High Skill Immigration

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High Skill Immigration Innovation Capturing
The Best Brightestor Offshoring Americas
KnowledgeOctober 25, 2006Technology,
Innovation Americas PrimacyCouncil on Foreign
Relations

• Ron Hira, Ph.D., P.E.
• Assistant Professor of Public Policy Research
  Associate
• Rochester Institute of Technology Economic
  Policy Institute
• rhira_at_mail.rit.edu
• 757-564-0215

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Three Uses of High Skill Guest-worker Visas

• Brain Capture
• Skilled workers use non-immigrant guest-worker
  programs as a bridge to immigration
• Temporary Labor Mobility
  Driven by Offshoring
• Knowledge transfer programs shift tasks to
  offshore locations
• Lower cost foreign labor for service delivery
  on-site to US clients

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H-1B Visa

• Specialty Occupations
• Requires Bachelors degree or equivalent
  experience
• Visa stay up to 6 years
• 400,000 H-1B holders in US
• Protections for US Workers
• Annual quota for new petitions
• 65k 20k (MS or PhD from US Univs) exemptions
• Wage parity Largely ineffective

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H-1B Visa

• Misreporting by Press
• Getting an H-1B requires an employer to attest
  that it can't find a U.S. worker
• A1 story by June Kronholz, Wall Street Journal,
  June 27, 2006
• Bills in Congress to Increase Quotas
• Major lobbying by tech industry
• Bill Gates, Scott McNealy, etc.
• Support from President Bush
• Feb 06 speech to 3M

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L-1 Visa

• Intra-company Transfer
• L-1A - managers and executives 7 years
• L-1B - specialized skills - 5 years
• 65,000 L-1s issued in FY 05
• 9 of Top 10 Petitioning Companies Specialize in
  Computer IT Offshore Outsourcing from India
• Tata Consultancy, Cognizant Technology Solutions,
  Wipro Technologies, Hewlett Packard, I-Flex
  Solutions, IBM Global Services, Information
  Systems Technology, Syntel Incorporated, and
  Satyam Computer Services

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L-1 Visa

• Share of L-1B Petitions for Workers from India Up
  Significantly
• 2002 India 10
• 2005 India 48
• Since 2004 L-1B gt L-1A
• No Protections for US Workers
• Recent law limits use by body shoppers

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Brain Capture ScenarioBridge to Immigration

• Foreign Student Comes to US for Graduate Studies
• Foreign Student Wants to Stay in US
• Company applies for H-1B work visa
• Company applies for Green Card
• 3-5 year wait time traditionally
• Quota inadequate so much longer backlog

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Knowledge Transfer Scenario

• Company Wants to Transfer Specific Tasks from US
  to Overseas Operations
• Brings foreign workers into US (generally on
  L-1visa)
• US worker trains foreign worker
• Foreign worker returns to country of origin and
  task migrates with him
• US worker laid off or re-assigned

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On-site Offshore Outsourcing Scenario

• Company Brings in Lower-Cost High-Skill Worker to
  Deliver Services On-Site in US
• H-1B or L-1 visa used
• Advantages
• Lower labor cost
• Better management of offshore team
• Training
• Business model for most major IT offshore
  outsourcing firms
• Cognizant, Infosys, Tata Consultancy, Wipro, etc.

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Visas Vital for On-site OO Firms

• Firms Report in SEC Filings
• Changes in US visa laws are a significant risk
• Vast majority of workers in US are on H-1B or L-1
  visas
• Infosys, Cognizant, Wipro, Satyam
• Visa Application Fees Large Enough to Affect PL
  Reporting to Investors
• E.g., Patni, Infosys

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On-site OO Business Model

• Tata has about 8,000 employees in North America,
  primarily in the U.S., and about 7,200 of them
  are here on some kind of visa. Among its U.S.
  workers, about 65 have H-1Bs, and the remainder
  hold L-1 visas, said spokesman Victor Chayet.
• He added that many of Tata's U.S.-based
  employees are graduates of universities in India
  and that only a handful ever seek permanent
  residency here. The company doesn't discourage
  workers from applying for green cards, but its
  service delivery model is based on the ability to
  move people from country to country as needed.
  "Keeping that fluid workforce is to our benefit,"
  Chayet said.
• - Patrick Thibodeau, H-1B backers want bigger
  increase in cap, ComputerWorld, November 29,
  2004

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On-site OO Business Model

• Our wage per employee is 20-25 lesser than US
  wage for a similar employee. Typically, for a TCS
  employee with five years experience, the annual
  cost to the company is 60,000-70,000, while a
  local American employee might cost
  80,000-100,000. This (labour arbitrage) is a
  fact of doing work onsite. It's a fact that
  Indian IT companies have an advantage here and
  there's nothing wrong in that.
• - Phiroz Vandrevala, Executive VP, Tata
  Consultancy Services, quoted in, Shelley Singh,
  US Visas are not a TCS-specific issue, Business
  World, June 30, 2003.

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H-1B Prevailing Wages

• Says Sanyogita Mukerjee (name changed on
  request), who works at a top-five Indian software
  company with a contract to develop complex
  software systems at International Monetary Fund
  in Washington, "I get an annual cost-to-company
  salary of 46,800 and a net salary of 36,300,
  despite being in the software industry for more
  than five years. An American with a similar
  experience gets around 80,000 a year."
• Mukerjee is not alone. Her company has H1-B and
  L1 employees in New York, Chicago, Atlanta,
  Boston and San Francisco working with some of the
  best brands in the world, and almost everyone has
  a similar grouse. She said her company told her
  she is being paid at prevailing wages.
• - Sachin Kalbag, H-1B visa holders get paid less
  than Americans Report, DNA India, Sept. 8, 2006

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Brain Capture SqueezeFY05 Approved H-1B
Applications
Source R. Hira Analysis US Dept of Labor LCA
Database www.flcdatacenter.com
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Emerging Global IT Services Business Model
Dollar figures in millions Retrieved from
Reuters.com on November 13, 2005
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Infosys Still Dependent on On-Site Revenues
Source R. Hira Analysis US Dept of Labor LCA
Database www.flcdatacenter.com
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WTO GATS (Mode 4) Guest-worker Visa Programs

• Developing Countries Pushing Hard
• View quotas and prevailing wages as non-tariff
  barriers to trade
• 70 of revenues for On-site OO firms derived
  from H-1B and L-1 use (Hira 2004)
• Congress
• Singapore Chile FTA new H-1B visas
• Australia FTA did not include H-1B
• Instead new E-3 visa created 10k cap
• USTR
• Encouraging US industry to lobby for
  liberalization

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Innovation Implications

• Knowledge Transfer a Body Contact Sport
• Learning on most advanced equipment and most
  sophisticated customer market
• Indian H-1Bs with US experience are sought after
  in Indian job market
• Accelerate offshore transfer speed
• Brain Capture Squeezed Out
• Increasing share of H-1B cap being used by
  On-site OO
• Better job opportunities back home

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Innovation Implications

• Impact on US Workers and Potential US Workers
• Direct competition for jobs that must be done in
  US
• Shift into non-H-1B occupations
• US National Innovation System
• Accumulation of knowledge goes to foreign workers
• National capacity to innovate
• Loss of spillovers
• e.g., next generation of entrepreneurs
• Creating competitors