the United States.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

BOX 5.8 Labor Cost Savings Using Foreign Labor

A simple model will quantify the difference in the cost of using domestic versus foreign labor. Assume that 10 percent of a project 's personnel are needed to provide the interface, and the other 90 percent do the implementation. For simplicity, assume that all personnel are paid the same amount (X). Compare three situations.

  • Situation A: Both the interface personnel and the implementers are domestic workers. In this case, the labor cost per person of the project is 0.1 X + 0.9 X. (If the interface personnel are H-1B visa holders and are paid the prevailing wage. in accordance with the law, the use of H-1B workers is cost-neutral.)

  • Situation B: The interface personnel are underpaid H-1B visa holders and the implementers are domestic workers. Various reports assert that H-1B workers are paid significantly less than U.S. workers for the same jobs, thus saving their employers significant amounts in labor cost; for the sake of argument, assume that they are paid 30 percent less than the wages paid domestic workers (a difference claimed by some H-1B critics). In this case, the labor cost per person of the project is (0.1)(0.7) X + 0.9 X.

  • Situation C: The interface personnel are domestic workers (or H-1B workers paid the prevailing wage) and the implementers are foreign workers working in their native land, and paid the prevailing wages there. Various reports place comparable salaries at a factor of 3 lower than in the United States and often even lower. Assuming a factor of 3, the labor cost per person of the project for Situation C is 0.1 X + (0.9) (1/3) X.

Comparing Situation B to A, it is clear that the labor cost of Situation B is 97 percent that of Situation A. But the cost of Situation C is 40 percent of the cost of Situation A. The inevitable conclusion is that all else being equal, savings in H-1B labor costs due to the alleged exploitation of U.S. employers would be overwhelmed by the savings due to the use of foreign labor working in their native lands.

that reflect the mix of work they wish to locate abroad versus that which they wish to keep within the United States, as well as their judgments of the benefits (e.g., better access to local markets or significantly reduced labor costs) and costs (e.g., reduced and inhibited communication).

5.5 RECAP

For purposes of this report, foreign workers are foreign-born individuals who are either temporary nonimmigrant workers or permanent residents of the United States. Foreign-born individuals (including both

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×

foreign workers and naturalized U.S. citizens) constituted about 17 percent of the Category 1 IT workforce in 1998, compared to about 10 percent of the total U.S. population. The committee estimates that temporary nonimmigrant workers (mostly with H-1B visas) constitute about 10 percent of the Category 1 IT workforce, although this figure likely represents an upper bound.

Because the United States does not have a monopoly on productive, knowledgeable, and motivated individuals, U.S. employers seek talent from around the world. The critical feature of the H-1B program is that it enables employers to hire qualified foreign workers in a matter of months, in contrast to the years required to attract and train additional U.S. students or to obtain green cards for prospective permanent residents.

The committee believes that foreign Category 1 and Category 2 IT workers—including the H-1B visa holders—can make positive contributions in a number of ways to the U.S. IT sector, IT-intensive firms, and the economy as a whole. For example, while H-1B visa holders are far from the dominant influence on the IT workforce, their number is large enough that without these workers there would likely be a slowdown in the rate of growth in the IT sector. At the same time, economic theory implies that an increase in the supply of IT workers, including temporary nonimmigrant workers, will cause the corresponding IT wage rates to be lower than they otherwise would have been. Theory alone does not imply any particular numerical magnitude of this effect. It is the committee's judgment that the current size of the H-1B workforce relative to the overall Category 1 IT workforce is large enough to exert a nonnegligible moderating force that keeps wages from rising as fast as might be expected in a tight labor market.

Finally, in light of the controversy over the level of the H-1B cap, the committee has found no analytical basis for determining the optimal level of such visas, and decisions to reduce or increase the cap on H-1B visas are fundamentally political. However, an increased number of H-1B visas is likely to result in future additional pressure on the permanent immigration program unless Congress also adjusts the various numerical limits on permanent residents.

Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 152
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 153
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 154
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 155
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 156
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 157
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 158
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 159
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 160
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 161
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 162
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 163
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 164
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 165
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 166
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 167
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 168
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 169
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 170
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 171
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 172
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 173
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 174
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 175
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 176
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 177
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 178
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 179
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 180
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 181
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 182
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 183
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 184
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 185
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 186
Suggested Citation:"Foreign Workers in the IT Workforce." National Research Council. 2001. Building a Workforce for the Information Economy. Washington, DC: The National Academies Press. doi: 10.17226/9830.
×
Page 187
Next: Making More Effective Use of the Existing IT Workforce »
Building a Workforce for the Information Economy Get This Book
×
Buy Paperback | $65.00 Buy Ebook | $54.99
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

A look at any newspaper's employment section suggests that competition for qualified workers in information technology (IT) is intense. Yet even experts disagree on not only the actual supply versus demand for IT workers but also on whether the nation should take any action on this economically important issue.

Building a Workforce for the Information Age offers an in-depth look at IT. workers-where they work and what they do-and the policy issues they inspire. It also illuminates numerous areas that have been questioned in political debates:

  • Where do people in IT jobs come from, and what kind of education and training matter most for them?
  • Are employers' and workers' experiences similar or different in various parts of the country?
  • How do citizens of other countries factor into the U.S. IT workforce?
  • What do we know about IT career paths, and what does that imply for IT workers as they age? And can we measure what matters?

The committee identifies characteristics that differentiate IT work from other categories of high-tech work, including an informative contrast with biotechnology. The book also looks at the capacity of the U.S. educational system and of employer training programs to produce qualified workers.

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    Switch between the Original Pages, where you can read the report as it appeared in print, and Text Pages for the web version, where you can highlight and search the text.

    « Back Next »
  6. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  7. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  8. ×

    View our suggested citation for this chapter.

    « Back Next »
  9. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!