Policy Careers Feb 6, 2017

Companies Want to Hire the Best Employees. Can Changes to the H-1B Visa Program Help?

The current lottery is not optimal for top foreign applicants or the companies that want to hire them.

Yevgenia Nayberg

Based on insights from

Daniel Aobdia

For years, the U.S. visa program for highly skilled foreign workers has been a hot-button issue. Silicon Valley CEOs have lobbied for its expansion, opponents of “outsourcing” labor have made it the target of their ire, and politicians on both sides of the issue have promised reform. In fact, President Trump is expected to propose changes to the program in the next few weeks.

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In Daniel Aobdia’s view, the program should be revamped to better serve the most qualified foreign employees—especially those who possess special, hard-to-replicate skills—and the companies who want to hire them.

“The major flaw with the system is that it’s one-size-fits-all,” says Aobdia, an assistant professor of accounting information and management at the Kellogg School, who has studied the impact of regulation on high-skilled immigration. “It isn’t designed to help the best people fill the right jobs.”

Every year, the government grants up to 85,000 temporary visas (officially classed as H-1B) through a first-come, first-served lottery system. Demand almost always exceeds supply: in 2016, more than 230,000 foreign workers applied, and the cap was reached in a matter of days.

“Because the program is run like a lottery, it’s less about how much a company really needs a particular foreign employee and more about how to game the system,” he says. “It tends to benefit companies who’ve learned how to take advantage of loopholes.”

For Aobdia, the solution is to build a more responsive program—one that takes a more sophisticated approach to sorting the vast pool of workers in the “high-skilled” category. This would reduce stress and uncertainty for the most desirable foreign applicants, many of whom graduate from top-tier MBA, PhD, and engineering programs hoping to stay in the country, as well as for the companies that wish to invest in these employees. This would also discourage companies from abusing the program, and stigmatizing it in the process.

“The ideal system would be tailored to meet the actual needs of companies and attract the kinds of people who would truly drive the U.S. economy,” he says.

Lottery or Auction?

The H-1B visa program, first introduced in 1990, was meant to allow U.S. companies to hire foreign workers with desirable skills, to fill the gaps in the labor market and help boost the economy. But over the last decade, a number of IT outsourcing firms began to use the program as a means to employ foreign workers at lower salary rates. Despite amendments to the law, Aobdia says, that strategy has endured. Last year, Walt Disney caused a scandal when it fired 200 IT workers and replaced them with foreign workers holding H-1B visas. The utility company Southern California Edison made a similar move, firing more than 400 IT workers.

“For businesses where it doesn’t matter whom exactly they hire, as long as they get the right number of legal employees, there’s a clear incentive to apply for more visas than they need,” Aobdia says.

This means that a company looking to hire 100 employees might apply for 300 visas, essentially gambling that enough of those employees will win the lottery. Because the system treats every visa applicant identically, it favors companies hiring workers with interchangeable skills en masse over those with a pressing need to hire specific foreign experts.

So what is the best solution?

“You need a way to prioritize those with truly unique and valuable skills.”

Aobdia says it makes more sense to run the visa program like an auction instead of a lottery. If H-1B visas were auctioned to employers each year, supply and demand would determine the value of skilled foreign workers.

“If a company really wants to hire a specific individual who it knows will bring in a lot of value, that company should be willing to pay more,” says Aobdia. “It would certainly make the system less arbitrary.”

An auction system by itself would not solve every problem. One major criticism of the current program is that because an employee’s visa status is linked to a single employer, he or she is more or less at the mercy of that company. When researching H-1B visa holders employed by U.S. auditing companies, Aobdia found that many of them were working in undesirable locations.

“The downside of the auction system is that it could leave employees even more captive,” Aobdia says “If the company that bids the most for the visa decides to pay the employee less, especially if that worker’s ability to move to another company remains limited by the visa’s current constraints, the worker has very little bargaining power.”

Taking a Cue from Canada

Another potential solution would be to establish a point-based system as a way to select the highest-skilled and most desirable applicants.

“Currently, almost everyone is treated more or less the same, no matter what their level of expertise or education may be,” Aobdia says. Although 20,000 of the 85,000 annual H-1B visas are reserved for those with at least a master’s degree from an American university, there is no other sorting mechanism built into the current system.

“You need a way to prioritize those with truly unique and valuable skills,” he says.

Aobdia looks to Canada for an example of how this might work. Canada assigns each immigrant application a score from 1–100 on the basis of education, work experience, age, command of languages, and various other factors. While such a merit-based system has its pitfalls when applied to the immigration policy as a whole, Aobdia says that a version of it might help improve the already-merit-based H-1B visa program.

At the very least, a point system would allow the U.S. government to better define what “high-skilled” means in the context of temporary work visas, and what kind of education it prizes. An applicant with an MBA from a top university would have a higher score than an applicant with an online Bachelor’s degree from a less prestigious one.

A Global Applicant Pool

Whatever reforms the government makes to its H-1B visa program—an auction feature, a points-based system, or some combination of the two—Aobdia says the goal should be to create a situation in which American companies feel encouraged to hire the best and brightest, no matter what their country of origin may be. Under the current system, U.S. companies are often discouraged from even attempting to hire a foreign worker, despite how uniquely qualified he or she might be.

“A lot of foreign graduates don’t receive offers for the jobs they are qualified for, simply because there’s a risk that the visa process won’t work out,” Aobdia says. “It also means the U.S. is losing the kinds of people who could drive new industries or start new companies. It’s keeping entire industries from expanding or diversifying their workforce.”

Consider the investment management industry, where many large companies do not sponsor visas. “It’s a problem because a lot of those companies need people with deep knowledge of global companies,” Aobdia says. “They may be leaving money on the table by limiting their applicant pool.

The fact that certain companies game the system has stigmatized the H-1B visa program, says Aobdia.

“In part, this perception arose from the fact that the current visa program does not always bring in the right people. So you hear about workers in California losing their IT jobs, but less about the foreign entrepreneur who creates a great company—maybe because it’s less apparent, or less politicized, or maybe because this isn’t happening as much as it could under a more efficient visa program.”

Featured Faculty

Daniel Aobdia

Associate Professor of Accounting Information & Management

About the Writer

Drew Calvert is a freelance writer based in Iowa City, Iowa.

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