To Be Or Not To Be – The H-1B Conundrum

In his inaugural speech the US President, Donald Trump made an ‘America First’ pledge where he promised that people would ‘Buy American-Hire American.’ True to his word he has set the wheels in motion for this to happen immediately on his election. The H-1B Reforms Bill is a significant step in this process.

So, what is this Bill and what does it seek to reform? 

Simply stated the H-1 B visa is one of the most sought after visas that allow a holder with specialised skills or expertise in specialised fields to work in the US.  Under this program, every year US companies hire up to 65000 highly skilled foreign workers as well as 20000 international students studying in the US.

So high is the demand for this visa that in just a few days of opening the H-1 B process, US authorities are flooded with applications far in excess of the annual quota. The total number of H-1B applications filed in the US for the financial years 2014, 2015 and 2016 were about 125,000, 172,500 and 236000 applications respectively. The overall quota for H-1B, however, has remained unchanged.

So what is the issue? 

The issue is that technology companies, particularly of Indian origin take up a majority of the H-1B visas and bring in employees from India to work in the US.  Available information suggests that about 86% of the H-1B visas issued to people in the information technology industry go to Indian workers.

Since some of the H-1B holders are paid much lower than what a typical US national in that position is paid, it is seen as a tool to replace US workers with lower paid foreign workers. Understandably, it evokes resentment in the minds of US nationals.

The new bill seeks among others, to more than double the compensation for H-1B workers to $130,000, earmark 20% of these visas for small and start-up companies and prohibit companies with over 50 employees having 50% or more of their employees on H1-B or L1 visa from hiring on H-1B visas.

The doubling of the minimum wage applies to Visa Dependent Companies or companies with over 15% of US employees on H-1B visas. It, therefore, excludes companies like IBM who do not fall in the ambit of this Bill.

How does it impact Indian IT Companies?

Large Indian IT companies such TCS, Infosys and Wipro will feel the immediate impact of the H-1B reforms. If you look at the market reaction to this bill, it is a telling story. Immediately after the introduction of the H-1B bill in the US House Of Representatives, five top Indian IT companies lost over $5 billion of market capitalization in a single trading session.

Interestingly, none of these companies have come up with a quantification of what the potential impact will be despite being publicly held and listed on stock markets.

If Indian IT companies have already assessed the impact of the H-1B visa reforms on their operations, sharing it with shareholders and other stakeholders could put an end to speculation and possibly apprehension.

The impact on the wage bill of Indian IT companies is undeniable. With the H-1B visa holders’ compensation going up to $130,000, there is a clear and present danger of the wage bill going up. In the short run, this will need to come from the companies’ profits. In the long run, perhaps some work could shift offshore and companies could negotiate with their clients and bridge some of this gap.

How does it impact IT workers on H-1B?

If you look at it from an Indian employee perspective there is a clear impact on employee psyche. Until recently, US was a preferred destination for most Indian technology workers. However, this is set to change. With the H1B bill seeking to prohibit spouses of H-1B visa holders from working in the US, the added attraction for many Indian IT workers also disappears.

With recent sporadic instances of people of Indian origin being targeted in violent incidents, yet another dimension has emerged in this puzzle.  Indian IT workers are now beginning to get a little apprehensive. Superimpose the fact that the coveted Green Card itself may now become a distant dream and the circle of disillusionment is complete.

Many Indian IT workers in the US on H-1B visas are now unsure how long they can continue there. Consequently, many of them are exploring other options including returning back.

What does it mean for the US economy?

The current turn of events is not without its impact on the US economy.  There is no denying that outsourcing has cost some Americans their jobs. Increased opportunities will now benefit a number of Americans. However, it is also a fact that the families of Indians who are in the US on an H1-B visa have contributed to the local economy.

In today’s globally competitive environment many of the US Fortune 500 companies rely on Indian IT companies to fulfil their IT needs at a very competitive cost. This is intrinsic to the success of these companies. Indian IT companies, in turn, rely on the existing H1B visa regime to continue delivering their services at the current service levels.

As of now, it is unclear how many US Fortune 500 companies are prepared to add on costs that are inevitable in the new H-1B scenario. After all, it could blunt their competitiveness as well.

Yet another dimension to this issue is the shortage of American workers with specific high-end skill sets that has to some extent been bridged by the H-1B visa holders.  If H-1B workers cannot continue to bridge the existing gap in skill set then it could have some impact on the US economy also. However, US technology companies like IBM who can continue to bring in people on H-1B can overcome this to some extent. But, their cost structures are different and their services could be more expensive.

Currently, it is difficult to say with certainty what lies ahead. The fact is that US citizens have some strong sentiments attached to H-1B visa reform issue. At the same time, it has wider implications not just for job creation but also for the competitiveness of US companies and the need to bridge the skill gap that exists within the US.

Clearly, immigration policy is an internal matter for the US and it is for the US Government to decide what is best for it. And, this is something we must not forget.




About the Author: Srinivasan is an independent consultant working in the area of strategy and technology interventions in the public sector domain. He has worked in companies like IBM and TCS and has over 30 years of experience spanning 24 countries.

Image courtesy- Flickr

Article First Published in- Deccan Herald

Srinivasan R

Management Consultant at Independent Consultant