The H-1B Cap, by Greg Siskind

Accountants have April 15^th to make them crazy. Now immigration lawyers have April 1^st. That’s the day that the H-1B visa quota opens up for the 2008 federal fiscal year. Visas for the 2007 federal fiscal year ran out nearly nine months ago. Last year it took only two months to use up all the H-1B numbers for the fiscal year.  

You’re likely reading in this morning’s news that this year it took less than a day to reach the cap. That’s great if you’re Fedex delivering the estimated 100,000 packages likely to ship to the US Immigration and Citizenship Services regional centers in Vermont and California . It’s horrendous news for the rest of America .  

Such is the state of our immigration system that the quota in place today for high level talent workers was set nearly two decades ago for a much smaller, much less global American economy. We now move in to a black out period where employers will be barred from hiring these workers until the 2009 fiscal year begins.  

The great myth surrounding the H-1B visa is that somehow we’re saving American jobs when we keep these workers out. The truth is that keeping these workers out costs Americans far more jobs than we save and the country pays dearly for the lack of talent.  

The H-1B cap is set annually at 65,000 workers plus an additional 20,000 for graduates of US masters and Ph.D. programs. Most of the controversy in the program surrounds claims, particularly from a relatively small group of US workers in high tech fields, that they have lost their jobs to cheap foreign competition.  

The evidence simply does not support this.  According to the most recent Bureau of Labor Statistics Data[1], the unemployment rate for managers and professional workers is just 1.9%. And when you look at the specific occupations where H-1Bs are most visible, the numbers are similar: unemployment for computer professionals is down to 2.0%, down to 1.7% for engineers, 1.7% for people in the sciences, 1.2% for teachers and 1.3% for health care professionals.  

Milton Friedman and other macroeconomists use the term “full employment” to refer to the lowest level of unemployment that can be sustained given the structure of the economy. The Organization for Economic Cooperation and Development estimates that the natural rate of full employment in the US is 5.2%. So we are in a place much worse than full employment – in many fields we’re in a serious worker deficit situation with far more jobs available than available professionals.   

The consequences for the American public will not be pretty if we don’t soon deal with the talent worker visa crisis. In a full employment economy with no access to foreign talent and relentless competition from foreign companies, American employers are left with a few very unpleasant options.   

Raising salaries dramatically in order to get workers to shift from one employer to another is not an option if you hope to remain globally competitive. If employers can’t pass these costs on to consumers since it will make them uncompetitive in the marketplace, they have no choice but to cut profits (assuming they still have profits). At some point it no longer becomes worth it to produce the product when profits become too marginal.  

The only logical move if you’re in that situation is to move operations overseas where you have access to a sufficient number of workers. And I don’t need to recite examples of how this is already happening. We have Lou Dobbs telling us this every night. The irony is that Dobbs will rant in the same broadcast about H-1B workers taking our jobs and not see the connection between the lack of visas and the outsourcing trend.  

The other irony is that workers complaining the loudest about H-1B workers taking their jobs are often working at companies created by immigrant entrepreneurs, many of whom came on the H-1Bs these workers are attacking. Companies like Sun, EBay, Intel and Google were founded by immigrants. In a report recently released by the American Venture Capital Association entitled, “American Made: The Impact of Immigrant Entrepreneurs and Professionals on US Competitiveness” researchers found that 25% of US public companies that were venture-backed  were started by immigrants. These companies employ about 220,000 people in America and have market capitalization of more than a half trillion dollars. The study’s authors also reported that nearly half of smaller, private venture-backed companies were founded by immigrants and that these companies have significantly expanded the job pool for American workers.  

Of course, in some fields outsourcing is impossible. In health care, the shortages are downright frightening. Some studies are projecting a shortage of a million nurses and 150,000 doctors by 2020. Some employers are dramatically raising salaries. It is no longer unusual to see nurses making salaries in the six figures or physicians in high demand specialties earning salaries over $500,000 per year. Someone needs to come up with the money to pay these costs and guess who that is? The dramatic inflation in health care professionals’ salaries may not be the sole reason explaining why your health insurance premiums are rising so fast, but they are certainly a factor.  

Other employers are making due without enough nurses and doctors. Nurses don’t even qualify for H-1B visas because H-1B visas require a bachelors degree and every US state has now reduced their licensing requirements to only requiring an associates degree to become an RN (in response, in many cases, to the nursing shortage. Nurses now are in a category where employers must wait about five years for a visa. A recent study showed a link between too few nurses in a hospital and higher mortality rates. Is it really an exaggeration to say that the nurse shortage is killing Americans?  

It’s easy to say we just need to educate more doctors and nurses. But in a full employment economy, it means shifting professionals over from other fields and even if we commit as a country to producing more nurses and doctors, it takes years to develop the infrastructure to educate and train them. For physicians, for example, if we commit today to training more doctors, it would take ten to twenty years before the first MD additional MD would be available to treat a patient.  

For teachers, another profession facing severe shortages, school systems don’t have the luxury of being able to raise salaries as needed and then pass on the costs. So we simply see student-teacher ratios continue to rise and more and more qualified candidates electing to go in to other fields that can afford to pay more. And the failure to offer our children a first-class education only increases the odds that employers in the future will determine that an overseas professional can better do a job.  

If we want to see where America is going, perhaps we should look to Japan , a country with great entrepreneurs, but protectionist policies that dramatically limit the number of foreign workers and impose significant tariffs and other barriers to trade on its employers. Remember the headlines of the ‘80s predicting we would be trampled by the unstoppable Japanese economy? Well, The country has been mired in recession for nearly 20 years while its power companies have moved most of their operations overseas.  

Congress seems finally ready to address this crisis this year. The Securing Knowledge, Innovation and Leadership Act will likely be considered on its own or as part of a comprehensive immigration reform bill. The proposed bipartisan legislation would raise H-1B limits and create other visa opportunities for science, technology, engineering and mathematics students and professionals.    

America has remained the world’s economic leader for the last century because we’ve been a magnet for energetic and entrepreneurial individuals. We seem to be forgetting that and unless we go back to our roots, the America of the 21^st century will be far different.