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Trump’s executive order scrutinizing the H-1B visa program rattles the tech world

U.S. Department of Homeland Security

Last week President Trump signed an executive order that took aim at the US high tech sector’s workforce. The order stipulated:

  • The launch of a government-wide, multi-agency review of H-1B. The intent of the review is to identify “fraud and abuses” in the system and to encourage business and consumer behavior to “Buy American, Hire American.”
  • A review of how H-1B visas are awarded. The Department of Homeland Security will conduct this review of the lottery system currently in place for awarding visas to immigrants under the H-1B program.
  • An examination of pay scales for H-1B visa recipients. DHS is will review compensation, with a goal that H-1B visas “only land in the hands of highly paid, specially skilled applicants, and not foreign workers who might be paid less than their U.S. counterparts.”

This executive order does not change current operations but merely shines a more intense light (and gives a prospective warning) on employment practices vis-à-vis the H-1B category of immigration visas. Still, the impact was chilling enough in technology centers throughout the country that rely extensively on highly-educated, foreign workers to fill high tech positions.

Given that Trump’s new order focuses on multi-departmental reviews, this time-consuming, cross-department activity may seem to be much ado about nothing. However, it is extremely important to, and closely watched by, the CEOs of leading US-based high tech companies, such as Jeff Bezos (Amazon), Satya Nadella (Microsoft), Tim Cook (Apple) and Sundar Pichai (Google). H-1B matters to these CEOs because for years it has provided a valuable stream of thousands of highly-skilled, highly educated IT job applicants who, if selected via the lottery system, can receive green cards permitting them to reside and work in the US for six years.

In the past, IT luminaries, such as Bill Gates, lobbied Congress whenever the threat of restrictions to H-1B visas loomed. The reason is simple; high-tech companies depend on this specialized labor pool for trained, experienced software engineers and developers, often with master’s degrees and doctorates, to fill the ranks left by retiring baby boomers and to populate an ever-expanding workforce.

Really? We have a shortage of skilled workers?

You bet. If you’ve followed the changing US and global workforce over the past few years, you’ll know that two important megatrends currently impact hiring needs in the US (and also Western Europe and Japan):

  • Baby boomer retirements. While this is not an actuarial surprise, the long-predicted retirement boom in the US among sixty-somethings has finally arrived full force and older workers have been leaving in droves, taking many business leaders by surprise as retirement dates inched closer and closer. In 2008-2009, the first baby boomers turned 62, and began putting in their retirement papers. Accordingly, “baby boomers in a big lump are leaving the labor force. And that explains about half of the drop in the labor force participation rate between 2007 and the end of 2014,” says Andrew Chamberlain, chief economist at Glassdoor.”
  • Millenials are taking longer to enter the workforce. Talk to anyone who manages millennials and they will quickly tell you that this generation differs from other cohorts. Managing younger workers is challenging because millennials have different expectations, are motivated by factors irrelevant to other age groups, and need a ton of positive feedback and attention throughout the day to stay engaged in work. A whole cottage industry has emerged for teaching managers how to relate to, inspire and retain millennials. Their unique outlook also impacts their education plans and readiness to get a “real” job. “[T]he second factor [in the large number of U.S. job vacancies] is education – people [are] getting more education and staying in school longer. If you get an MBA, you’re out of the labor force for three years. If you get a Ph.D., you’re out of the labor force for 5 years, maybe 7 years.”

These two demographic trends impact available pool of talented workers and are not just a holdover from high unemployment following the great recession. “[T]here were nearly 5.4 million open jobs at the end of May [2015] – more than twice as many vacancies as there were six years ago.” This job vacancy rate explains why the high-tech sector wants to protect its non-native source of educated, experienced workers.

(Also note, declining birth rates is a third trend impacting the shortage of skilled workers in many countries in Europe, such as Italy and Spain, where it is particularly pronounced. Many European countries have introduced social programs—such as long-term, guaranteed work leave for parents—as a way to increase birth rates but these programs have made very little difference. The historically low birth rate in China, resulting from the one-child policy, has also created shortages of skilled workers in that country.)

Some thought provoking data on companies H-1B

Given all the focus on H-1B visas last week, Bloomberg just updated a report, “Trump’s Administration Just Made it Harder to Get Work Visas,” that was originally published in March. The article highlights some surprising data about how extensively the outsourcing companies (Tata Consultancy Services, Cognizant Technology and Mphasis Corp.) use work visas as compared to US tech companies. Topline findings include (and are quoted here):

  • India[n companies] got nearly 70% of H-1B visas in FY 2015
  • Outsourcing-focused companies get more approvals than US tech companies (based on H-1B petitions in 2014)
  • Outsourcing companies pay significantly less than US tech companies
  • Outsourcing companies rarely apply for Green Cards (based on applications in 2014)

The big concern that President Trump and other politicians have from the data cited above is that outsourcing companies, particularly the large Indian firms, appear to treat the H-1B program as a revolving door for training employees in the US and then returning them to India, where—politicians claim—they then undercut US jobs by paying lower salaries and enticing US outsourced business to India. This H-1B enabled training concept is a different approach than the US high tech companies that hire employees with the hope they will permanently immigrate. The pro’s and con’s of H-1B policy can quickly become a question about one’s political philosophy. But instead of degenerating into a political wrangle, it helps to look at the headcount data, which is telling. These Indian and US headquartered companies received the following H-1B approvals in 2014:

  • Tata – 5,650
  • Cognizant – 4,293
  • Infosys – 3,454
  • Wipro – 3,048
  • Amazon – 877
  • Microsoft – 850
  • Google –728
  • Intel –700
  • Apple –443

President Trump’s executive order is a shot fired across the bow of IT companies that rely heavily on H-1B visas to fill large numbers of US-based IT jobs. It orders a review of the program instead of taking specific actions. However, the Executive Order is clearly a signal that the new administration views H-1B as a complication for building more jobs that go to American citizens. The firms most likely to be impacted by future H-1B related executive orders and legislation are:

  • Outsourcing firms. Off-shoring firms have a lot to lose if the H-1B program is substantially changed, and they absolutely realize it. Already, Indian executives and Indian leaders are taking up the topic in discussions with the US Commerce Secretary.
  • US-headquartered IT firms.  The motivation behind the current and future executive orders is not directed at large IT firms, such as Microsoft and Google. However, these firms could be impacted by future changes and they will most likely lobby their congressmen, senators and US secretaries of Labor and Commerce to safeguard their hiring programs. Also, many politicians may be completely opposed to the H-1B program in any form because they dislike any American job, particularly one for a highly paid software engineer, to go to anyone other than a US citizen.
  • Startups and small firms.  Small, US-based businesses have been too small to actively participate in the H-1B visa program, so any new attention on the program could work to their advantage. These firms would be smart to lobby for changes that level the playing field for smaller, startup companies.

The H-1B program is an interesting space to watch because the hiring and salary data clearly expose differences in practices between outsourcing companies and US based high tech companies. The data is illuminating to politicians on both sides of the aisle and may not be as divisive as one would initiallly think. As one publication noted, “if Trump wants to make it harder for outsourcing firms to use H-1Bs to staff call centers, and make it easier for tech giants such as Google and Microsoft to bring over high-level engineers, he could find a surprising amount of bipartisan agreement.”

 

 

 

 

 

 

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