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Dr. Norm Matloff: USCIS Audit May Catch Underpayments, But It`s Nothing To What Employers Can Get Away With Legally
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August 17, 2009, 09:29 PM
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Dr. Norm Matloff writes:

Recently I made a post here on the recent government announcement that it would audit H-1B employers. In my post, I stated that the main abuse of the H-1B program is fully legal, due to huge loopholes, rather than to illegal actions on the part of the employers. Yes, some fraud does exist, but the abuse mainly takes the form of fully legal, good old American exploitation of loopholes, exactly what happens with the tax code.

Based on some e-mail response I got from some readers, I believe I should elaborate on my earlier posting, which I`ll do below. By the way, the audit is being conducted by USCIS, not DOL. I noticed this error when I was composing my post, but forgot to fix it before dispatching it. Sorry for the confusion. I presume there is some coordination with DOL, but the ones conducting the audit are USCIS.

The most important point I made in my previous posting was that the illegal underpayment of wages sometimes found in audits, whether deliberate or not, is just peanuts compared to what employers can get absolutely legally. Thus the real issue is the loopholes, not enforcement.

For example, in a 1993 highly-publicized crackdown by DOL on the Digital Equipment Corporation, then one of the mainstream giants of the industry, it turned out that the average underpayment was about $2,000. In the equally highly-publicized fine of Computech, a major bodyshop, the DOL fined the firm about $4,500 per worker per year. Adjusting for inflation, the two amounts are roughly comparable.

By contrast: John Miano`s excellent case 2001 study showed in detail how the Bank of America and Exult exploited the loopholes to fire U.S. citizens and permanent residents in Charlotte making an average of about $80,000 by H-1Bs making about $40,000. See here.

For another case study of the details of how loopholes are used, see here.

Among other things, one of the key factors, as I always point out, is age. The H-1B program swells the pool of younger, thus cheaper, workers, enabling employers to shun the older, more expensive Americans. In 2006, for instance, new computer graduates made about $50,000 per year, while the median among all software engineers was $82,000.

The age factor indirectly plays a role in the first case study above, though not the second.

In any event, clearly the $4,500 underpayment in the celebrated Computech case was nothing compared to the real savings employers incur via H-1B. USCIS has the wrong target.