Immigration News: January, 2005 - Volume 12

H-1B, Outsourcing

The L-1 Visa and H-1B Visa Reform Act of 2004 raised the annual limit on H-1B visas beginning in March 2005 by exempting up to 20,000 foreigners with master's and higher degrees from US graduate schools from the 65,000 a year cap; H-1Bs employed by institutions of higher education, nonprofit research organizations and government research organizations are already exempt from the cap. Employers will have to pay a $1,500 per H-1B processing fee ($750 if they have fewer than 25 full-time employees), as well as a new $500 anti-fraud fee if they are applying for H-1B workers for the first time.

The L-1 change was motivated by Siemens in Florida subcontracting its computer work to Tata Consultancy Services and requiring the American workers who were displaced to train the Tata workers who had L-1 visas as a condition of receiving severance pay. Under the Reform Act of 2004, foreign workers with L-1 visas can be a brought to the US by multinationals such as Tata, and assigned to firms such as Siemens, but any Siemens instructions to them must flow via Tata managers, not directly from Siemens to the L-1 worker. The L-1 workers must also have "specialized knowledge," which is a criterion easy to meet if, for instance, Tata says that the software it maintains is proprietary, and that only Tata workers with L-1 visas can deal with it. Tata had 4,700 L-1 and 2,600 H-1B workers in the United States in March 2004. In FY04, some 57,245 L-1 visas were issued, including a third to Indians.

The US IT work force fell from 6.5 million in 2000 to 5.9 million in 2003, and the unemployment rate tripled, from two to six percent. Tech workers average $53,728 a year, more than the $35,000 or $17-an-hour US average.

The Washington Post profiled a migrant IT worker on November 9, 2004, emphasizing that, for the first time since data have been collected, the unemployment rate for IT workers is higher than for all workers. Instead of having IT workers on staff, many firms hire IT workers as needed, which pushes the uncertainty from employer to employee.

PERM. DOL published over 300 pages of regulations December 27, 2004 implementing PERM (Program Electronic Review Management) to change labor certification, the process via which US employers demonstrate that US workers are not available to fill vacant jobs (able, willing, qualified and available), and that the employment of foreign workers will not adversely affect the wages and working conditions of similar US workers. US employers have sponsored over 300,000 foreigners for immigrant visas (140,000 a year are available for foreign workers and their families), and PERM aims to speed up what is currently a multi-year test of the US labor market before immigrant visas can be issued.

Under PERM, US employers "attest" that they have satisfied the regulations on non-availability and no adverse effects, and DOL will selectively and randomly audit some applications to keep employers honest. Local Employment Service offices will be largely removed from the process, although they will continue to make Prevailing Wage Determinations for the jobs to be filled, and employers must offer and pay this prevailing wage. Employers may appeal denials of certification to a DOL agency or simply require supervised recruitment, the current system.

Offshoring. Offshoring means moving US jobs overseas, as when a call center closes in the US and the jobs move to Asia (a decision to replace domestically supplied services with imported services). Outsourcing, on the other hand, means acquiring services from an outside (unaffiliated) company in the US or abroad. Estimates of the number of jobs offshored range from 100,000 to 225,000 a year, but there is agreement that the number of US jobs moving abroad is likely to increase. Forrester Research projected 3.3 million jobs moved offshore by 2015, including 600,000 between 2000 and 2005.

It is very hard to isolate offshoring in the multitude of factors that create about eight million and destroy eight million jobs each quarter. Between March 2001 and June 2004, some of the sharpest declines in employment were in industries associated with offshoring, including computer systems design and related industries and accounting and bookkeeping. The US Bureau of Labor Statistics, in making projections, is trying to take offshoring into account and economists are using various assumptions about the likely effects of offshoring to estimate its effects. For example, if globalization increases the pool of workers available to employers, then in industries in which offshoring is easiest, US wages should rise slower.

Senator John Kerry (D-MA), calling CEOs who send jobs abroad ''Benedict Arnolds,'' proposed repealing the tax deduction for wages and benefits paid to offshore workers. US imports of business, technical and professional services tripled over the past decade to almost $100 billion a year. President Bush, on the other hand, proposed to cushion the blow of layoffs with ''personal re-employment accounts'' that would give unemployed US workers up to $3,000 to spend as they wish on training, education or counseling. Others advocate wage insurance, which would pay half of the difference between the wage in the old job and the wage in the new lower-paying one for a year or two.

The 2003 Economic Report of the President included a chapter that stressed the benefits of fluid or dynamic labor markets. The chapter cited studies that concluded the typical young US worker holds seven jobs in her first decade in the labor market, and that two-thirds of lifetime wage growth occurs in this first decade as workers change jobs (about 20 percent of US workers have been in their current job less than one year).

The report praised the Earned Income Tax Credit, which can provide $4,000 to a family with a worker earning $12,000 with two children. The IRS believes there is massive fraud in the EITC: it estimates that $9 to $10 billion of the $31 billion EITC payments in 1999 should have been disallowed.

The 2000 Economic Report of the President includes a chapter that compares 1900 and 2000, noting that, in 1900, 14 percent of Americans had completed high school and average life expectancy was 47. About 40 percent of Americans were employed in agriculture, and average per capita income in 1999 dollars was $4,200. A century later, 80 percent of Americans had completed high school and average life expectancy was 77. About three percent of Americans are employed in agriculture, and average per capita income is $33,700.

Buchholz, Todd. 2004. Bringing the Jobs Home. Sentinel. GAO. 2004. Current Government Data Provide Limited Insight into Offshoring. GAO-04-932.