Dr. Norm Matloff On NPR Discussion Of H-1Bs
November 03, 2009, 08:22 PM
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Dr. Norm Matloff writes:
Last Monday there was an interesting discussion of H-1B and related issues on KALW, an NPR affiliate run by the San Francisco Unified School District. Some of you may recall that back in April I was a guest on the main NPR affiliate in San Francisco, KQED; see here.

The KALW program's guests were Professors Clair Brown and Ronil Hira of UC Berkeley and the Rochester Institute of Technology, respectively. You can listen to the audio record here.

The program, hosted by Lauren Meltzer, calls itself "the thinking person's talk radio show," a description that I consider apt. I must say, though, that that goal was weakened a little in this case by the fact that the two discussants strongly agree on a vital point (fast-track green cards, explained below), thus providing no alternate voice on this important issue.

Nevertheless, the discussants did disagree on another major issue, concerning whether the tech industry can be divided into Good Guys and Bad Guys in terms of H-1B. Brown stated repeatedly, in fact seemed quite anxious to bring the point up, that the tech industry, e.g. Intel, are the Good Guys while the Indian-owned firms such as TCS are the Bad Guys. Hira disagreed, basically saying that no such dichotomy exists, and that basically they're all Bad Guys.

I'll go into the details of the Good Guys/Bad Guys shortly. But first I must say that I am continually suprised that academics and others in "polite society," notably Rep. Zoe Lofgren, are scapegoating the Indians like that, making statements that basically imply that the Indian bosses don't have scruples while the mainstream bosses do. As a long time minority activist , this bothers me. I don't think Brown and Zoe Lofgren are anti-Indian, but it surely must bother Indian-Americans to hear public statements like that. I wonder what Hira, an Indian-American, must have thought. (Some readers may recall that in a debate on CNBC between him and Vivek Wadhwa, Wadhwa seemed to accuse Hira of being a "traitor" to his Indian ethnicity; see here.)

Another point I wish to make before continuing is that I do feel quite strongly about this issue of (in my view, incorrectly) portraying the mainstream firms as the Good Guys concerning H-1B, and as such my criticisms below may lead the reader to think I regard Brown herself as a Bad Guy. :-) I do not. I don't know Professor Brown, but I know that she is a highly respected economist. My remarks below, in which I strongly take issue with some of her statements, should not be inferred as meaning anything beyond the fact that I disagree with her on issues that are very important to me.

Now, what about the two discussants' views of Good/Bad Guys? First let's consider Brown. Her ideas on this boil down to saying that the mainstream firms tend to hire their H-1Bs off of U.S. university campuses, with these foreign students often having MS degrees or PhDs. She took this as proof that the mainstream firms are the Good Guys. She seems to believe that (a) the possession of a graduate degree seems to be an inherent good that makes these H-1Bs fundamentally different from the ones imported directly to the U.S., typically with just a Bachelor's degree, and (b) this fundamental difference somehow means that the H-1Bs hired from U.S. campuses could not possibly be exploited.

Needless to say, I disagree with both (a) and (b). In Brown's defense, I would note that she based her Good Guys view of the mainstream firms on the fact that IBM pays its H-1B programmers more than the Indian firms pay theirs. That statement is true, but it ignores the fact that IBM's H-1Bs are of much higher quality, frequently seasoned experts of international quality, compared to the entry-level status of the vast majority of H-1Bs hired by the Indian firms. (Brown seems also not to fully understand that many of the H-1Bs hired from U.S. campuses also are programmers, albeit with Software Engineer titles; same work, different traditions in job titles.) So she's not making a valid comparison, and the disparity in salaries doesn't imply that IBM is paying its H-1Bs fairly, for their level of quality. Brown's Good Guy/Bad Guy dichotomy is thus likewise invalid.

Hira disagreed with that dichotomy. He noted that many mainstream firms, such as the Bank of America (see above CNBC link), abuse the H-1B program, and he also pointed out that the services of those same Indian firms are used heavily by Microsoft etc. (He pointed out that Oracle actually owns one of the firms.) How can Brown consider Microsoft to be the Good Guys when they rent programmers from the Bad Guys?

As I've mentioned before, my research on the PERM (green card) data shows that most mainstream firms are paying their foreign workers at the official prevailing wage or just a bit hire. If these are top-quality workers, they should be getting way over the official prevailing wage. How can Intel, for instance, claim to be hiring "the best and the brightest" foreign workers when it is only paying those workers on average 9% above the official prevailing wage? And as Hira pointed out (and noted in a GAO report), the official prevailing wage is well below the market wage, due to loopholes. (See the KQED link above on the issue of Intel using loopholes.) There are only two conclusions possible—Intel is underpaying its H-1Bs or they are not the geniuses Intel claims them to be—and either way, Intel doesn't come out looking like a Good Guy.

Indeed, Cisco only pays 7% above prevailing wage (again, note that that is still BELOW the market wage), hardly indicating that their foreign workers are Einsteins. Some of you may recall the green card scandal involving Cisco, where an American found that his application to the firm was being read not by Cisco's HR Dept. but rather by Cisco's immigration law firm, Fragomen, the largest in the nation. In the words of another immigration lawyer, Joel Stewart, "Employers who favor aliens have an arsenal of legal means to reject all U.S. workers who apply" (Joel Stewart, "Legal Rejection of U.S. Workers," Immigration Daily, April 24, 2000), and that appears to be precisely what Cisco was doing.

As mentioned, Brown and Hira do agree in supporting proposals for fast-track green cards. Most such proposals would give an automatic green card to any foreign student who obtains a tech grad degree from a U.S. university. However, their motivations differ greatly.

Hira's point is that as de facto indentured servants, H-1Bs are exploited, in terms of salary and aspects. Giving fast-track green cards would fix that problem. He also stated twice that U.S. employers LIKE that de facto indentured servitude (lots on this in my University of Michigan article, [PDF]), which Brown didn't respond to; more on this below.

Brown's point is again that grad degrees somehow have inherent value that makes H-1Bs holding these degrees "special." Though she didn't mention it during the show, the reasoning is that not enough Americans pursue PhDs in tech, so we "need" those foreign students, and we should give them instant green cards in order to keep them in the U.S.

Alert readers know where I'm going next on this—the National Science Foundation's machinations to flood the PhD market with foreign students to keep salaries down, etc.—but there's an interesting twist here relating to Brown.

For recently added subscribers to this e-newsletter, here is the issue with the NSF. Twenty years ago, the NSF made a pitch to Congress to establish the H-1B program, in order to flood the market as described above. The NSF noted that it then wouldn't be profitable for American students to pursue a PhD, and many would avoid doctorate study accordingly. The NSF's projections were correct, and now about 50% of computer science PhDs, for example, go to foreign students. The 2000 study by the National Research Council, commissioned by Congress, made the same point: An American student who pursues a PhD in a tech area will incur a net LIFETIME loss in earnings.

Now from what I've said so far, you might think that Prof. Brown is unaware of this. But no, on the contrary, she has made such statements herself. For instance, in 2006 at http://www.irle.berkeley.edu/worktech she wrote, "causes for concern...[include that] a declining premium for MS and PhD degrees indicates that graduate training may not be a good investment for domestic students."

If it is a cause for concern, why does Brown support exacerbating the problem by giving special incentives (automatic green cards) to foreign grad students at U.S. universities? As noted, Brown called repeatedly during the show for this "staple a green card to their diplomas" legislation.

Brown went into more detail on this in another NRC publication, The Offshoring of Engineering: Facts, Unknowns, and Potential Implications (2008) (. On p.164, she and her coauthor Greg Linden write:

In our earlier discussion of returns-to-education, we noted that the earnings premium for a domestic BSEE who pursues a graduate degree was relatively low. For foreign BSEEs, however, the financial incentive to pursue a U.S. graduate degree is much greater. A U.S. graduate degree opens the door for these students to high-paid jobs both in the United States and at home.
This echoes statements originally made by the NSF.

During the show, a caller cited his excellent credentials but said that he is having trouble finding work, because employers are hiring H-1Bs instead. Brown sharply disagreed, saying that the visa program was not the cause of his troubles, which she blamed on the recession. Of course, given that the caller claimed H-1Bs were being hired instead of him, the recession argument doesn't work, but there's more:

As readers of this e-newsletter know, in discussing the use of the H-1B program for cheap labor, I've distinguished between what I call Type I salary savings—paying H-1Bs less than Americans of comparable experience, education etc.—and Type II savings—hiring younger, thus cheaper, H-1Bs in lieu of older, more expensive Americans.

I've never met Brown, but in 1998 she kindly gave me permission (in e-mail) to post a short note she had written on my Web page. Here are some relevant excerpts (emphasis added):

...high-tech engineers and managers have experienced lower wage growth than their counterparts nationally...

Why hasn’t the growth of high-tech wages kept up? We believe that the large increase in graduate engineering students along with companies’ desire to hire engineers with the latest education dampens wage growth for experienced engineers. FOREIGN STUDENTS ARE AN IMPORTANT PART OF THE STORY.

Brown then goes into the issue of the flooding of the graduate-degree market by foreign students, and its adverse impacts on wages. Remember, this is exactly what the NSF not only projected but in fact explicitly advocated.

Brown also notes the de facto indentured servant status of the H-1Bs:

Foreign graduate students are particularly attractive [to employers]: they are often bound to a company for several years while applying for a green card.
Granted, Brown's support of a fast-track green card would partially solve that problem. (Only partially, as most such proposals would still create a multiyear period of "servitude.") But clearly she is recognizing here that foreign students with graduate degrees ARE exploitable after all, and that those mainstream firms that hire them are not Good Guys after all. Furthermore, a fast-track green card program would exacerbate, rather than solve, the main problems of the dampened wages due to flooding of the labor market, and the displacement of older workers, which she does recognize in the fuller context of the above excerpt:
Companies have little incentive to train older engineers because they can hire from the large flow of newly-trained and cheaper engineers. Companies save money on training since the recent graduates already have cutting-edge knowledge. Foreign graduate students are particularly attractive: they are often bound to a company for several years while applying for a green card. Any decision to increase visas for foreign high-tech workers should be accompanied by the requirement that companies provide training for experienced engineers to ensure that the young engineering graduates are not simply displacing older engineers.
Brown mentioned retraining on the show too, but this is totally unrealistic. The up-to-date skills issue is phony, just a pretext to avoid hiring the older engineers. An older engineer with retraining—and many do retrain themselves, at their own expense or own time—is still an older engineer, just plain too expensive. Why hire a 40-year-old with the newest skills when one can hire a 25-year-old with those skills? Needless to say, the retraining funds Congress included in its subsequent H-1B increase legislation did not help the older engineers, as the Dept. of Commerce later found.

Clearly, Brown's own writing shows why she was wrong to dismiss the caller's job search problems as not being related to H-1B.

Kim Berry of the Programmers Guild also called in. Kim discussed his daughter, a new BS/MS civil engineering graduate of USC, one of the nation's top engineering schools. She had a 3.84 GPA, a valuable internship etc., but cannot find a job—all while H-1Bs are being hired. Even the show's host remarked that it was a powerful example. (See here for more details.)

One more point: Brown is not the only one to take this Good Guys/Bad Guys stance. In fact, it's become the new conventional wisdom among a certain crowd of people, including some researchers who are rather critical of H-1B. It must be comforting to them—it's a lot easier to blame one segment of the industry (the Indians) than to believe that Congress has been bought off by our favorite household-name firms—but frankly, they just haven't thought things through, and lack key knowledge of what happens on the level of the shop floor.