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Wednesday Morning Rant

A Necessary Adjustment

On Friday, President Trump signed a proclamation regarding reforms to the H-1B visa system. It will be in effect for a year and before it expires, the reforms need to be made permanent - and hopefully made more significant. There are two parts to the changes, which are around fees and earnings. The fees are grabbing most of the headlines.

The Proclamation lays out why the changes are being made, and it boils down to a single word: "abuse." The H-1B system is something of an inversion from its intention. It is supposed to a temporary skilled worker program to allow companies to shore up expertise. The phenomenon - described in the Proclamation and in the press over the past couple of decades - of Americans being made to train their cheaper H-1B replacements is entirely counter to the whole idea. The H-1Bs are supposed to make good money training their replacements in the domestic market. As the Proclamation lays out, one reason this doesn't happen is money, so the money is changing.

As of now, new H-1B petitions will now cost $100,000. This will likely be paid by the petitioner (the employer). This is real money, and helps - somewhat - deal with the problem of employers using H-1Bs to compress domestic wages. H-1Bs are supposed to be expensive, and employers know it. They have just been skirting it for decades. "This guy is really good and has a rare skill set we need" does not equal "this guy is cheap" in any job market I have ever seen. The six-figure fee will help remove the incentive to bring in large numbers of average foreigners to replace domestic employees.

That petition fee is grabbing the headlines, but the much more important part of the Proclamation - though much less detailed - is Section 4:

Sec. 4. Amending the Prevailing Wage Levels.
(a) The Secretary of Labor shall initiate a rulemaking to revise the prevailing wage levels to levels consistent with the policy goals of this proclamation consistent with section 212(n) of the INA, 8 U.S.C. 1182(n).

I have no idea what the new H-1B minimum wage is going to be, but I look forward to seeing what Secretary Chavez-DeRemer comes up with. It will certainly be a lot higher than it is now. The H-1B minimum wage is at least $60,000, and up from there based on region and employer. This is the secret to H-1B preference by US firms: they get them for cheaper. The minimum $60k wage is absurd. It has been in place since 1989. Back then, this was about double the median household income in the US. An equivalent figure nowadays would be closer to $170k. This aspect of the proclamation is of far greater importance than the new flat fee, and is crucial to curtailing abuse.

And a much higher H-1B minimum wage is entirely consistent with the point of H-1Bs. H-1Bs are supposed to have highly specialized knowledge and skill. Such people do not work for peanuts, so why are there so many working for less than domestic labor? Cheating. Or, at least, gaming the system. With a legitimate need for real specialized skills, no employer will bat an eyelash at paying a lot of money for an H-1B who can deliver. He's worth it. If the H-1B is just a cheap drone employed at a lower cost than domestic labor, however, the employer will balk and balk bigly at paying him a significant premium over domestic labor. That's the point.

The Proclamation does nothing to address other H-1B issues, like the easy path to permanent residency or citizenship for those who are here - explicitly and legally - on a temporary basis, but this is a very good start and I want to see how the rest of it shakes out. While this action is hopefully just the start of curtailing the abuses of this program, it is already causing some panic in the foreign country that will see the greatest consequences: India. The English-language Hindustan Times has been publishing more than a dozen articles a day in its H1-B section since the 19th. Before that, it was a couple per week. In decrying the unfairness of it all, one fascinating article accidentally says the quiet part out loud:

An HT analysis shows that the new visa fees of $100,000 announced by Trump is more than the median annual salary of a fresh H-1B visa holder and more than 80 per cent of the average annual salary of all H-1B visa holders.

$100k is more than the median salary of a new H-1B, meaning that the median new H-1B is earning less than $100k. Highly-skilled, in-demand technical specialists clustered in high-tech hubs and a bunch of doctors are earning under $100k? Doubtful. If this is the case, they are not highly-skilled and in-demand, or the vast majority are not in the tech hubs. Based on the concentration of H-1Bs in big tech companies, we know the latter isn't true. The former, then, must be. When taken in aggregate, the median salary of all H-1Bs is around $125k - nice money to be sure, but nothing special in the tech hubs like Silicon Valley.

This is why the barely-defined Section 4 is so important. If it's a legitimate need, no employer is going to worry about paying a specialist what he's worth. No employer, however, will overpay a mediocre or even bog-standard foreign worker premium rates. If that is corrected, it is going to curtail a lot of abuse that harms American professionals. Depending on what the adjustments pursuant to Section 4 end up being, it has the potential to do more to reduce the abuse of the H-1B system while permitting its legitimate benefits than reams of new legislation.