maurice martin : : freelance journalist & playwright

What effect will the hike in H-1B visas for tech workers have on companies?

By Maurice Martin

From the November 24, 2000 Washington Business Journal

Washington Business Journal - November 24, 2000by Maurice MartinContributing Writer
On Oct. 17, President Clinton signed into law a bill that allows more H-1B visa holders into the U.S. H-1B visas go to nonimmigrant aliens who posses work skills needed by U.S. companies -- and lately, this means tech.

Before the new law, the limit on H-1Bs was 107,500 for 2001, and 65,000 for 2002 and 2003. The new law raised the limit to 195,000 for 2001, 2002, and 2003.

Doug Stinson, CEO of Active Matter, a Web design firm in Fairfax, praised the higher limits, as did other tech industry leaders. "We've had incredible difficulty finding people who know technology," says Stinson. Since the new law, Active Matter is applying for two new H-1B workers.

Supporters of the new law see it as a shot in the arm to the tech industry, a cure for the chronic staffing problems encountered by Stinson and hundreds of other high tech CEOs. In fact, the tech industry lobbied hard for raising the H-1B limit.

But not everyone is pleased. Some think that the extra H-1Bs aren't really necessary, that the jobs could be filled by U.S. workers, and that main effect of the H-1B program is to depress wages in the industry.

Just a week after the law was passed, the National Academies' National Research Council (NRC) in Washington, DC, issued a report that drew mixed conclusions about the H-1B program. "Building a Workforce for the Information Economy" won't end the H-1B debate, but it does raise serious concerns about a program whose imminent expansion will have a significant impact on the local and national IT industry.

Proper Level?
Are the extra H-1Bs really needed? The NRC report says there would probably be "a slowdown in the rate of growth in the IT sector" without H-1B workers. On the other hand, it could find "no analytical basis on which to set the `proper' level of H-1B visas." On the other hand, the report says the IT labor market is tight. But on the other hand, it stops short of saying there's an IT labor shortage.

What's behind this baroque weasel-wording? A lack of data, says the report. There are also conflicting claims from the industry on one hand and U.S. worker advocates on the other.

The NRC may shy away from the word "shortage," but Stinson says he has turned down projects because his company didn't have the staff to meet the customers' deadlines. "We spend tens of thousands of dollars a year on recruiting," he says.

Shaurav Sen, founder and CEO of OnScreen Interactive (formerly AdSavers.com), makers of interactive screensaver software in Arlington, says the same. "We've currently got 13 employees, and I'm dying to hire 10 more." He expects some of those new hires will be H-1Bs.

The classified ad section of local newspapers -- choking with tech jobs -- suggest other CEOs in similar straits.

Here They Come
So will the new limits relieve the tightness in the labor market? Again, there's not enough data. But at least we have an idea of how many H-1Bs the new law will bring. Dr. B. Lindsay Lowell, director of research at the Institute for the Study of International Migration at Georgetown University, issued the first estimates of the H-1B workforce population in a report last spring. His report compared the then-current H-1B levels with the proposed -- now enacted -- new levels.

As it turns out, the year-by-year limits have a delayed effect on the actual H-1B population, because H-1B workers stay in the country for up to six years. Lowell's number-crunching predicts that, under the old limits, the H-1B population would have peaked in 2001 at 460,000. Under the new limits, the population will peak in 2002 at 710,000.

According to the INS, 53.3 percent of H-1Bs coming into the U.S. from May 1998 to July 1999 had been hired as system analysts or computer programmers.

So the new limits actually mean a difference of hundreds of thousands of workers, and tens of thousands of programmers. How many will land in the greater DC area? Lowell won't hazard a guess -- again, there's a lack of data. He says that the geographic distribution of H-1Bs is uneven across the country. For instance, "There are lots [of H-1B workers] in New Jersey."

Lowell's research shows that, of the largest employers of H-1Bs, six percent are in Virginia. Lowell says that makes D.C. a respectable epicenter of H-1B employment.

The NRC report estimates that nationwide, H-1Bs make up about 10 percent of what it calls "the Category 1 IT workforce" -- a category that includes computer programmers.

Money Matters
The NRC report states that the current size of the H-1B workforce relative to the overall number of IT professionals is already large enough to keep wages from rising as fast as might be expected in a tight labor market.

Does that mean the H-1B program is management's way of undercutting domestic tech wages? Stinson says definitely not. "We pay market rates, or above," he says.

Sen has a unique perspective on wages; he originally came to the U.S. on an H-1B himself. He says that when he was an H-1B worker, "I was properly valued, financially speaking."

Life as an H-1B did have a downside -- the H-1B regulations didn't allow him to easily switch jobs, and so Sen had to pass up interesting offers. The H-1Bs that he hopes to hire will have a different experience -- the new law is supposed to make switching jobs easier.

However, as the NRC report notes, "Wages may be depressed even if all employers paid temporary nonimmigrant workers the wages prevailing." "More supply means more wage suppression," says Lowell. "It's just unclear how much."

The INS estimates that of the H-1B system analysts and programmers applying for visas from May 1998 to July 1999, the median salary reported by employers was $47,000. Unfortunately, the Bureau of Labor Statistics categorizes workers differently, so comparing BLS data with INS data is comparing apples and oranges. But for computer programmers, BLS gives 1998 median wages as $49,570 nationally and $47,424 for the DC/Maryland/Virginia/West Virginia area.

Adding to the uncertainty is the fact that employers sometimes don't pay H-1Bs what they report they're going to. According to the General Accounting Office's report "H-1B Foreign Workers: Better Controls Needed to Help Employers and Protect Workers," the Labor Inspector General looked into this form of abuse and, in 1996, reported that it was hard to tabulate. "But in cases where a determination could be made, about 19 percent of H-1Bs were underpaid."

Other Effects
So the new H-1B limits won't help IT wage growth. Some people argue that's a small price to pay, considering all that the industry has done for the local and national economy. If the tech CEOs want a larger talent pool, why not let them have it?

But Peter Merkel says the industry's reliance on H-1B workers could hurt it in the long run. Merkel, a network engineer at Notre Dame Academy in Middleburg, watched much of the 1990s tech boom from a unique perspective -- the Fairfax county unemployment office.

In 1992, at the age of 50, Merkel accepted an early retirement package from his former employer and went looking for a new tech job. Despite his decades of electrical engineering experience and his MBA, he found only closed doors until he doctored his resume to make himself appear younger. Then, he says, when he went in for interviews "they told me `you're not what we expected.'"

H-1B workers tend to be young. According to the INS, those who applied for H-1B visas from May 1998 to July 1999 had a median age of 28. Of the same group, 83 percent were between the ages 20-34.

Merkel sees this as key to industry's support of the H-1B program: "They'd rather get rid of people who are higher up, and hire guys who are right out of high school." Those who are higher up will naturally expect higher salaries, and may not want to take orders from younger managers.

Industry may prefer younger foreign workers to older U.S. citizens, but Merkel thinks industry pays the price when these workers go back to home. Lowell estimates that many, if not most, choose to do this -- taking with them the skills they learned here. "Our technology infrastructure is growing fast," says Merkel. "We can't support it if we don't invest in skilled people" who will remain.