Study: Employers use skilled visas to slash wages

The Economic Policy Institute has released research showing that the United States’ temporary skilled visa scheme (H1B) has been used by employers to undercut local workers’ wages.

The analysis is based upon the Department of Labor’s Occupational Employment Statistics (OES) survey, which constructs a distribution of wages for each occupation in a specific geographic location.

The OES survey sets four categories at 17th, 34th, 50th and 67th percentiles of pay for that location. Thus, if you are hired in the first category as a “Software Developers, Applications” in D.C., then the minimum pay or 17th percentile is $75, 000 while the median or 50% is $117,000.

The study finds that the top 30 out of 53,000 companies (including the big four tech companies) heavily dominate H1B hiring and mostly hire in the first two categories significantly below the median wage.

The study also notes that the H1B immigration program was designed to hire employees with specialised skills not available in the local workforce. These special skills were supposed to be a function of education, inherent capability and experience. Therefore, most H1B hires should be in level 4 well above the median.

However, based on the sheer volume and the salary pattern, there appears to be abuse in the system such that American companies are using the H1B program as a form of wage arbitrage instead of the intended goal.

Accordingly, the study recommends setting the minimum salary floor for a skilled H1B visa at the 75th percentile rather than the 17th.

Below are the Key Takeaways from the report:

  • DOL lets H-1B employers undercut local wages. Sixty percent of H-1B positions certified by the U.S. Department of Labor are assigned wage levels well below the local median wage for the occupation. While H-1B program rules allow this, DOL has the authority to change it—but hasn’t.
  • A small number of employers dominate the program. While over 53,000 employers used the H-1B program in 2019, the top 30 H-1B employers accounted for more than one in four of all 389,000 H-1B petitions approved by U.S. Citizenship and Immigration Services in 2019.
  • Outsourcing firms make heavy use of the H-1B program. Half of the top 30 H-1B employers use an outsourcing business model to provide staff for third-party clients, rather than employing H-1B workers directly to fill a special need at the company that applies for the visa.
  • Major U.S. firms use the H-1B program to pay low wages. Among the top 30 H-1B employers are major U.S. firms including Amazon, Microsoft, Walmart, Google, Apple, and Facebook. All of them take advantage of program rules in order to legally pay many of their H-1B workers below the local median wage for the jobs they fill.

And below is the introduction and summary, as well as extracts from the report’s conclusion:

H-1B is a temporary nonimmigrant work visa that allows U.S. employers to hire college-educated migrant workers as well as fashion models from abroad; nearly 500,000 migrant workers are employed in the United States in H-1B status.1 The H-1B is an important—but deeply flawed—vehicle for attracting skilled workers to the United States. The H-1B visa is in desperate need of reform for a number of reasons that we have explained in other writings,2 but the fundamental flaw of the H-1B program is that it permits U.S. employers to legally underpay H-1B workers relative to U.S. workers in similar occupations in the same region. This report explains how this occurs by describing the H-1B prevailing wage rule and analyzing the available data on the wage levels that employers promise to pay their H-1B employees…

The highest priority for H-1B reform is fixing the prevailing wage rule. The new wage-level data presented in this report make clear that most companies that use the H-1B program—but especially the biggest users, by nature of the sheer volume of workers they employ—are exploiting a flawed H-1B prevailing wage rule to underpay their H-1B workers relative to market wage standards…

The purpose of the H-1B program is to allow employers to hire workers with specialized skills that are not available in the existing local workforce.28 Specialized skills should command high wages; such skills are typically a function of inherent capability, education level, and experience. It would be reasonable to expect that these workers should receive wages higher than the median wage. One would therefore expect most H-1B positions to be assigned as Level 4 (the only wage level above the median), but as the data presented in this report show, H-1B employers as a whole assign only a very small minority of H-1B positions as Level 4—just 12%—and the top 30 H-1B employers assign even fewer H-1B positions as Level 4, just one in nine (11%).

The data in this report show the top 30 H-1B employers are in fact hiring H-1B workers to fill a very large number of routine (Levels 1 and 2) positions that require relatively little experience and ordinary skills… employers have all but disinvested in workforce training, in part because of the disincentives created by ready access to lower-paid H-1B workers…

In fiscal 2018, 70% of approved H-1B petitions were for workers 30 years of age and older—a significant indicator that those workers already possess at least six to eight years of experience. Further, H-1B workers’ educational levels, which are an important determinant of skills, indicate they should be filling higher-skilled positions. In fact, 63% of all H-1B workers held an advanced degree (master’s, professional, or doctorate degree), meaning one could reasonably conclude that a majority of H-1B workers have the educational attainment and/or years of experience to fill positions at wage levels 3 and 4. These data suggest it is likely that H-1B employers are underpaying workers relative to their skill levels…

The data presented in this report indicate that all H-1B employers, but especially the largest employers, use the H-1B program either to hire relatively lower-wage workers (relative to the wages paid to other workers in their occupation) who possess ordinary skills or to hire skilled workers and pay them less than the true market value of their work. Either possibility raises important policy questions about the use and allocation of H-1B visas.

By setting two of the H-1B prevailing wage levels so low relative to the median and not requiring that firms pay at least market wages to H-1B workers, DOL incentivizes firms to earn extraordinary profits by legally hiring much-lower-paid H-1B workers instead of workers earning the local median wage…

DOL should promulgate regulations and/or issue administrative guidance that sets the lowest (Level 1) wage to the 75th percentile for the occupation and local area, and requires that wage offers to H-1B workers never be lower than the national median wage for the occupation. Requiring and enforcing above-median wages for H-1B workers would disincentivize the hiring of H-1B workers as a money-saving exercise, ensuring that companies will use the program as intended—to bring in workers who have special skills—instead of using H-1B as a way to cheaply fill entry-level positions.

Sadly, Australia has fallen into exactly the same trap. The Temporary Skilled Migration Income Threshold (TSMIT) has been set at an abysmally low $53,900, which is well below the median Australian wage of $1,100 per week ($57,200 p.a.), according to the ABS:

This TSMIT wage floor has now fallen $3,300 (6%) below the median income of all Australians ($57,200), which includes unskilled workers. Thus, the TSMIT has incentivised employers to hire cheap migrants instead of local workers, as well as abrogated the need to provide training.

The wage floor for all skilled migrants (both permanent and temporary) should be set at least at the 75th percentile of earnings (preferably higher).

This would ensure that the skilled visa scheme is used sparingly by businesses to employ only high skilled migrants with specialised skills, not abused by businesses as a tool for undercutting local workers and eliminating the need for training.

Leith van Onselen

Comments

  1. Some 40% of USA families could not come up with a extra $2000 in a month in the need arose. Nor could 47% of those surveyed come up with $400 if an emergency arose. In the USA this was not confined to the working class, but had spread to middle class where it is no longer possible to have a single earner family.

    https://www.youtube.com/watch?v=tamC-M8TxtY

    Policies to crush wages and cheapen the labour market have been rolled out in Australia with the full complicity of the ACTU and ALP. While the USA has cherry picked OS students with PhDs and given them a Green Card if they remain in a high tech industry, Australia does not have sufficient high tech industry, enough native innovation or industries to make this pay. The government stepping on the population accelerator is simultaneously killing manufacturing and high tech by advantaging the unproductive economy propped up by financial speculation. Instead we are a halfway house to nowhere for anyone e.g. importing low quality engineers from developing counties with the promise of a job that does not exist in an industry that is trying to maintain standards by not employing them.

      • happy valleyMEMBER

        True. There’s only two classes these days – the rich (the minority) and the rest (the great majority)?

      • DominicMEMBER

        Not a lot.

        It is no secret that globalization and inflationary monetary policy is gutting the old middle class with indecent haste.

        Given the middle classes have been the primary source of revenues for the Gubmint, it’s policies truly are killing the goose that lays the golden egg.

        Oh well, there’s always debt to fall back on, cause, as you know by now: Debt doesn’t matter. 😉

        • only private debt doesn’t matter
          public debt, on the other hand is so bad we have to impose austerity to repay it

          • Jumping jack flash

            Pfft.

            Of course they want us all to believe that.

            The truth is that debt isn’t good or bad, it depends on what it is used for.

            Debt that is used for spending on crap including houses that do nothing but sit there is very, very bad and eventually kills the economy like a parasite.

            Debt that is used to increase productivity, leading to increases in sales and profits above the interest obligation for the amount of debt taken on, is good, and the only reason why debt should ever be created and used.

            Where it all gets tricky is when the debt that is used for buying useless crap including houses causes the price of the useless crap to rise. The price would never have risen without the debt being available to pay those prices, so these price rises cannot be thought of as productivity. It is purely what happens when a ton of debt is dumped into a market – inflation, which is not productive at all.

    • Arthur Schopenhauer

      One of the most pernicious practices of some Oz companies is to outsource traditional engineering tasks to a near neighbor, and then fly in members of the outsourcing company to work in Australia at their native wages. Accommodation is paid for, and the ‘outsourced’ labor are flown out the day before the maximum work stay is reached.
      Listen carefully to the CEOs who talk about employing Australians and how important the ‘perception’ of that is, to figure out which companies are doing it.

    • Jumping jack flash

      “…where it is no longer possible to have a single earner family.”

      This is sadly very true, even in Australia it is so. The main reason for this is the enormous amounts of debt that are essential now. You can’t afford the debt or be eligible for the amounts required without having a “household income”.

      Something will need to change in order to keep it going. Will it eventually become 3 incomes per household, 4, more, to afford the debt that will be required very soon?

      Linearly extrapolate median house prices to 2050 and do the same for median income growth. The chasm between the two has to be managed. At the moment we are pushing the limits using maximum interest rate manipulation and now QE. Wage subsidies will be required very soon to keep it all running.

  2. “Employers use skilled visas to slash wages”
    Yes, this is what it is designed to do. Australia has very high labor costs: skilled visas and offshoring help keep labor prices in check.

    • – And also think of high property prices. That is an additional reason for rents to rise (= cost for households & companies).

  3. – Agree, immigration is meant to keep wages low. In that regard US employers are thinking the same way all employers are thinking.

  4. Jumping jack flash

    Of course they do and the question to ask is “why?”.

    Why do we need to slash incomes? Why do we need to steal wages?

    It all comes down to one thing: The quest for debt.

    The quest for debt is the insatiable requirement for debt. As much debt that can possibly be taken on, and then some extra, to be able to afford the things that are essential. And once you have debt it doesn’t stop there. More debt is constantly required. You need a car, an IP, another IP. Capital gains and equitymate. It is all debt by different names.

    The quest for debt ensures that incomes stay low. The quest for debt ensures that cost of living remains high. It means that discretionary retail spending will never recover. It explains exactly a lot of the symptoms we see happening in the economy. It explains why interest rates had to be cut to “emergency lows” and will never rise. It explains why QE is now required.

    To obtain the debt you need income. Debt eligibility is still a function of income.

    Firstly the cost of living rises because it can. All the essential goods and services providers can pay themselves very well due to the gouging, and as a result they can obtain the debt they need.

    Then discretionary services providers realise that they can’t raise prices because they are discretionary, so they resort to the next best thing, cutting wages and taking the difference for themselves.

  5. The tide is changing, I don’t know what more one can say.
    If you manage to hold back the tide at one location it just rushes around the end of whatever barricade you create and floods you from behind, usually drowning those who took refuge behind the barricades.
    That’s what real change is like, it’s the tide that drowns those who refuse to acknowledge it or build these flimsy barricades to hold change at bay. You might as well back at the moon, you’ve got about as much chance of stopping the moon as you have of preventing change yet it is human nature to try.
    Our wages in this sense are just a reflection of our global value, if we want high wages than we need to be exclusively focused on high value ventures yet who among us has the skills to really earn high wages by delivering high value labour? Hence we bark at the moon.

  6. bleeterMEMBER

    this is so true. If you audited the twenty or so biggest corporations in Australia and saw what percentage of their workforce were “contractors” you’d be shocked