Reasons behind lower American Salary Levels

By: V. B. Velasco Jr.

Mention H-1B work visas to a group of American programmers or engineers and you're likely to hear a cry of outrage. H-1B visa holders, many say, are responsible for taking jobs away from hardworking American high-tech workers. In addition, disgruntled American techies often complain that H-1B workers are paid much less than their American counterparts. They claim that companies typically use H-1Bs as cheap labor, and that this results in lowered wages for Americans and foreigners alike. In response, defenders of the H-1B program argue that these foreign workers help the economy grow and that there are adequate safeguards to ensure that they earn comparable wages.

The truth, I believe, lies between these extremes.

The question of whether H-1B holders take jobs away from Americans is legitimate, albeit one that is seldom addressed with rigor by either side of this debate. For now though, I'd like to focus on the second of these issues, namely, "Are H-1B workers getting paid much less, and thus, depressing the competitive salaries for US workers?"

First, I think it's fair to state that some H-1Bs are being paid much less than their American counterparts. By law, companies are required to pay their H-1B employees at least the "prevailing wage" for that job; however, determining the prevailing wage can be highly subjective and rife with loopholes. For example, a company can give its H-1B applicants a job title that does not accurately reflect his job duties. In addition, prevaling wage determinations (by necessity) rely on a fairly coarse means of classifying an applicant's job level and classification, which gives companies a measure of leeway in deciding how to phrase their job descriptions.

Furthermore, it is common knowledge that some high-tech firms hire foreign workers from so-called "job shops" - consulting firms that specialize in supplying low-paid H-1B workers, typically from India. Accurate figures can be difficult to find, as these reports typically come from either anecdotal sources or a government audit that was performed in 1996; however, these stories cannot be easily discounted either. I myself once worked with two programmers (one Indian, one Pakistani) who had been recruited by such an outfit, where they had been paid embarassingly low wages.

Nevertheless, while such abuses do occur, I believe that the extent of this problem has been vastly overblown. Various studies indicate that H-1B holders are paid much less than American workers are; however, these studies are typically conducted by special interest groups that oppose the H-1B program. No definitive governmental investigation has yet proven these statistics to be true.

In addition, such studies are clearly based on questionable statistics and methodologies. Most notably, they fail to consider that your typical H-1B visa holder will be a recent graduate, and thus, relatively young. It should therefore be no surprise that they will earn less than many Americans who work in the same field. In fact, the National Science Foundation (NSF) reports that foreign-born professionals actually earn more than their American counterparts when one compares individuals with the same ages and degree levels, and when one considers the year in which these degrees were granted.

Additionally, when critics hurl accusations that H-1B holders are underpaid, these claims are typically based on either anecdotal evidence or the prevailing wage declarations that were filed for those H-1B applications. Anecdotal evidence only pertains to individual cases though, and says nothing about H-1B cases on the whole. As for prevailing wage declarations, these figures only indicate the minimum wages that employers are allowed to pay; they don't indicate the salary levels that are actually paid.

Naturally, the US Citizen and Immigration Services department (USCIS) does not make H-1B wage levels publicly available. This makes it impossible to compare actual salaries. However, the National Foundation for American Policy asked a prominent law firm to select 100 randomly selected H-1B cases from among its client files. These files contained both the prevailing wage level and the actual salary levels as reported to the USCIS. The result? On the average, the average wage was over 22% higher than the prevailing wage. Furthermore, this figure does not consider possible wage increases after the applicant has been hired. While we cannot conclude that these cases are representative of H-1B salary levels in general, this informal study does illustrate the problem with drawing hasty conclusions based solely on the prevailing wage declarations.

In fact, hiring H-1B holders can be outrageously more expensive than hiring a native-born worker. When hiring a US citizen, the costs generally stop with the job offer; not so with H-1B visa applicants. Hiring on an H-1B basis typically requires nearly $6000 in additional legal and government fees - and that doesn't even include the cost of the extra work required from in-house human resource personnel. If the employee seeks green card sponsorship, this can require an additional $10,000-maybe more. On top of that, sponsoring for an H-1B visa or a green card can be a risky proposition with no guarantee of success. Perhaps some companies do sponsor H-1B holders in order to save money, but if so, these savings are greatly offset by the additional expenses and legal headaches involved.

What's more, other statistics contradict the claim that foreigner high-tech workers earn much less than Americans do. A study by the Center for Labor Market Studies at Northeastern University reports that foreign-born and native professionals in math and the sciences earn virtually identical salaries. The same study showed that in computer science and mathematics, salaries were roughly the same for master's degree holders, and were actually higher for the bachelor's degree and doctorate holders. Salary levels were comparable for at all three levels within the life sciences. Native-born American engineers with bachelor's or master's degrees admitedly earned more than than their foreign-born counterparts; however, the situation was reversed when it came to doctorate holders.

So is it true that H-1B visa holders are paid much less than US workers? Sometimes, that's true. On the whole though, I think that this alarmist claim is greatly overblown, and we have good reason to believe that they are generally paid well. For this reason, I think we should not be quick to conclude that this influx of H-1B workers is dragging salary levels down.

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