US raises salary threshold for skilled visas

Earlier this year, the Economic Policy Institute 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.

With this background in mind, it is interesting to report that the Trump Administration has announced an overhaul of H-1B Visa Program requiring employers to pay high-skilled foreign workers significantly higher wages:

Ken Cuccinelli, the No. 2 official at DHS, said on a news conference call Tuesday that he expects about one-third of H-1B visa applications would be rejected under the new set of rules.

Mr. Cuccinelli and Patrick Pizzella, the deputy secretary of labor, said the changes were necessary to protect American workers, whom the administration believes are being undercut by foreign workers on H-1B visas who are paid lower wages to perform similar jobs.

“America’s immigration laws should put American workers first,” Mr. Pizzella said, pointing to what he described as insufficiently stringent wage requirements on foreign workers in the H-1B visa program. “The result is U.S. workers are being ousted from good-paying, middle-class jobs and being replaced by foreign workers,” he said…

The Labor Department’s wage-scale revision would significantly increase the required wages employers must pay their workers on H-1B visas…

Under the new rule, the required wage level for entry-level workers would rise to the 45th percentile of their profession’s distribution, from the current requirement of the 17th percentile. The requirement for the highest-skilled workers would rise to the 95th percentile, from the 67th percentile.

Sadly, Australia has fallen into exactly the same trap and should follow the Trump Administration’s lead.

The Australian 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 Australia’s 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.

Unconventional Economist
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