A Quick Thought on H1Bs and Profitability

Tech companies love to vilify the H1B lottery and quota system. The pro-argument is that the likes of Google and Facebook and Microsoft can’t find enough talent in their established office locations, and would like to just hire the best talent from around the world and have them immigrate to the United States. The counter-argument is that accepting more H1B workers depress wages, and that the STEM shortage is artificial: it’d be easily solved by matching demand with increased compensation1.

Admittedly, American immigration and visa policies have always been tinted with emotion and politics2. This particular dysfunction, however, is bad enough to allow Canada to become a refuge for those whose admission has either stalled or failed altogether.

Somewhat lost in all the posturing is that the majority of H1Bs granted go to massive consulting and outsourcing firms. In fact, the two biggest companies had to settle a lawsuit with the government in their aggressive abuse of the visa process. Worse yet, there’s evidence that they are taking advantage of H1B workers’ visa status, both in paying lower salaries and in locking workers into jobs while middlemen take generous cuts for the arrangement.

I think some of the confusion here stems from this singular classification of workers for two different types of software companies. The famous and powerful tech companies we think of—Amazon, Google, Apple, etc.—all have extremely healthy revenue streams. The revenue generated, on a per-employee basis, outweighs workers’ salary costs by a huge margin. If someone who’d require an H1B visa can do the work, it doesn’t make financial sense to discriminate their compensation package; each hire will generate value well above and beyond their costs.

Consultancies and outsourcing companies have a different—in some ways, more straight-forward—business model. They make money by charging their clients a higher rate than they pay the employee and pocketing the difference. The raw numbers are substantially lower, with per-employee revenues hanging in the mid-5 digits as opposed to the 6- and 7-digit revenues of the aforementioned tech giants. The livelihood and profitability of these businesses hinges on minimizing costs (i.e., paying folks less), and they’ve already been proven to discriminate against those who need H1B visas.

So it’s entire possible that both sides are right. H1Bs do depress wages, and their limited quantity does prevent talented individuals from working in the US. It’s only a contradiction when these two groups of workers are juxtaposed under one label and process.

  1. This point stings in particular because the successful wage-fixing lawsuit showed tech companies had no qualms about depressing salaries.

  2. Exhibit A: The strong reactions to the current Syrian refugee crisis.

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