H1-B Visas: Labor Solution Or Loophole?

One of the central themes of the Trump campaign was bringing jobs back to America. That was also at the heart of his inaugural address. While there are a number of steps he might take to achieve this end, one of them may be a reform of the H1-B visa program.

The H1-B visa grants a temporary, non-residential right to work in America to foreign nationals. It’s restricted exclusively to high-skill workers in industries experiencing significant labor shortages. Unlike other visa programs, the employer foots the bill for the application process.  This makes the program very attractive for skilled job seekers looking for opportunity in America and helps companies, mostly those in the technology sector, attract strong talent from around the world.

On its own, this program could have a depressive effect on wages. After all, a bigger labor pool hurts job seekers’ ability to negotiate. That’s why the program contains provisions that require employers pay the prevailing wage. The program is also capped at 65,000 applicants per year with an additional 20,000 for those with master’s degrees from American universities.

However, there are significant loopholes in these provisions. The prevailing wage rule does not apply for workers making upwards of $60,000 per year or to workers with master’s degrees. It’s suspicious that more than half of the approved petitioners had master’s. That means there is no regulation in place to ensure these workers aren’t being paid less than American workers they might replace.

There’s some evidence the program is being abused. There were 236,000 petitions last April when the petition period began. This occurred despite a $4,000 increase in fees attached to the application process. Either there’s a serious shortage of  American workers with tech skills, or companies are using the program to cut wages for high-skill positions.

The program is too valuable to be scrapped entirely, but significant reform seems like an inevitability.  A draft executive order would cap the number of  visa seekers from H1-B and a number of other programs and remove the education exemption. It would also add more disclosure requirements so companies would have to share information about hires and salaries. Congressional leaders have alternative plans, so the outcome is less than clear. Investors in the technology sector should monitor the situation carefully, as this decision could have serious impact on the margins of these companies.


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