H-1B Visa Myth Busted: Imported Foreign IT Workers Get Paid More

(MoneyWatch)  For over a decade, the topic of foreign technical professionals working in the U.S. under H-1B visas has been contentious. Many Americans claim that corporations use H-1Bs to displace domestic workers and depress wages. Companies say that colleges don't graduate enough technical professionals. Both might be wrong.

A recent university study in the journal Management Science suggests that H-1B workers make more money than domestic counterparts. Another study last fall said schools graduate the same number of technical workers, but the top ones go into other fields, probably for better opportunities. The combination of factors means that many corporations may need to reassess their staffing strategies.

The H-1B study, by researchers at the University of Maryland, looked at 50,000 IT professionals in the U.S. from 2000 to 2005.

Contrary to the popular belief that foreign workers are a cheap source of labor for U.S. firms, we find that after controlling for their human capital attributes, foreign IT professionals (those without U.S. citizenship and those with H-1B or other work visas) earn a salary premium when compared with IT professionals with U.S. citizenship. The salary premiums for non-U.S. citizens and for those on work visas fluctuate in response to supply shocks created by the annual caps on new H-1B visas. Setting lower and fully utilized annual caps results in higher salary premiums for non-U.S. citizens and those with work visas.

Then why do companies hire foreign workers? Many corporations claim that not enough young people go into engineering and science in the U.S., leaving a lack of qualified candidates. However, a Rutgers study last fall said that U.S. graduation rates of scientists and engineers haven't declined. The researchers noted that "universities in the United States actually graduate many more STEM [science, technology, engineering, and mathematics] students than are hired each year," but the highest performing students leave the fields "at a substantial rate." Possible reasons include recruitment into non-technical occupations, whether management of technical personnel or employment in fields such as finance and banking, in which technical expertise can prove valuable.

You can't directly compare the two studies -- the University of Maryland one concentrates completely on IT employment, whereas the Rutgers research looks more broadly at technical employment. However, the combination suggests an interesting possibility. Corporations on the whole may actually entice top performers out of technical and scientific fields and into other employment. Companies create a shortage at the top and then must go overseas to fill that deficit. Any time you're in need and supply is scarce, it's a seller's market. If a company examined not only salary expenses, but the opportunity cost of not having people in place as well as legal and relocation expenses involved in foreign workers, I wonder if it might actually be cheaper just to pay top U.S. candidates enough to stay in technical fields.

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