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GAO Issues Significant H-1B Report

At the request of Congress, on January 14, 2011, the Government Accounting Office (GAO) issued a comprehensive and quite significant report on the H-1B Specialty Occupation program. Entitled H-1B Visa Program: Reforms Are Needed to Minimize the Risks and Costs of Current Program, the GAO study involved interviews with 34 H-1B company executives, researchers of various types, advocates for several groups, interviews with involved agencies, examination of the data on 150 of the top users of H-1B visas, analysis of available data on wages, filings, complaints and other data sources. Some of the findings and recommendations confirm the legitimate needs and complaints of employers who use or try to use the program, while other points give some credence to issues raised by critics of the program. The GAO makes several legislative recommendations for Congress and recommends actions that the Executive branch or agencies could take. It is a very long and interesting report (118 pages). It attempts to balance sufficient numbers of H-1B workers based on national economic need and a more streamlined easier to use program for employers with the need for more enforcement against abusers and better data to assess the impact on U.S. workers.

Specifically, the GAO report focuses on four main areas: 1) employer demand, 2) how the cap affects employer costs, innovation, R&D, and decisions to move work overseas, 3) worker characteristics and the impact of raising the annual 65,000 cap on visas, and 4) how well the H-1B program protects the jobs of U.S. workers.

Key Findings
From 2000 to 2009, demand has exceeded the annual cap. However, 14% of all H-1B visas issued have been for cap-exempt employees working for nonprofit research institutions and institutions of higher learning, which tend to be large organizations. Of those H-1Bs subject to the annual cap, 1% of the employers using the program accounted for 24% of the cap-counted petitions. Of those few heavy users of the H-1B program, several were headquartered in India and were staffing companies. The top origins of country of birth were India (46.9%), China (8.9%), the Philippines (3.7%), and Canada (4.3%). 40% of H-1B workers were in systems analysis and programming, 7% in higher education, and 35% were in other specialty occupations.

Of the 34 employers interviewed of various sizes in different industries, most said the H-1B program added costs to their business. Smaller companies experienced even greater costs when they were shut out of the H-1B program due to the cap being reached because it became more expensive for them to find other candidates, especially if they had to settle for less qualified applicants who were needed for short and competitive development cycles or key projects. Most companies said their access to talented labor primarily drove their decisions more than the cap did when deciding to move operations or personnel overseas. GAO reported what most H-1B users and prospective users already knew: the annual cap and resulting lottery give employers no predictability for staffing projects or ability to prioritize which employees they would want selected if only a few of their applicants make it through the lottery.

The Annual Cap
The GAO recommends that Congress give due consideration to analyzing whether the cap meets the needs of the economy. However, since many H-1B users are cap-exempt, including institutions of higher education and nonprofit research institutions, GAO stated the total number of H-1B workers can be skewed due to the high numbers of cap-exempt employees hired by larger institutions. The actual demand is not known because when the cap is reached, employers stop filing applications and the government stops accepting applications. Therefore, it is impossible to know how many employers would have liked to use the program but could not once the cap was reached.

Enforcement
The GAO recommends better enforcement of the program including a centralized website accessible to the general public where all employers must post notice of their intent to hire a foreign worker. Right now, postings are done at work site locations and are not made public beyond the employer site or work site. The U.S. Department of Justice (USDOJ), which brings actions on behalf of U.S. workers for unlawful employment discrimination, suggests this posting change. USDOJ, however, has investigated only 70 anti-discrimination cases a year in the last five years.

GAO recommends that the U.S. Department of Labor (USDOL) be given subpoena authority for employer records and it be given the ability to check labor condition applications (LCAs) against the prevailing wages in order to confirm employees are actually being paid the wage in the labor condition application. USDOL reports numerous technical violations as well as fraud but many of their investigations reveal few violators. GAO cites a Homeland Security Report indicating a 21% “fraud or technical violation” rate on LCAs, which could mean two vastly different things for employers in terms of culpability and fines or debarment from the program.

Out of 51,980 approved H-1B workers in 2009, 664 complaints were filed with USDOL resulting in companies paying over $10 million in unpaid wages to 1,202 workers and $739,929 in civil monetary penalties. For various reasons, DOL does not initiate investigations against employers except in limited circumstances and unless driven by complaints. Moreover, the automated LCA process has eliminated the human investigative component.

Business Concerns for Streamlining, Flexibility and Predictability
To address streamlining and flexibility, GAO recommends:

“(1) allowing employers to rank their applications for visa candidates so that they can hire the best qualified worker for the jobs in highest need; (2) distributing the applications granted under the annual cap in allotments throughout the year (e.g. quarterly); and (3) establishing a system whereby businesses with a strong track-record of compliance with H-1B regulations may use a streamlined application process.”

In the post, Electronic Registration for H-1Bs on the Horizon, it was reported that USCIS may soon come out with a regulation mandating a cheaper pre-filing registration process. In that case, employers would only file complete applications and submit filing fees after selection in the lottery if the cap is reached. In the GAO report, larger companies advocated for special treatment due to their volume if shown to have a steady compliance history. However, USCIS does not see them as being exempt from any of the usual requirements and it perceives a ranking or quarterly allocation system as being too complicated.

Inter-agency Issues, Oversight and Data Collection
Right now, a minimum of three agencies are involved in H-1Bs, and soon to be more. (See an earlier post on new export control rules for H-1Bs starting February 20, 2011.) Initially, the employer files a LCA with USDOL, the agency that also enforces the wage and hour provisions of the program. Then the employer files a visa petition with U.S. Citizenship and Immigration Services (USCIS). Once the petition is approved, it is brought or sent to the U.S. consulate abroad if the employee will be needing a visa to enter or re-enter the U.S. from abroad. The consulates are managed by the U.S. Department of State (USDOS). Other agencies, such as FBI or the U.S. Department of Commerce may be involved in security checks, at a minimum. USDOJ handles complaints from U.S. workers (U.S. citizens, green card holders and asylees and refugees) who have been displaced or discriminated against in the work place. Homeland Security’s Fraud Detection and National Security works with Immigration and Customs Enforcement and other agencies to combat fraud and enforce immigration laws.

GAO recommends that USCIS take over the LCA process and have the employer file the LCA with the petition. GAO also recommends that USCIS and USDOS come up with a better way to track who is subject to the cap for counting purposes (petitions approved v. visas issued) between the two agencies.

The report discusses the agencies’ inability to know at any point in time how many H-1B employees are in the U.S. Better tracking technology is suggested. Currently, there is insufficient oversight to review LCAs beyond providing basic information.

Staffing Companies
IT staffing companies are some of the largest users of H-1Bs. Employees are assigned to locations other than where the staffing company is located. They are assigned to work at the staffing company’s clients’ sites. GAO recommends strengthening the rules as applied to staffing companies to insure employees are being paid proper wages and benefits at the sites where they actually work. GAO cites a USDOL report finding that over 50% of the complaints it received were filed by H-1B staffing workers. The report goes into some detail about the interviews held with employers about how to define the various IT staffing, onshore and offshore business models and their connection to R&D, if any. The role of the H-1B cap was discussed in terms of company decisions whether to locate in the U.S. or abroad. Some of the interviewed staffing company executives reported that they were no longer hiring H-1B workers and had opened up shop abroad because of the “Neufeld Memo.” That USCIS memo requires an employer-employee relationship and a contract of work for the employee at the staffing company’s client site(s). But where short term, last minute assignments are the norm in the staffing industry, the executives said it was too difficult to comply with the contract requirement on such short notice for short assignments.

Links to Permanent Residence
GAO reports that over the nine year study period, increasingly H-1Bs have been held by Indian and Chinese nationals with advanced degrees. This explains the demand on the permanent immigration system and the current quota problems discussed in an earlier post, Green Card Applicants Must Wait Longer. However, because of these quota delays and other processing delays in the green card system, Congress previously enacted legislation allowing H-1B holders to apply for multiple extensions beyond the six-year cap until the quota becomes current. GAO characterizes this as “increasing the pool” of H-1B workers and “lowering the bar” to the program.

Wages and Working Conditions
Critics consistently charge that H-1B employers hire foreign workers to depress wages. But this report largely proves that theory wrong. Throughout the report, GAO refers to H-1B workers as needing to be paid the prevailing wage. In fact, the law as written by Congress states employers must pay the greater of the prevailing wage or the actual wage paid to the employer’s current U.S. workers in the occupation at the geographical location. Prevailing wages are statistical mean wage rates in an occupation in a given geographical location. That is, some employers will pay more and others will pay less with the prevailing wage being the mean between them. Where the employer pays its U.S. workers in that occupation more than the prevailing wage, the H-1B worker should be getting that same higher wage as the U.S. workers, not the lower prevailing wage. Where the employer pays its U.S. workers less than the prevailing wage, the foreign worker should be earning more than the U.S. counterpart. Thus, every H-1B employer must determine both rates and pay the higher of the two. Where there is no comparable occupational classification, the employer must pay the prevailing wage.

GAO and other critics say that where a wage survey provides leveled wages for an occupation, more employers tend to pick the first entry level wage rate for that occupation. (For example, a wage survey may give several prevailing wage figures for software engineer from level 1 (entry level) to level 4 (advanced or senior or managing software engineer). GAO reports that more than 50% of employers relied upon level one wages between 2009 and 2010 “although we cannot tell whether this trend reflects lower skill levels or other factors.” However, this could relate to the survey’s other results discussed below showing most H-1B employees are 20-29 years old with fairly new degrees, whether bachelors or higher degrees. This group tends to be younger and just starting out in their post-education careers. Or, given the recession in 2009-2010, from which the statistic was derived, many employers paid lower salaries across the board, even for U.S. workers. However, GAO also reports that H-1B workers in that same age range earned the same or more than U.S. workers in most occupations. There was no statistical outcome to show that H-1B workers earned less than U.S. workers in similar occupations and age groups with comparable experience. The only exception were those who were found to be violating the law by not documenting the appropriate wages or paying the wage in the LCA.

Costs
The GAO, on the one hand, attempts to downplay the role of costs on employers as not being a significant issue. On the other hand, the report discusses the increased costs to employers to respond to frequent and elaborate Requests for Evidence (RFE), the costs associated with hiring people and filing applications for them only to find out they are not selected when the cap is reached, and the 20 fold increase in filing fees between 2000 and 2009. In 2000, the filing fee was $110. In 2009, it was on average $2320 for most employers (some fees vary by client size). Another fee increase went into effect in 2010 including a Congressional mandate for an additional $2000 or more for the largest users, e.g., IT firms to pay for unrelated border enforcement. Add legal fees to the high government filing fees, including the extra legal fees needed to respond to the increasing numbers of RFEs. Next month H-1B employers will have to start understanding export control laws, whether or not they apply, which may further increase legal fees.

Employers that were interviewed acknowledged that legal fees and costs multiply once an employee is sponsored for permanent residence. And, where employees are not hired due to the cap, larger employers will locate them overseas to return in a year or more under the L-1 program. “Expatriate packages” compound the costs even more. But for much desired talent, employers will do what they need to do to get specialized expertise. Those who spend the money are doing so because they want the talent, not to save money by not hiring U.S. workers, and GAO recognizes this.

Innovation and Competitiveness
A number of the employers interviewed were startup companies that have been essentially unable to use the program for founders/owners because of the USCIS “Neufeld Memo” that requires an employer-employee relationship. Often new start-up companies with venture capital are the most likely to rely upon exceptional talent, but the company is too new to support an H-1B worker. Yet it is the kind of company most likely to hire future U.S. workers. Other larger and more seasoned companies use the program when they find exceptional talent and are willing to spend the time and money but need predictability. Yet others have located overseas where there is easier access to good talent. The U.S. education system has a role in making sure that future and existing older U.S. workers have access to cutting edge education in fields that foster innovation and improve America’s competitiveness.

Relationship of H-1B Workers to Economic Growth and Impact on U.S. Workers
GAO acknowledged what most immigration practitioners already know – H-1B demand rises and falls with the economy. However, the impact on U.S. workers can be more complex. GAO reports that data is insufficient to measure in a useful way how increasing the annual H-1B cap would affect U.S. workers. On the other hand, as alluded to previously, GAO studied wage rates in the top three H-1B occupations: programmer/analyst, engineer and college/university educator. GAO found that wages in all three groups increased for U.S. citizens working in these occupations over a 10 year period where H-1B workers made up 10% of the workforce in these categories. H-1B workers in all three categories earned more than U.S. workers every year of the study, which debunks the argument that H-1B workers depress wages of U.S. workers because H-1B workers are paid less than U.S. workers.

H-1B IT workers tend to be younger. Critics tend to believe they impact the jobs of older U.S. IT workers. However, GAO found that wages for H-1B young people (ages 20-39) working in IT were typically the same or higher than U.S. worker wages in these occupations in the same age group. In the older age group in IT (over 40), wages were less for H-1B workers than what older U.S. workers earn. For engineers in all age groups, wages for H-1B workers were similar to wages paid to U.S. workers. In higher education, the wages were similar except for younger educators where H-1B workers made more than U.S. workers.

Researchers and critics argue that in IT, young workers who are new grads learning cutting edge information are paid less and displace older IT workers. However, GAO could not test this because they had no data to show what older U.S. worker wages would have been had there been no H-1B program. Another theory presented was that U.S. students are dissuaded from studying the STEM subjects because foreign workers are more willing to enter the U.S. workforce by taking longer postdoctoral positions for less money where these positions have lengthened in recent years, especially in the biological sciences.

Watering Down the Program

The GAO report highlights how Congress has changed the H-1B laws over the years so the program no longer looks like what Congress enacted in 1990. While being a temporary worker program with a six-year limit, many H-1B workers on the road to permanent residence stay several years beyond the six-year limit because they can get extensions while the quota is backlogged before permanent residence can be completed. Congress amended the law on extensions in recognition of the permanent residence quota backlogs rather than fix the backlogs or numbers allocated for permanent residence. Also, Congress changed the temporary intent nature of the H-1B program in 1990 to allow for dual intent to stay temporarily or long term.

GAO states the bar for H-1B workers has been lowered. Before 1990, the old H-1B program required applicants to be persons of “distinguished merit and ability.” The 1990 act permits H-1B status in specialty occupations where at least a bachelors degree is the minimum necessary to perform the job duties. Congress knew the H-1B program would be used by new grads. Yet, GAO reports the majority of H-1Bs are paid entry level wages, which is actually consistent with its other findings that most H-1B users are indeed young, new grads at the start of their careers while only 6% are being paid at the top tier levels. In addition, while initially setting caps in 1990 that gradually increased over time and then decreased by more than half for the last several years, the number of cap-exempt H-1B workers has increased thereby making the total numbers of H-1B visa holders far more than the more recent 65,000 cap. But, this may reflect the strong growth in our nation’s education and research institutions and their affiliated employers, especially in the STEM professions plus an additional 20,000 cap-exempt visas for students graduating from U.S. universities with masters degrees. Congress intended to facilitate H-1Bs for the educators and top talent at our academic and research institutions and for U.S. advanced degree graduates to foster innovation and R&D. That is hardly “lowering the bar.”