2005 December 25 Sunday
Foreign Tech Workers Brought In Mainly For Lower Costs

Once again the evidence demonstrates that the law of supply and demand applies to labor markets just as much as it applies to other markets. John Miano at the Center for Immigration Studies finds that unsurprisingly, the major attraction of foreign tech workers is that they cost less than Americans.

  • In spite of the requirement that H-1B workers be paid the prevailing wage, H-1B workers earn significantly less than their American counterparts. On average, applications for H-1B workers in computer occupations were for wages $13,000 less than Americans in the same occupation and state.
  • Wages for H-1B workers in computer programming occupations are overwhelmingly concentrated at the bottom of the U.S. pay scale. Wages on LCAs for 85 percent of H-1B workers were for less than the median U.S. wage in the same occupations and state.
  • Applications for 47 percent of H-1B computer programming workers were for wages below even the prevailing wage claimed by their employers.
  • Very few H-1B workers earned high wages by U.S. standards. Applications for only 4 percent of H-1B workers were among the top 25 percent of wages for U.S. workers in the same state and occupation.
  • Many employers use their own salary surveys and wage surveys for entry-level workers, rather than more relevant and objective data sources, to make prevailing-wage claims when hiring H-1B workers.
  • Employers of large numbers of H-1B workers tend to pay those workers less than those who hire a few. Employers making applications for more than 100 H-1B workers had wages averaging $9,000 less than employers of one to 10 H-1B workers.

Mentally I file this under the heading of "totally predictable result". Of course employers take the trouble to bring in foreigners because the foreigners are cheaper. Why else do it? I hear the claim "but they are smarter or more talented". No, they are smarter at a given wage level. A US employer could staff up to a higher average talent level using domestic workers if the employer was willing to pay more to get the best. Most aren't willing to pay more to get the best.

Note that given a supply of smart foreign workers with time an increasing fraction of employers will turn toward using them. Any company that does not avail itself of a way to lower costs puts itself at a competitive disadvantage against companies that will use a lower cost source of labor. So companies that use foreign labor will be able to undersell companies that use only domestic labor and will therefore displace those companies from markets.

I'm ambivalent about smart immigrant workers. On the one hand, they really are used mainly to lower skilled labor costs and that lowers wages for smarter American workers. Also, they have different interests and different political loyalties than native Americans. On the other hand, the huge Hispanic influx is lowering the average IQ in America. Importation of tech workers helps to reduce the rate at which the American national average IQ is dropping.

An argument can be made in favor of bringing in tech workers if above some level of IQ (perhaps 130 or 135?): the super-smarties generate work for many others and produce designs and processes that raise living standards. For example, if a super-smartie develops a new product then less smart people are needed in marketing, manufacturing, tech support, testing, and in other support roles.

Perhaps a salary threshold on foreign tech workers would effectively create an IQ threshold to keep out those with a mere 110 or 115 IQ (which are still above the white average) and let in the super-smarts. But I'm not sure that would work well in practice. Employers are not good at evaluating the relative ability of even the employees they already employ, let alone people in face-to-face job interviews or, worse yet, foreigners hired sight unseen through tech body shops. What we really need is a repeal of Griggs v. Duke Power, the ignorant US Supreme Court decision that, in order to enable racial preferences, made it extremely difficult for employers to administer IQ tests to prospective employees. Widespread testing combined with minimal salary thresholds on foreign workers would improve the quality of foreign workers imported into the US and also would make the US labor market much more efficient.

Update: Randall Burns points out that citizenship and residency rights have cash values.

Here is the note I sent them: There is one big thing that you are missing here, US citizenship and permanent residency have substantial economic value.

Unless companies profiting from immigration are required to pay market rates for those immigration rights, there will always be a severe disconnect here. Programs like H-1b essentially allow companies to pay employees in immigration rights rather than cash.

Burns proposes a number of policy changes to account for the economic value of citizenship and residency. He recommends auctions for H-1B visas. I'd love to see what those visas would go for per year. I would simply add that the economic cost to citizens already here has to be calcualted as well and that cost depends on the individual immigrant. Some immigrants pay little in taxes, make small economic contributions (no, picking cabbage is not a large economic contribution), and generate costs from crime, welfare dependency, uninsured medical expenses, and progeny who are as costly or even more costly.

Share |      By Randall Parker at 2005 December 25 10:52 AM  Immigration Economics


Comments
D Flinchum said at December 25, 2005 1:07 PM:

Another factor not mentioned here is that those in many "low level" H-1b positions that well may be being paid below US standards are actually working at a different level altogether. A US company may have hired an entry level programmer - maybe at a fair salary or maybe well below - but that person actually has education, experience, and skill above the level he was hired at. This person works at his skill, experience, and education level but is paid well below that level. Who checks exactly what these H-1b's are doing after they are hired? The H-1b is happy because he is paid more than he could get in his native country and his employer is happy because he is paying well below what he should be be paying in the US. Yet another way to avoid hiring US workers.......

Invisible Scientist said at December 25, 2005 1:13 PM:

Although the IQ tests certainly have the politically incorrect reputation of racially discriminatory, etc, the GRE tests are better than the IQ tests and these are PC. The GRE tests correlate well with IQ tests, and additionally, the GRE tests are better at measuring motivation and dedication than the IQ tests.

For immigration, a certain "point system" should be adopted to accept especially those immigrants who are in the top 1 %, and a much more accelerated immigration system for the truly gifted, who have diplomas from top universities worldwide. And in the future, ALL immigrants should be required to be fluent in English before even entering the United States, and they have to have decent education, they must have decent SAT or GRE scores depending on the age, even if they are immigrating on the basis of kinship.

But my point is that the most important aspect of the new immigration system is not the exlusion of unqualified immigrants, but the INCLUSION of the truly gifted: Modify the annual green card lottery that accepts 50,000 immigrants by simply requiring each applicant to be in the top 1 % as a precondition to register to the lottery. In addition, immigration law should be further modified so that the applicants who are truly gifted would be accepted automatically, especially children who are gifted. If you bring 50,000 truly gifted kids to the United States, the result would pay off within 25 years. The chief technologist at Google, is the son of a Russian math professor.

John S Bolton said at December 25, 2005 11:17 PM:

For every point of IQ that the minimum of an immigration cohort can be raised, the net public subsidy of that cohort will be reduced. An all merit standard need take only ~1% of the number admitted on an antimerit basis. Since we wouldn't go from 1.5 million to 15,000 (=-99%), numbers in the tens of thousands, would result in fewer potential immigrants being excluded, who are on the level from which the overwhelming bulk of significant contributions come. H1b's, wile showing a respectable middle class profile, are rarely on the level intellectually, of being able to contribute to the advancement of civilization. Embarassing as it is to say, these corporate nominees, along with foreign students, represent the merit feature in our immigration policy today.

John S Bolton said at December 25, 2005 11:43 PM:

IS says GRE (presumably subject) exams are less opposed by PC elements. This could be a matter of the stakes involved, and of the fact that by the time GRE subject exams are taken, disadvantaged minorities have largely dropped out. If high scorers on the GRE biology or engineering tests were used to assign immigration visas, though, there would be the same outcry of racism as is seen with SAT's etc. Another difficulty, and a more insuperable one, is the multiplicity of standards if one assigns shares to say the top percentile, on science, math and engineering GRE subject exams only. Education, psych, poli sci and sociology would be vastly easier to get in the top 1% in. There needs to be definite principle, and preferably a single standard, for determining the shares. I would say national security, with the advancement of civilization being considered the central feature of this; should order the preferences such that we always recruit the minimum needed for this objective. Doing justice by foreigners, and doing our part for the advancement of civilization globally, and especially technology in the world, are additional and secondary considerations.

TGS said at December 26, 2005 12:59 AM:

H1-B requires among other things, posting THAT position publicly every time the visa is up for renewal, without mentioning the salary. That means that if an qualified American applies for it, he/she gets it. Also, the H1-B is tied to a job description for each individual, and in some fields there is actually strict follow-up.

On top of that I think it is understandable that given the costs of lawyers and export compliace training for all the rest of the employees working in the same location translates into perhaps, a slightly lower than average salary. I will add that all the legal red-tape that my company has to go through every year is not worth saving 10K, not by far. I am a foreigner with 3 engineering degrees, by the way, so I really know what I am writing about first hand.

And yes, it frustrates me that other foreigners who will be on welfare forever have a much easier immigration process.

Bob Badour said at December 26, 2005 6:12 AM:

TGS,

The job posting requirement is a joke -- no American will ever get hired for those jobs. An American will get interviewed and might even get hired for a different job, but no American will get hired for that job.

I long ago realised that over 99% of all job postings in the US are bogus. The listings require every arcane and useless skill on the visa holder's resume and in the case of renewals you will see things like: "Must have experience with the internal corporate culture at X."

The issue became particularly clear to me as a Canadian who works in the US on TN-1 work permits. On several occasions I submitted resumes and cover letters responding to ads where I was an ideal candidate--my recent experience matched the posting 100%--and where I knew that combination of skills was rare. If I were an American, the employers would be obliged at least to interview me.

The fact that I didn't even get a telephone interview tells me how much interest the employers had in hiring anyone.

In my mind, I can even hear the hiring managers: "Oh shit! This is a perfect resume--now what are we going to do? Oh wait! He's a Canadian. Whew! Dodged a bullet on that one!"

John S Bolton said at December 26, 2005 1:21 PM:

It is true that those who advocate any great restriction of immigration will be subject to ad hominems, such as racism, xenophobia and discrimination of several classes. What is urgently needed for the survival of civilization is more discrimination, and this will be done. If each must be in the top ~1% of verbal IQ as tested in English language standardized exams including fluency and pronunciation, this will be highly discriminatory. Unaccompanied minors shouldn't be eligible, and this is a deviation from an allmerit system. Having deviated for that reason, national security has easily an even greater claim. The allmerit standard on visas could be limited to those nations which are not hostile or nonaligned.
The situation with terrorism, espionage and disadvantageous technology transfer has already reached extreme levels, requiring extreme national action regarding quality of immigration.
Prospective immigrants' merit now may be said to include lack of risk for those dangers to national security, which is to be assumed from those countries which are not our allies, or are openly hostile.

Mik said at December 26, 2005 7:26 PM:

TGS blows hot air without a trace of knowledge and no shame:

"H1-B requires among other things, posting THAT position publicly every time the visa is up for renewal, without mentioning the salary. That means that if an qualified American applies for it, he/she gets it."

I suggest Sir that if you slow and ever so gently pull your head out of your ass you might learn the following facts:

1. There is no requirement on where that advert about a position should be posted,
posting an ad for an Oracle admin in Stamp Collector News and Wife Swapping Digest is perfectly OK.

2. There is no legal obligation on a part of employer to do anything upon receival of a perfectly matching resume from an American. Whatever employers do is to protect themselves against a very remote potential claim of discrimination based on national origin (discrimination against americans) or race (if an applicant happens to be non-white) -a totally different set laws, nothing to do with non-existing safeguards of H1B law.

TGS continues to blabber:
"I am a foreigner with 3 engineering degrees, by the way, so I really know what I am writing about first hand."
You totally failed to demonstrate your knowledge of the issue. All you did is repeat corporate open-borderers lies.

"given the costs of lawyers and export compliace training (ed. heh?) for all the rest of the employees working in the same location translates into perhaps, a slightly lower than average salary. "

Unfortunately English grammar and comprehension was not part of TGS studies. It must be very difficult for TGS to understand study that states that H1B peons make 15, 20, 30% less than americans with similar skill sets. So an extensive study translates in TGS 3-enginnering-degrees-brain into "perhaps slightly lower".

Considering total lack of knowledge and inability to comprehend and argue case logically, I believe that TGS value to his employer, 3 degrees or not, is his comparatively low salary and nothing else.

A painful fact, but it is reality for 90% of H1B serfs.

Randall Parker said at December 26, 2005 9:49 PM:

TGS,

I've worked at companies where employers went thru the motions of interviewing Americans for jobs that foreigners held. The interviews were not serious. I never saw a foreigner get sent home and replaced by an American. Those sorts of job interviews are charades.

John S Bolton said at December 27, 2005 1:12 AM:

Can we trust today's businessmen to consider the longterm, and in particular, regarding the extent to which a good number of H1B's may be highly efficient agents of disadvantageous technology transfer to countries which are hostile, or nonaligned in a way that is malignant?

mik said at December 27, 2005 2:01 AM:

Randall Parker wrote:

"I've worked at companies where employers went thru the motions of interviewing Americans for jobs that foreigners held. The interviews were not serious. I never saw a foreigner get sent home and replaced by an American. Those sorts of job interviews are charades."

Again, H1B law does not even require interviewing natives. Rejection of applicant based on resume pre interview is perfectly OK as far as H1B law is concerned. Companies do interview natives strictly to double cover their ass.

Jorge D.C. said at December 28, 2005 1:37 AM:

I'm ambivalent about smart immigrant workers. On the one hand, they really are used mainly to lower skilled labor costs and that lowers wages for smarter American workers. Also, they have different interests and different political loyalties than native Americans. On the other hand, the huge Hispanic influx is lowering the average IQ in America. Importation of tech workers helps to reduce the rate at which the American national average IQ is dropping.

The solution is to enact an overall immigration timeout and then address the corruption in the public school system. The USA was closed to immigrants from the mid 20's to the mid 60's - about 40 years or nearly half of the 20th century.

The result was NOT a drop off in American innovation. Quite the opposite. Let's stop drinking the immigration koolaid. Mass immigration is totally unnecessary at this point in American history. We are no longer a frontier nation.

Mass immigration is expensive as hell in myriad ways and is absolutely destablizing the fabric of the nation. Noting that a Google founder is an immigrant ignores the cost side of the cost-benefit analysis of mass immigration.

Brad Wardell said at December 28, 2005 9:22 PM:

The alternative to this is to simply outsource the jobs entirely overseas.

If we couldn't get visas for foreign workers, we'd simply hire them there or outsource development. It's not like people buy software based on where it's made. They buy it based on how much it costs and what it does.

American techical professionals have helped bring this issue on themselves by a) pricing themselves out of the market and b) creating a culture of entitlement where they hop from job to job every other year to increase their salaries. I say more power to them if that's what they're goal is but business has adapted too and hence we now have visa programs and outsourcing.

Bob Badour said at December 29, 2005 5:52 AM:

Brad,

I look at things a little differently. I see widespread outsourcing as fallout from the H1B visa program. After the dotcom bust in the west and the later downturn in the east accelerated by 9/11, a whole lot of former H1B visa holders returned to India and other low cost regions. When an H1B holder loses his sponsor, he has what? 10 days to leave?

Once this happened, Hyderabad and Mumbai suddenly had a lot of resources who not only had nominal training, but who had direct experience and contacts in US companies.

In the end, the H1B program served merely to shift abroad US business skills and experience -- not to mention taxable income.

I marvel at the profound stupidity of those who welcome hordes of net drains on society while simultaneously sending the net contributors abroad.

Alexander said at August 3, 2008 3:23 AM:

Yeah, my Russian coders are writing a skinning program (and more) that will blow the doors off Stardock's products (and is fully compatible and much less expensive especially for VARS). See, we work from Russia, so good luck hoping you can sue us, looking forward to your nonsense. As to the discussion, most of my boys are trained in US companies originally, got a start with managers like you Brad, who wanted cheaper labor and are willing to sell out your own countrymen for a simple short term return. Capitalism rocks, stay tuned!

Спасибо!


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