H-1B Workers Earn More Than U.S. Workers, Finds Study

By Don E. Sears  |  Posted 2010-05-21

H-1B Workers Earn More Than U.S. Workers, Finds Study

The following question-and-answer interview seeks to get a better understanding of the findings and implications of the recently published report, "Are Foreign IT Workers Cheaper? U.S. Visa Policies and Compensation of Information Technology Professionals," from the University of Maryland's Department of Decision, Operations and Information Technologies at the Robert H. Smith School of Business. 

A commonly heard complaint is that H-1B visa holders are used by companies to suppress higher wage American technology workers and supplant them with cheaper foreign technology workers. The study finds the opposite is actually taking place: The majority of foreign technology workers using visas and green cards in the United States are making premium wages. From the report:

"IT professionals without U.S. citizenship earn approximately 8.1% more than those with U.S. citizenship; IT professionals on an H-1B or other work visa earn approximately 7.9% more than those with U.S. citizenship; and IT professionals with a green card earn approximately 13.6% more than those with U.S. citizenship or work visa holders."

Another key finding of the study is the level of government caps on H-1B visas affects the range of salaries. The idea is based in the laws of supply and demand: The lower the visa cap, the higher the salary. Visa caps have fluctuated between 85,000 a year for H-1B and foreign student visas up to levels of 195,000 in the years following the 2001-2002 recession. In the years when the cap was 195,000, wages were lower. In 2010, the visa cap on H-1B visas is 65,000 plus another 20,000 for foreign graduate student visas. From the study:

"The salary premiums for non-U.S. citizens and for those on work visas fluctuate in response to supply shocks created by the annual caps on new H-1B visas. Setting lower and fully utilized annual caps results in higher salary premiums for non-U.S. citizens and those with work visas."

Why are foreign workers earning more? The report says "because of their intangible human capital, rigorous screening and selection processes, and willingness to work across borders, [foreign visa workers] are likely to earn higher wages than U.S. citizen IT professionals."

This interview was conducted via e-mail on May 19 with the report's authors, Assistant Professor Sunil Mithas and Professor Henry Lucas, Smith Department Chair of Information Systems. The report used wage and compensation data on 50,000 IT professionals from 2000 to 2005. 

eWEEK: Your findings show that on the whole, visa-holding workers have made more money than U.S. IT workers. What is the significance of these findings for U.S. workers in IT?

U.S. IT professionals need to acquire global experience which is one reason that makes "foreign" workers attractive to global firms because such workers can help to create goods and services for global markets. More than 40 percent of revenues and 30 percent of profits of large U.S. firms in recent years came from markets abroad.

Importance of the Global Market

eWEEK: While this study dispels many ideas on the exploitation of foreign visa worker salaries, why would U.S. companies want to take on foreign workers if they are more expensive?

To serve global markets more effectively. The growth rates in some of the emerging economies far exceed that at home. Foreign workers can also help coordinate U.S. operations with overseas subsidiaries. Though they may not be the norm, there have been cases of fraud, abuse and exploitation of H-1B visa holders. What do you say to them and to the loopholes in the laws that allowed this thing to occur?

There is a need to fix loopholes and deal with fraud and abuse in an appropriate manner commensurate with the extent and degree of abuse. However, the immigration policy should be designed to allow the U.S. economy to have access to the best talent available to create new companies and jobs here for everyone's benefit. Foreign workers can help to grow U.S. economy and create jobs here by contributing their complementary skills and efforts.

eWEEK: For U.S. workers struggling to find a job in IT in 2009 and 2010, is there something to be learned from this study?

The good news is that firms are beginning to hire IT workers to help grow their business, U.S. workers should continue to make investments in keeping their managerial and technical skills relevant and up-to-date and also acquire global experience to make them more attractive.

eWEEK: Your report uses data from a five-year study (2000 to 2005) from a joint Information Week-Hewlett Associates report. This was before the recession of 2008/2009 and the economic effects of recession on IT hiring. What is applicable about the use of this data in 2010?

We have seen recession before (e.g., in 2001-2002) and part of the data for our study comes from that period so findings have continued relevance. The findings on H-1B visa caps are also important in 2010. They are associated with an increase in the premium paid to foreign IT workers and they encourage companies to hire talented foreign workers and locate them in other countries when they might prefer to employ them in the U.S.

eWEEK: Do you support an increase in the annual H-1B visa cap? If so, by how much and how should it be determined?

In 2001-2003 we had a quota of 195,000 that was not fully utilized because the economy then did not need as many workers and yet we observe some salary premium in that time period. The current quota of 85,000 may be too low because it is almost always fully utilized. We argue in the paper that setting the quota too low may be more harmful than setting it too high because if economy does not need workers, the quote will go unfilled as has happened before.

eWEEK: Does a larger pool of American workers after major technology layoffs and mergers in the past two years mean that there is less of a need for foreign workers?

If foreign workers are complements (not substitutes) of American workers than U.S. firms will still need them.


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