US sensibly lifts skilled visa salary threshold

Earlier this year, the Economic Policy Institute released research proving that the United States’ temporary skilled visa scheme (H1B) has been ruthlessly exploited by employers to undercut American wages.

The analysis was based on 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 found 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 noted 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 recommended setting the minimum salary floor for a skilled H1B visa at the 75th percentile rather than the 17th.

Last month, the Trump Administration announced an overhaul of H-1B Visa Program requiring employers to pay high-skilled foreign workers significantly higher wages. Specifically, 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. In a similar vein, the requirement for the highest-skilled workers would rise to the 95th percentile, from the 67th percentile:

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…

Now the industry bleating has began, with business leaders warning the new salary thresholds with destroy America’s start-up culture:

“Modifying the H-1B cap selection process by replacing the random selection process with a wage-level-based selection process is a better way to allocate H-1Bs when demand exceeds supply,” said the Department of Homeland Security (DHS) in an announcement.

The Trump administration claims this approach will prevent companies from hiring cheap foreign labor, and encourage the recruitment of Americans, yet the decision has sparked anger and frustration, particularly from startups that can’t afford to pay high wages and rely instead on things like equity, bonuses, and various perks to get the best candidates. None of those alternative forms of economic reward are accepted under the new rules…

Computer research scientists would “need to be paid from 42 per cent to 49 per cent more under the new Dept of Labor wage system,” and employers would need to increase annual salaries by nearly 50 per cent for computer hardware engineers, over 40 per cent for computer programmers and chemical engineers at all wage levels, and more than 35 per cent for electrical engineers, computer network architects, computer systems analysts, mechanical engineers and database administrators at all wage levels…

The reality is that some H-1B workers such as an IT analyst would need a starting salary of $208,000 to be eligible – a massive jump over the previous requirement.

An entry-level programmer would need to make $111,946 instead of the previous $78,125. “It’s already expensive, it was already a high bar, and we are making it prohibitive,” the co-founder of VC firm Scale, Kate Mitchell, told the Wall Street Journal…

“The H-1B program is often exploited and abused by US employers, and their US clients, primarily seeking to hire foreign workers and pay lower wages,” said the acting DHS deputy Secretary Ken Cuccinelli last week.

“The current use of random selection to allocate H-1B visas …. fails to leverage the H-1B program to truly compete for the world’s best and brightest, and hurts American workers by bringing in relatively lower-paid foreign labor at the expense of the American workforce.”

Australia’s ‘skilled’ visa system 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.

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.

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