Policy Sep 7, 2016

Does the H-1B Visa Pro­gram Hurt Amer­i­can Workers?

At least in one indus­try, these appli­cants appear to take jobs oth­ers do not want.

Yevgenia Nayberg

Based on the research of

Daniel Aobdia

Anup Srivastava

Erqiu Wang

Like many aspects of immi­gra­tion, the H-1B pro­gram, which allows skilled for­eign work­ers to be hired in the Unit­ed States, inspires controversy.

In this pres­i­den­tial elec­tion cam­paign alone, Don­ald Trump’s con­tra­dic­to­ry remarks echo a long­stand­ing debate about the pro­gram. Ini­tial­ly, Trump argued that immi­grants edu­cat­ed at top Amer­i­can col­leges should not be kicked out after grad­u­a­tion because we absolute­ly have to be able to keep the brain pow­er in this coun­try.” How­ev­er, he lat­er issued a state­ment that H-1B work­ers are import­ed from abroad, for the explic­it pur­pose of sub­sti­tut­ing for Amer­i­can work­ers at low­er pay.”

So which is it? Do H-1B work­ers con­tribute to the econ­o­my by per­form­ing jobs that Amer­i­cans are unwill­ing or unable to do, or do they steal jobs from U.S. work­ers and push down wages?

Daniel Aob­dia, an assis­tant pro­fes­sor of account­ing infor­ma­tion and man­age­ment at Kel­logg, inves­ti­gat­ed these ques­tions with­in a spe­cif­ic indus­try: H-1B work­ers hired as auditors.

His team found that these work­ers, most of whom attend­ed U.S. schools, tend to take jobs in less desir­able offices or that require high­ly spe­cial­ized skills, sug­gest­ing that they com­ple­ment — rather than dis­place — U.S. work­ers. In addi­tion, the researchers found no evi­dence that hir­ing more H-1B work­ers low­ered wages at those offices.

They’re not hired to take the jobs of Amer­i­cans,” Aob­dia says. They go where the Amer­i­cans are reluc­tant to go.”

How­ev­er, Aob­dia cau­tions this may not be true for for­eign-edu­cat­ed H-1B visa hold­ers work­ing in the U.S., many of whom are employed by out­sourc­ing firms, and who make up a large per­cent of those with H-1B visas.

A Trove of Data

The H-1B pro­gram works as fol­lows: Each year, the pro­gram issues tem­po­rary work visas to up to 65,000 for­eign­ers trained in spe­cial­ty occu­pa­tions” such as engi­neer­ing, med­i­cine, and law. Anoth­er 20,000 visas are avail­able for those with at least a master’s degree from an Amer­i­can uni­ver­si­ty. Employ­ees at cer­tain insti­tu­tions such as uni­ver­si­ties and gov­ern­ment research agen­cies do not count toward the over­all cap.

They are hired because you need qual­i­fied work­ers and you don’t have enough of them.”

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The cap has been tem­porar­i­ly raised in the past but is now near­ly the same as it was when first intro­duced more than two decades ago, and the num­ber of appli­cants far exceeds it. There­fore, visas are award­ed by lot­tery, and are ful­ly allot­ted in a mat­ter of days after the fil­ing peri­od starts on April 1 each year. Giv­en this real­i­ty, the pri­ma­ry con­cern of many for­eign stu­dents edu­cat­ed at top U.S. uni­ver­si­ties is not whether they will obtain well-pay­ing jobs, but whether they can obtain employ­er-spon­sored visas.

In the­o­ry, the visa pro­gram rules should pre­vent com­pa­nies from pay­ing H-1B work­ers less than their Amer­i­can coun­ter­parts. Employ­ers are not allowed to offer an H-1B appli­cant a salary that is low­er than sim­i­lar employ­ees’ pay or the pre­vail­ing wage” for that job in that loca­tion. But the stan­dards for deter­min­ing pre­vail­ing wages are shaky, and com­pa­nies can take advan­tage of loop­holes, such as hir­ing the per­son through a third-par­ty ser­vice. In addi­tion, increas­ing the sup­ply of work­ers might dri­ve down everyone’s pay over time because employ­ers have more poten­tial employ­ees to choose from and thus do not have to offer high salaries or rais­es to attract and retain staff.

Aob­dia, who teamed up with Anup Sri­vas­ta­va of Dart­mouth Col­lege and inde­pen­dent researcher Erqiu Wang, want­ed to under­stand the true effect of high­ly skilled immi­grant work­ers. They turned to the audit­ing indus­try, which allowed them to com­bine three sets of pub­licly avail­able data — audit doc­u­ments, which include infor­ma­tion regard­ing the audit­ing office that per­formed the work and its fee; the char­ac­ter­is­tics of that audit office’s clients; and the details of the H-1B appli­ca­tions that office submitted.

They exam­ined 16,997 H-1B appli­ca­tions from dozens of offices belong­ing to the six biggest pub­lic account­ing com­pa­nies in the U.S. from 2001 to 2012. To find out which types of offices hired H-1B work­ers, the researchers looked for links between immi­gra­tion inten­si­ty” with­in an office — the num­ber of appli­ca­tions sub­mit­ted or in progress, adjust­ed for the esti­mat­ed size of the office — and oth­er char­ac­ter­is­tics of indi­vid­ual offices, such as the types of clients they served, the qual­i­ty of life in their city, and the office’s reputation.

To find out whether hir­ing more immi­grants drove down the entire office’s wages, the team ana­lyzed the start­ing salaries offered to the H-1B work­ers, as report­ed in the visa appli­ca­tions. The researchers inves­ti­gat­ed whether offices that hired more H-1B immi­grants offer low­er salaries, while con­trol­ling for oth­er fac­tors affect­ing wages.

Fill­ing Gaps in the Workforce

The team found that H-1B work­ers tend­ed to play two roles.

First, they were more like­ly to be hired by offices that might have dif­fi­cul­ty attract­ing U.S. work­ers — for exam­ple, offices that were small­er, served few­er pres­ti­gious clients, or were in less desir­able locations.

Along the same lines, H-1B appli­ca­tions were more com­mon among offices that had recent­ly made mis­takes on an audit, which like­ly dam­aged their rep­u­ta­tion. Those offices start hir­ing more immi­grants,” he says.

Sec­ond­ly, the com­pa­nies hired H-1B appli­cants for spe­cial­ized work. Offices whose clients required com­pli­cat­ed account­ing or had high­er for­eign income tend­ed to apply for more visas, per­haps because these employ­ees offered skills such as speak­ing anoth­er lan­guage. And more H-1B work­ers were hired in areas of the coun­try with a rel­a­tive­ly high pro­por­tion of immi­grants. This pat­tern might have arisen because com­pa­nies in those areas are more wel­com­ing of immi­grants or local for­eign-born clients want to inter­act with oth­er immigrants.

As for an effect on wages, we don’t find any­thing,” Aob­dia says.

The offices that sent in more H-1B appli­ca­tions did not offer low­er salaries. Addi­tion­al­ly, if employ­ers were hir­ing H-1B work­ers to sup­press pay, one might expect those offices to take advan­tage of the sav­ings to charge their clients less and gain a com­pet­i­tive edge. How­ev­er, the researchers did not see this pat­tern either; in fact, offices with more immi­grants tend­ed to charge more.

In short, these employ­ers are not hir­ing H-1B hold­ers in order to save mon­ey, says Aob­dia, him­self an immi­grant from France. They are hired because you need qual­i­fied work­ers and you don’t have enough of them.”

A Mat­ter of Education

Recall, how­ev­er, that most of the H-1B work­ers in Aobdia’s study were like­ly edu­cat­ed in the U.S. Trends may dif­fer for immi­grants edu­cat­ed abroad. The over­all sup­ply of for­eign-edu­cat­ed work­ers is much larg­er than that of U.S.-educated work­ers, per­haps mak­ing it eas­i­er for their employ­ers to abuse the system.

Take, for instance, out­sourc­ing firms, whose work­ers are often edu­cat­ed abroad, and who are at the cen­ter of recent crit­i­cism of the H-1B pro­gram. Orga­ni­za­tions such as Walt Dis­ney Com­pa­ny and South­ern Cal­i­for­nia Edi­son have been accused of replac­ing U.S. work­ers with H-1B visa hold­ers work­ing for out­sourc­ing firms. Indeed, the Eco­nom­ic Pol­i­cy Insti­tute finds that South­ern Cal­i­for­nia Edi­son out­sourced its infor­ma­tion tech­nol­o­gy (IT) to a firm that paid its H-1B work­ers 36 to 41 per­cent less than Edi­son paid its Amer­i­can IT employees.

Trump’s con­tra­dic­to­ry com­ments might there­fore hold a grain of truth. Some com­pa­nies may abuse the pro­gram by using for­eign-edu­cat­ed H-1B work­ers as cheap labor,” but the econ­o­my could ben­e­fit from allow­ing more U.S.-educated work­ers to stay in the coun­try after graduation.

The U.S. should not apply blan­ket poli­cies to these two cat­e­gories of work­ers, Aob­dia says. Peo­ple have tak­en a very black and white view of immigrants.”

Editor’s note: Daniel Aob­dia is cur­rent­ly a Senior Eco­nom­ic Research Fel­low at the Pub­lic Com­pa­ny Account­ing Over­sight Board (PCAOB). This research was con­duct­ed before that affil­i­a­tion, and the views expressed here are his own and do not nec­es­sar­i­ly rep­re­sent those of the Board, indi­vid­ual Board mem­bers, or staff of the PCAOB.

Featured Faculty

Daniel Aobdia

Associate Professor of Accounting Information & Management

About the Writer

Roberta Kwok is a freelance science writer based near Seattle.

About the Research

Aobdia, Daniel, Anup Srivastava, and Erqiu Wang. “Are Immigrants Complements or Substitutes? Evidence from the Audit Industry.” Working paper.

Read the original

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