Competing Visions of H-1B Reform

The H-1B visa program has historically served as a pipeline for American employers to recruit highly skilled foreign workers. Under statutory limits, the United States issues up to 85,000 of these visas annually to workers in “specialty occupations” requiring a bachelor’s degree or equivalent. To qualify for the visa, an applicant’s employer must attest that hiring them will not harm the wages and working conditions of American workers, as well as provide notice to their existing workers.

Policymakers have long debated whether the program primarily helps U.S. employers fill genuine skill shortages and drive innovation or, instead, allows firms to access lower-cost labor at the expense of U.S.-citizen workers. Proponents contend that the program allows employers to hire specialized talent that is scarce among the domestic labor supply, particularly in STEM fields. They argue that H-1B visa recipients contribute disproportionately to the U.S.’s global competitiveness in development of scientific breakthroughs and patent production, fueling innovation.

Critics, however, argue that there are plenty of similarly qualified U.S. citizens whom American companies are displacing in favor of H-1B visa holders, who are cheaper to retain. They contend that, because the legal status of H-1B workers is tied to their sponsoring employer, they have less job mobility and, therefore, less leverage to negotiate higher wages than comparable U.S.-citizen workers. Large IT consulting firms with significant operations in India face particular scrutiny because they have been among the most prominent employers of H-1B visa holders.

The Trump Administration has subjected the program to heightened scrutiny, claiming that it has been abused by employers who artificially suppress wages, ultimately disadvantaging American workers. The Trump Administration has consequently pursued reforms to the program that raise the bar for obtaining and maintaining an H-1B visa. Those reforms include a presidential proclamation increasing the application fee from $250 to $100,000, and a rule changing the lottery system by which the government awards the visas to favor applicants with more experience and higher wages. In June, a federal judge struck down the proclamation’s increased application fee, as an unlawful tax. Some researchers have projected that the lottery reforms, which went into effect in February, will have no significant impact on the wages of U.S.-citizen workers.

In this week’s Saturday Seminar, scholars examine whether H-1B workers are paid less than comparable U.S.-citizen workers and whether large visa fees are justified.

• In a working paper for the National Bureau of Economic Research, George Borjas of the Harvard Kennedy School estimates that H-1B visa holders are paid about 15 percent less than comparable American workers. He concludes that payroll savings lead employers to prefer foreign labor. Borjas argues that the White House could potentially impose an even higher fee than $100,000 without altering demand for H-1B workers. He finds that a H1-B application fee between $97,000 and $154,000 would maximize government revenues, assuming moderate excess demand. Borjas estimates that a revenue-maximizing fee would, conservatively, generate $5 to $10 billion in revenue. He contends that imposing a higher fee would make the H-1B workforce more skilled on average.
• In a paper for the IZA Institute of Labor Economics, Michael Clemens of Johns Hopkins University challenges the methodology that led Borjas to reach his estimation of the wage gap between H-1B holders and comparable American workers, finding a much lower wage gap of 6 percent instead. He contends that Borjas’s estimate relied on erroneous education data imputation, mismatched comparison years, an artificially narrow definition of local labor markets, and a failure to account for U.S. natives’ tenure advantage. Clemens also argues that a revenue-maximizing visa tax, such as the $100,000 fee imposed by the Trump Administration, is economically inefficient and generally worse than alternatives such as wage floors or greater worker mobility.
• In an article, the Center for Strategic and International Studies’ Philip A. Luck and Thibault Denamiel argue that recent H-1B reforms risk harming U.S. economic and strategic interests. They contend that the Trump Administration’s $100,000 H-1B fee would not protect American workers and could instead reduce innovation, accelerate offshoring, and strengthen foreign competitors. They point to research showing that firms denied H-1B visas are more likely to hire abroad, with multinational firms hiring between 0.4 and 0.9 foreign employees for each rejected H-1B application. They recommend targeted changes to the H-1B system, including prioritizing strategically important sectors and underserved regions and protecting  small firms that cannot afford to absorb high visa fees.
• In a forthcoming article, Colby College’s Yang Fan and several coauthors examine how policy uncertainty in the H-1B visa system affects startup innovation and venture capital funding. Fan and her team explain that although H-1B visas are allocated by lottery, U.S. Citizenship and Immigration Services may deny visas on a discretionary basis. They document a sharp increase in such denials during the first Trump Administration, creating uncertainty for firms that depended on H-1B workers. This uncertainty, they argue, weakened H-1B workers’ benefits for startups by deterring complementary investments in projects, teams, and capabilities built around those workers.
• In a paper published by the IZA Institute of Labor Economics, Chad Sparber of Colgate University assesses the potential benefits of replacing the current H-1B visa lottery with a wage-weighted selection system. Workers at higher wage levels within their occupation and geographic area would receive additional lottery entries based on their skill level, making them more likely to be selected. Sparber predicts that prioritizing higher-wage applicants would increase the diversity of visa recipients. The author finds that a wage-weighted lottery would provide large firms with more visa recipients while reducing the number of visas awarded to individuals joining small firms. Sparber argues that when choosing a visa selection model, policymakers face a tradeoff between selecting workers who will significantly raise the nation’s economic output and preserving ethnic and occupational diversity.
• In an article published in the International Migration Review, Yining Milly Yang of Yale University compares H-1B workers to similarly employed U.S. citizens. He finds that H-1B visa recipients are highly educated and more likely to be employed in computer science or engineering professions than American workers. Yang notes that H-1B workers are more likely to be overeducated than American workers, as visa recipients often possess advanced degrees that are not required for the jobs they obtain. He also finds that H-1B workers are more likely to be paid less relative to comparable American workers in the same roles.