H1B Visas: A Tidal Wave of Change or Much Ado About Nothing?

H1B visas are once again under fire as political pressure to reduce the amount of foreign workers in the United States intensifies.

Industry headlines have been set ablaze with reports of new legislation for H1B visas, which was last week introduced to the House of Representatives by two lawmakers: Darell Issa, a Republican from California, and Scott Peters, a Democrat from the same state.

“I will end forever the use of the H1B as a cheap labor program, and institute an absolute requirement to hire American workers first for every visa and immigration program. No exceptions.” – Donald Trump, March 2016.

Perhaps the most notable elements of the Protect and Grow American Jobs Act (as it is known) are to scrap the Master’s degree exemption clause and raise the annual salary for H1B hires from its current cap of $60,000 to $100,000. Any company paying less than $100,000 would have to show they couldn’t hire Americans for the same jobs.

The idea behind this was to ensure that only highly skilled workers were imported, not those who (as the lawmakers put it) “obtained low-quality certificates to meet the requirements”, referring to the foreign hires coming in with forged diplomas.

How Vital is H1B to U.S. Services?

The U.S. issues around 85,000 H1B visas every year, 65,000 of which go to foreigners hired out of their home countries, while the remaining 20,000 are issued to those who are already in the U.S. and enrolled in schools, colleges, and universities. H1Bs are hot commodities for foreigners: last year, demand was three times more than the annual limit of 85,000, according to CNN.

As you can see from the following table, Infosys, TCS, and Capgemini are the largest beneficiaries of the H1B visa, accounting for the majority of Labor Condition Applications (LCAs) in fiscal year 2016.

Notably, the bill only applies to companies with more than 50 employees, and where H1B workers make up at least 15% of the workforce. Once this bill was re-introduced, the pressure was on for some of these Indian IT services firms, particularly Wipro, TCS, and Tech Mahindra, whose shares dropped between 0.50% and 1% this week. Infosys also took a hit, with shares falling around 0.40%.

As the following chart shows, the tech/IT industry has regularly been the biggest beneficiary of the H1B visa program, particularly during 2014, when it accounted for more than 64% of the 316,000 approved petitions.

“This has not caught the industry by surprise,” said Sandeep Suresh, Head of Research and Supplier Relations at NeoGroup. “Having said that, when any issue arises concerning H1B visas or B1/B2 visas, the industry does get nervous. Given that the bill is now focused on wage criteria, I don’t see a likelihood of processes or deals being affected by it in the short term. In the long term, there will be some implications – it’s going to be more expensive as not everybody is paying above the minimum threshold. There are some premium, niche skills that are being paid for, but the financial impact on services providers remains to be seen. If you’re paying your resources $150 per hour, you may end up paying $160 or $170 instead, so it won’t break deals and we don’t see a huge likelihood of disruptions.”

Could Silicon Valley be Under Threat?

The main point of contention for critics of H1B is that some companies are reportedly exploiting the program by contracting foreign workers for lower pay than Americans, and using the H1B application as a means to get them into the States.

According to the Los Angeles Times, the University of California (UC) recently exploited the program to replace 97 well-paid American IT workers with low-wage immigrants hired from HCL Technologies, becoming the first public university to send U.S. tech jobs offshore under the H1B visa law.

Representative Zoe Lofgren, a Californian Democratic lawmaker in San Jose, condemned UC for the move, stating that it undercuts the university’s duty to prepare students for the tech industry.

In retaliation, Lofgren has announced her own plans to introduce new legislation, claiming that the bill would negatively impact Silicon Valley. Her legislation involves allotting visas to companies that pay the highest salaries, instead of relying on the existing lottery system.

It’s clear that exploitation such as this can affect how U.S. students view the industry, but if any of the new legislation is officially implemented, will companies feel much impact?

100,000 Reasons It Might Not Matter (that much)

Critics of the Protect and Grow American Jobs Act say that the decision to raise the minimum salary cap is unlikely to make much difference, because many companies, particularly in Silicon Valley, already pay between $75,000 and $80,000 to employees with a couple of years’ experience or less.

To add insult to injury, the average income in Silicon Valley is $115,000, with engineers demanding more than $140,000 as initial pay, and managers with more than five years’ experience already earn above $100,000.

See a pattern emerging here?

Foreign software engineers also represent huge bang-for-your-buck investments. Robotics engineers are a good example, as they need to be experts in embedded systems, decision theory, data structures, algorithms, and some machine learning in order to be proficient enough problem solvers. The entry level salary in this line of work is typically $100,000, minimum, and can easily top $200,000 for more experienced hires. So what exactly is a $100,000 minimum salary requirement going to do to stop H1B hires in this field?

Not much, evidently.

“The whole objective of the bill is to try and cut the flow of cheaper labor and make it an even playing field,” said Suresh. “It won’t impact operations much, but for employment levels in the U.S., it is actually a good move. We are already seeing big IT players significantly increase their onshore presence, which is only going to boost local hires, in any case. Service providers are smart; they’re just going to use this to jack up their prices in the next big deals.”

What is your opinion on the re-introduction of and the changes to the H1B bill? Do you think it’s good for the American services industry, or is it unlikely to make a difference to the volume of foreign hires in tech? Sound off in the comments below.