Employers' access to highly educated foreign professionals holding a H-1B visa was limited by a White House announcement on June 22 that it would extend a ban on several kinds of new visas through the end of 2020. The move extends an executive order issued April 21 that banned new visas for 60 days and was set to expire the same day it was extended.
The current annual statutory cap for H-1B visas is 65,000 visas, with 20,000 additional visas for foreign professionals who graduate with a master's degree or doctorate from a U.S. institution of higher learning.
After the announcement was made a number of business groups including the National Association of Manufacturers, the U.S. Chamber of Commerce, National Retail Federation, TechNet and Intrax filed a lawsuit to oppose the White House actions.
IndustryWeek talked to Jagadeesh Sivadasan, Professor of Business Economics and Public Policy at the Ross School of Business at the University of Michigan, for his analysis of this situation.
IW: Coul this ban make the U.S. less competitive?
JS: This is true in principle, just as any restriction of a valuable input used by U.S. manufacturers would be. To the extent that the ban reduces access to talent with difficult to find skills, the ban would indeed reduce the competitiveness of U.S. manufacturers.
Even if workers with a particular skill are locally available, but are much more expensive than skilled workers who can be hired from other countries, this raises the cost for U.S. manufacturers. If U.S. consumers have access to products from non-U.S. firms, the U.S. manufacturers would find it difficult to pass the costs along to the consumer and would lose out to foreign competitors.
Having said that, US manufacturers are not DIRECTLY a big user of H1B visas, so the direct effect on them could be modest. In 2017 three manufacturing sectors show up in the H1B data : (i) Electronic Computer Manufacturing, (ii) Semiconductor and Related Device Manufacturing, and (iii)Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. Together they accounted for 9,093 of the total of 223,054 petitions, which was just 4.1%. The two biggest sectors are Computer services related and account for 142,794 or 64% of the petitions.
But there could be a substantial effect on technology firms that rely heavily on the H1B program, and to the extent that U.S. manufacturers buy important products/services from these tech companies, the effect on manufacturers could be significantly bigger than the direct share of U.S. manufacturers in H1B petitions suggests.
IW: What will be the long term effects of this ban on the issue of the U.S. closing the skill gap?
JS: One could argue that the ban could lead to increased wages for domestic workers in the short term, which could encourage more U.S. students to specialize in STEM. Unfortunately, the longer-term effects could be very negative.
Over the long term, more of the R&D work could get shifted to other countries (as discussed below), and then, because a significant amount of learning happens in the workplace and from coworkers, these skills may become even scarcer in the U.S. The dilemma could be summarized as follows: U.S .workers appear to have other non-STEM opportunities that they prefer at current compensation levels. To attract U.S. students into these specialties may require much higher salaries, but this is very difficult in an environment where U.S. firms are competing worldwide with rivals for market share, and hence need to access talent at competitive salaries.
Thus, to compete and sell in international markets, the U.S. multinational companies may be forced to relocate technology work to where skill is available at the lowest cost, which can potentially shift STEM jobs away from the US, leaving us further behind.
IW: Could the ban impact where tech companies house their development teams?
JS: The effect on tech companies will be very substantial, given their significant use of H1B. The fact that the number of applications has very far outstripped the number of available visas in many of the recent years shows how urgent and pressing the need has been for technology companies. There are several anecdotes of companies considering Canadian locations.
In my view, the ongoing COVID-19 crisis, and the massive adoption of “work from home” practices by tech companies across the board significantly enhances the capabilities of tech companies to rehouse/offshore their development team.
We now have a situation where firms are learning and adapting practices to increase productivity of development teams, where the individual team members work remotely. As these practices mature, firms may find it much easier to simply house some of their developers in another country, if they are prevented from hiring workers on H1B.
With widespread adoption of remote working practices, it becomes very easy for companies to essentially buy the talent abroad and still use the talent for their research/development/production work.
This reduces U.S. GDP and reduces the other multiplier benefits that come from foreign workers working in the U.S. spending their paychecks on rent, restaurants and other local US goods and services.
IS: How will this impact U.S. schools given that they tend to attract international students who hope to get jobs with the big tech companies?
JS: This could have a very big impact on U.S. schools, especially engineering schools and STEM programs, that attract a significant amount of foreign applicants. A big fraction of foreign students is very interested in gaining experience working in the US. To the extent that other competing countries in Europe, and Canada and Australia are more open to providing work permits, there could be a large shift towards those countries.
IW: How will this impact technology companies focused on developing new offerings?
JS: Some newer technologies may need skills that are especially scarce in the U.S., making the H1B program vital for the U..S. If Chinese and Indian companies are competing with U.S. companies, and if talent is kept away from the U.S., this will have a negative impact on the development of new technology by U.S. companies.
After a long period of technology leadership, the U.S .is in danger of being overtaken on a number of fronts. E.g., in the next-generation 5G technology, many Chinese companies seem to hold important patents. Restricting foreign talent could move us further behind. Similarly, China is catching up in AI technology with reports that it has overtaken EU countries.
This ban on foreign talent just as U.S. rivalry with China is heating up and China is catching up on different technologies is therefore particularly baffling.
The main goal of the administration -- of helping U.S. workers regain jobs lost during this pandemic -- is laudable. But the wholescale ban on H1B seems a very blunt approach for multiple reasons.
One, the sectors that have lost the most jobs are food and accommodation, and NOT technology. This is evident from the BLS employment reports. Two, even if there were concerns about helping those U.S. workers facing the most competition, this could have been achieved by setting a high floor for the annual wages in the H1B program. E.g., the ban could have been imposed on jobs offering less than 100K (which in 2017 accounted for 66.7% of the total number of petitions ).
Alternatively, to achieve President Trump’s oft-stated goal of retaining highly educated workers, especially those learning the skills at U.S. universities, and to restrict the use of foreign workers brought in by outsourcing companies specifically to learn the job from local U.S. workers, the restriction could have been imposed only for foreign-educated workers, or those with less than a masters degree (which was 41.5% of H1B applicants in 2017).