The Dark Side of the H-1B Program

Each year, in the first week of April, thousands of businesses enter an immigration lottery to win several of 85,000 H-1B visas, which are awarded each year for foreign-born workers in "specialty" jobs, often in technology and science.

There are two classic ways of thinking about the H-1B system. The first upholds the H-1B program as a paragon of multicultural innovation. As this story goes, the world’s best and brightest want to work in the United States. When the U.S. lets them in, their brilliant work increases the sales and profits of their companies, and, often, they go on to start their own businesses. The benefits and broad and obvious: U.S. consumers get cheaper goods, U.S. investors get a fantastic return, and the country enjoys both financial and psychic benefits as it shows the world the economic benefits of embracing diversity.

But there is another story. When technology firms hire foreign-born workers, they often pay them less than what they theoretically would have paid an American in that job. This leads to both lower pay for workers across the company and higher profits for the owners and investors. In other words, the H-1B program is a scheme to reduce wages and increase profits, which has been cleverly remarketed as a paean to multiculturalism and a win-win for American consumers and American inclusivity.

Which one is right? I have tended to side with the first narrative. But that seems like all the more reason to give some further consideration to the second, which gets a comprehensive treatment in a new paper by the economists John Bound and Nicolas Morales of the University of Michigan, and Gaurav Khanna at the University of California, San Diego.

During the internet boom between 1994 and 2001, technology companies took in many more high-skilled foreign born workers, as the annual cap on H-1B visas grew from 65,000 to 195,000. In their analysis of this period, Bound, Khanna, and Morales conclude that high-skill foreign workers led to more innovation, cheaper products, and higher tech profits. But the availability of cheaper labor also hurt native-born engineers. “In the absence of immigration, wages for U.S. computer scientists would have been 2.6 percent to 5.1 percent higher and employment in computer science for U.S. workers would have been 6.1 percent to 10.8 percent higher in 2001,” the authors write.

This is not the first time economists have pointed out a dark side of the H-1B program. A 2016 paper by several economists from the University of Notre Dame, UC Berkeley, and the U.S. Department of the Treasury similarly found evidence that H-1B visas crowded out employment for other workers and "lead to lower average employee earnings and higher firm profits."

The technology community has been outspoken in its defense of the H-1B program, framing it in language that pays homage to American values like diversity, inclusion, and innovation. But it also serves the less honorable goal of restraining wage growth. In 2015, several tech companies including Apple and Google agreed to pay $415 million after accusations that they had a so-called "no-poaching" agreement that prevented workers from bidding up their wages with competing offers. The H-1B visa program similarly restrains the growth of labor costs, except it’s disguised as a policy of openness.

Those are the reasons to be cynical about the H-1B program. But here are several reasons to still support the H-1B program, despite an understanding of its downsides.

First, foreign-born students have become an integral part of higher-ed financing. Cash-strapped public universities get billions of dollars from foreigners who pay full tuition. But once these students have graduated with a valuable degree, it doesn’t make much sense for the United States to kick them out. Yes, they have already paid for college. But U.S. colleges have also invested resources and time in them, too. Sending their talent and future earnings to other countries wastes their potential contribution to U.S communities, business, and tax coffers.

Second, if tech companies cannot hire immigrants through the H-1B program, it is too simplistic to assume they’ll always give that job to another American at a higher wage. Any company has options beyond hiring an immigrant and hiring a native born worker. They can often offshore or automate the work. Indeed, if the U.S. were to shut down or dramatically shrink its H-1B program, companies might hire talent outside the U.S.

Finally, in the broader context of immigration policy, it is dispiriting that both conservative and liberal Americans remain so uninterested in improving the lives of people who didn’t happen to be born on American soil. Yes, the H-1B program may be a fixed lottery system to benefit a handful of individuals at the expense of others. But so is American citizenship. Birth is a lottery, by which some infants are randomly gifted the guarantees and opportunities of a rich country while other infants are randomly subjugated to poverty and suffering. Fully eliminating this inequity would require the dissolution of the nation-state, which is going too far. But what about economic policies that dramatically improve the lives of foreigners and only hurt Americans a little bit? The political case against such a law is obvious. The moral case is harder to make.

About the Author

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the media. He is the author of the book Hit Makers.

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