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October 20, 2010
4 Fundamental Flaws in the H-1B Visa Program
By David R. Butcher

Loopholes in H-1B and L-1 visa programs have made it too easy to bring in cheap foreign workers who are displacing American workers, according to a new report, which says that an overhaul of the programs should address four fundamental flaws in their design.

The H-1B and L-1 visa programs are "riddled with problems," and loopholes in both have enabled businesses to employ foreign guest workers at a lower cost than American workers, according to a new report from the Economic Policy Institute (EPI), a liberal-leaning think tank.

U.S. businesses use the H-1B program to employ foreign workers in specialty occupations that require theoretical or technical expertise in fields, such as science, engineering or computer programming. H-1B temporary work visas are restricted to 65,000 annually, with 20,000 exemptions for students earning U.S. master's degrees or doctorates and further exemptions for hiring in U.S. academic and research institutions.

According to the National Science Board's (NSB) Science and Engineering Indicators 2010, H-1B temporary work visas typically account for a higher number of high-skilled workers than other visa classes. Each year, demand for H-1B visas dramatically exceeds supply. For fiscal year 2010, it took nine months to exhaust the supply of visas after the U.S. Citizenship and Immigration Services (USCIS) began accepting applications on April 1. For FY2009, however, the USCIS received 163,000 applications during the first week. For FY2008, the entire quota was exhausted before the end of the first day that applications were accepted.

According to the NSB, more than two-thirds of H-1B visas are issued for science and engineering occupations, with a large portion of the remainder issued for closely related work.

"Nearly all of the employers who receive the most guest visas are using them to offshore tens of thousands of high-wage, high-skilled American jobs," the new EPI report, titled The H-1B and L-1 Visa Programs: Out of Control, says.

The H-1B visa and the L-1 visa are non-immigrant visas, and both H-1B and L-1 workers are sponsored by their employers. These programs are meant to encourage foreign investment in the United States. Yet the new EPI report argues that loopholes in these programs have made it too easy to bring in lower-cost foreign workers to displace American employees.

"The goals of the H-1B and L visa programs have been to bring in foreign workers who complement the U.S. workforce," Ron Hira, an associate professor at the Rochester Institute of Technology and the author of the EPI report, says. "Instead, loopholes in both programs have made it too easy to bring in cheaper foreign workers, with ordinary skills, who directly substitute for, rather than complement, workers already in the country.

"They are clearly displacing and denying opportunities to U.S. workers," Hira continues, recommending that both visa programs be overhauled immediately and substantially.

According to the EPI, program reform should address four fundamental flaws:

1. Neither program requires a labor market test. To sponsor guest workers, companies are not required to demonstrate that a shortage of U.S. workers exists, nor do they need to attempt to recruit American workers before sponsoring guest workers. Employers can and do bypass American workers when recruiting for open positions and even replace workers outright with H-1B and L-1 guest workers.

2. Wage requirements are too low for H-1B visas, and they are non-existent for L-1. Although the H-1B program requires employers to pay the prevailing wage, loopholes allow companies to legally pay below-market wages, making guest workers cheaper to employ than domestic employees. The arbitrage opportunities for L-1 visas, which lack any wage requirement, can be even greater because employers pay home-country wages or less.

3. Visas are held by employers rather than workers. Because most of the power in the employer-employee relationship rests with H-1B and L-1 employers, guest workers can be easily exploited but have little recourse for having problems addressed. Former Secretary of Labor Ray Marshall describes this employment relationship as "indentured servitude." If employment is terminated, the worker must leave the country immediately.

4. Program oversight and enforcement is deficient. Federal regulations are "toothless and ineffective," and regulating agencies rarely scrutinize employers. Reviews of H-1B applications have found a number of H-1Bs granted under false pretenses. Meanwhile, the L-1 visa program has not been reviewed in more than four years, despite the last major report finding "significant vulnerabilities to abuse."

"By closing the H-1B and L-1 visa loopholes described above, we would create and retain tens of thousands of good-quality American jobs and ensure that our labor market works fairly for American and foreign workers alike," the EPI says.

The report recommends that the U.S. institute a "labor market test" for these programs, which would require companies to demonstrate a shortage of American workers before guest workers are sponsored.

Hira also recommends revising the wage requirement for the H-1B program and instituting a wage requirement for the L-1 visa program, as well as subjecting companies that employ guest workers to random audits and granting the government agencies in charge of these programs — including the Departments of Homeland Security, Labor and State — authority and sufficient resources to ensure they are operating properly.