Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
President Trump has issued an executive order directing some U.S. agencies to review the non-immigrant, H-1B work visa policies, which at present allow companies to hire “skilled” foreign workers when employers say they cannot find qualified Americans. Trump has questioned the impact of the program, saying that it depresses American wages by paying foreign workers less. The U.S. issues 85,000 H-1B visas annually and extends or reissues another 100,000 visas, according to Forbes. Last year, nearly 127,000 visas went to Indian nationals, about 21,700 to Chinese workers and 2,540 to Mexicans to round out the top three.
Should the review lead to curtailing the visas, on first glance, it looks likely to hit Indian professionals — and Indian tech companies in particular — the hardest. But in this opinion piece, Ignatius Chithelen argues that some Indian visa holders could actually end up ahead. He is the author of Six Degrees of Education: From Teaching in Mumbai to Investment Research in New York, and the founder and managing partner of Banyan Tree Capital Management.
The lottery for 85,000 H-1B visas held this month (on April 11) for the current year brings attention to Indian professionals in the United States. There were 199,000 foreigners who applied for these visas, down from 236,000 in 2016. In previous years, sponsored mainly by outsourcing companies like Tata Consultancy Services, Infosys, and Cognizant, Indians got a majority of these visas issued to “high-skilled” workers.
These three major H-1B employers paid $60,000 to $65,000 in wages a year, while the median wage of a software engineer in the Silicon Valley is around $150,000, according to U.S. government officials. Overall, roughly 80% of all foreigners on H-1B visas got similarly low wages. This shows that cheaper foreign workers are often brought in to replace American workers, say U.S. officials.
There is expected to be sharply increased scrutiny over wages, skills and qualifications of the visa applicants by the Labor, Home land Security and other government departments following the “Buy American, Hire American” presidential executive order issued April 18. The new policies for H-1B visas will be announced in November, possibly earlier. From next year, the visas could go to applicants with the highest wages and skills, and the number of H-1B visas issued may also be reduced since the focus is to “Hire Americans.”
So IT companies doing outsourcing work, including TCS, Infosys, and Cognizant, will likely face higher labor costs as well as have lower revenues in the U.S. due to fewer visas. They could try to contain costs by increasing automation and expanding the services they offer from India, where the wages for technologists are far lower than in the U.S. They could also try to hire Indians and locate them in Canada to serve the neighboring U.S. market.
Some of the Indian IT companies, along with enterprising new companies, may decide to move into more lucrative, higher-end technology businesses like cloud-based services, data mining, cyber security and robotics in India and export markets.
The large supply of technologists from India, eager to work in the U.S., has kept technology wages in the U.S. from surging too high, especially when demand rises sharply as in the current social media boom and during the internet bubble of the late 1990s.
The new rules for the visas could raise labor costs for both technology companies and businesses using outsourcing services in the U.S. These extra costs are estimated to be about $2.6 billion a year. The assumption is that the visa holders will be paid $100,000 in annual wages, around the average at major companies based on online job postings, while the number of visas issued remains the same.
Few chief executives in the U.S. will want to bear the added labor costs and show lower profit margins. So they, too, will increase automation and move more operations to India and other low-cost regions.
If starting in 2018, H-1B visas are issued to those with the highest wages and skills, Indian professionals could benefit. Indians graduating with advanced degrees in the U.S. and highly skilled professionals in India applying for H-1B jobs should then be able to find jobs with higher wages and better working conditions.
After all, Indian professionals are much sought after by startups as well as major corporations. Indians have several traits in common with other highly skilled foreigners working in the U.S.: degrees from top universities, advanced technical skills, good work habits and a command of English. They also know how to win amidst intense competition while working in tough conditions. Several successful Indian professionals in the U.S., including Sundar Pichai, the chief executive of Google, are graduates of the Indian Institutes of Technology. In 2016, about 10,500 students were admitted to India’s top ranked engineering schools from about 1.2 million who took the entrance exams, an admittance rate of less than 1%.
These institutes, and other highly selective engineering schools in India are located mostly in isolated campuses where students get used to long hours of study each day, for months at a stretch, with few distractions. Their graduates hence find it easy to work equally hard at jobs in the U.S. and elsewhere. Also, growing up in India they have to figure out how to work, play, collaborate and compete with fellow students from four major religions, four castes, 20 major native linguistic groups and different economic and cultural backgrounds while seeking good grades and trying to win at cricket and debates. So many Indian professionals in the U.S. quickly grasp the diverse motivations, ambitions, skills, temperament, work habits and culture of the Americans and foreigners they deal with, and know how to manage them to get results.
“If starting in 2018, H-1B visas are issued solely to those with the highest wages and skills, the policy could benefit Indian professionals.”
Many Indians are creating jobs in the U.S. by setting up companies, especially in the Silicon Valley. Some have become billionaires like K. Ram Shriram of Sherpalo Ventures, an early investor in Google, and Rakesh Gangwal, co-founder of InterGlobe Aviation and former chief executive of US Airways. Others are chief executives of major companies, notably Pichai of Google, Satya Nadella of Microsoft and Indra Nooyi of PepsiCo. Ajit Jain, head of Berkshire Hathaway’s Reinsurance Group, is one of two executives in the running to succeed Warren Buffett as CEO of Berkshire Hathaway.
Over a million Indian professionals are estimated to have migrated to the U.S. on H-1B visas. They enrich the American economy by several billion dollars just in terms of the value of the education they received in India. They have also been a major factor behind the computer, the internet and related technology boom in the U.S. since the 1980’s.
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