Fortune, February 9, 2017
The debate over H-1B visas is interesting because it clearly shows how globalization is not some natural force descending upon on the United States, but rather a process that is directed by the people designing policy in Washington. Depending on whether the H1-B program is restricted or expanded, workers in Science Technology Engineering and Math (STEM) fields in the United States will see higher or lower wages.For this reason it is very clear that the pay of STEM workers is hardly the result of a natural process, it is determined by the decisions made by politicians in Washington. In a similar vein, the most highly paid professionals, like doctors and dentists, are able to use their political power to largely exclude foreign competition. In contrast, our trade policy has been designed to place U.S. manufacturing workers in direct competition with their much lower paid counterparts in the developing world.
But no one discusses the protectionist barriers that sustain the pay of our most highly paid professionals. (For example, foreign doctors can’t practice medicine in the United States unless they complete a U.S. residency program.) And the debate that affects the pay of manufacturing workers is about goods rather workers. We debate barriers on importing steel, not about importing steelworkers.
The H-1B story is different because we are directly debating the number of foreign workers who will be allowed to work in the United States. And, there is considerable truth to what both sides in the debate are claiming.
Opponents of keeping or expanding the program are correct in saying that it depresses the wages of STEM workers in the United States. It would be necessary to have some pretty strange views of economics to believe that a large increase in the supply of labor doesn’t put downward pressure on wages.
On the other side, the software companies that are pressing for more H-1B visas are right to argue that it gives a boost to their business and allow them to hire more workers in other areas. Having access to low-cost labor is an effective subsidy. It’s like if we gave these firms free rent. The firms that are able to hire workers through H-1B visas will have an advantage relative to their foreign and domestic competition.
While it is true that low-cost labor can save businesses money, some of the other arguments from advocates of H-1B visas are not true. For example, it is not true that the U.S. has a shortage of STEM workers. A study produced by the Economic Policy Institute found that only two-thirds of college graduates with STEM degrees have jobs in the area one year after graduation.
The study also found that wages in most STEM occupations have been virtually flat since 2000. If there were really a serious shortage of STEM workers, we would expect to see rapidly rising wages as employers bid against each other to try to pull away workers. While this study was done earlier in the recovery, it is unlikely that the labor market is hugely different today for STEM workers.
Additionally, African Americans with STEM degrees find it especially difficult to find jobs. A study by Janelle Jones and John Schmitt found that among recent African-Americans graduates with STEM degrees, 10 % were unemployed and another 32% were underemployed. There are a variety of reason these workers have trouble getting jobs in their field, but the point is there are STEM workers who could be hired — it would just cost Apple, Google, and the like more money to hire them.
In terms of getting low-cost labor, it is important to note the unique character of H-1B visas: they belong to the employer, not the worker. This means that if a worker who is here on an H-1B visa decides they are unhappy with the pay or working conditions at their job, their only option is to quit and return to their home country. Their H-1B status does not allow them to look for another employer.
This practice is in keeping with the tech sector’s disdain for a free labor market. Two years ago, Apple, Google, and several other tech giants paid out more than $400 million in a settlement related to charges that they conspired not to compete for each other’s workers. It would be reasonable to restructure the H-1B program so that the workers who do enter the country have the same rights as other workers, including the right to look for a new job.
The other issue that could be addressed positively with the H-1B program is to use it as a reward to firms that are successful in bringing in African Americans and other under-represented minorities into STEM occupations. The list of the under-represented in this case would also include women, given the preponderance of men in the tech sector.
Wherever the U.S. ends up on H-1B visas, it should be clear that this is a question that will be decided by power, not economics. The tech industry would like to pay less for their workers, and H1-B visas are an effective way to accomplish this goal. Tech workers, like the rest of us, would rather get paid more and rightly understand that increasing the supply from abroad reduces their bargaining power.
The same story applies in many other economic debates where the rules in Washington determine the winners and losers. In the case of H-1B visas it’s just much more transparent.