High Skill Immigration
& Innovation
Capturing The Best & Brightest
or
Offshoring America’s Knowledge
October 25, 2006
Technology, Innovation & America’s Primacy
Council on Foreign Relations
Ron Hira, Ph.D., P.E.
Assistant Professor of Public Policy
Research Associate
Rochester Institute of Technology
Economic Policy Institute
rhira@mail.rit.edu
757-564-0215
Three Uses of
High Skill Guest-worker Visas
• Brain Capture
1. Skilled workers use non-immigrant guest-worker
programs as a bridge to immigration
• Temporary Labor Mobility –
Driven by Offshoring
2. Knowledge transfer programs shift tasks to
offshore locations
3. Lower cost foreign labor for service delivery onsite to US clients
Ron Hira, RIT
rhira@mail.rit.edu
2
H-1B Visa
• “Specialty” Occupations
Requires Bachelors degree or equivalent
experience
Visa stay up to 6 years
~400,000 H-1B holders in US
• Protections for US Workers
Annual quota for new petitions –
o 65k + 20k (MS or PhD from US Univs) +
exemptions
Wage parity – Largely ineffective
Ron Hira, RIT
rhira@mail.rit.edu
3
H-1B Visa
• Misreporting by Press
Getting an H-1B “requires an employer to
attest that it can't find a U.S. worker “
- A1 story by June Kronholz, Wall Street Journal,
June 27, 2006
• Bills in Congress to Increase Quotas
Major lobbying by tech industry
o Bill Gates, Scott McNealy, etc.
Support from President Bush
o Feb 06 speech to 3M
Ron Hira, RIT
rhira@mail.rit.edu
4
L-1 Visa
• Intra-company Transfer
 L-1A - managers and executives 7 years
 L-1B - “specialized” skills - 5 years
 65,000 L-1s issued in FY 05
• 9 of Top 10 Petitioning Companies Specialize in
Computer & IT Offshore Outsourcing from India
 Tata Consultancy, Cognizant Technology Solutions,
Wipro Technologies, Hewlett Packard, I-Flex
Solutions, IBM Global Services, Information Systems
Technology, Syntel Incorporated, and Satyam
Computer Services
Ron Hira, RIT
rhira@mail.rit.edu
5
L-1 Visa
• Share of L-1B Petitions for Workers from
India Up Significantly
2002: India 10%
2005: India 48%
• Since 2004 L-1B > L-1A
• No Protections for US Workers
Recent law limits use by “body shoppers”
Ron Hira, RIT
rhira@mail.rit.edu
6
Brain Capture Scenario:
Bridge to Immigration
• Foreign Student Comes to US for
Graduate Studies
• Foreign Student Wants to Stay in US
Company applies for H-1B work visa
Company applies for Green Card
o 3-5 year wait time traditionally
o Quota inadequate so much longer backlog
Ron Hira, RIT
rhira@mail.rit.edu
7
Knowledge Transfer Scenario
• Company Wants to Transfer Specific
Tasks from US to Overseas Operations
Brings foreign workers into US
(generally on L-1visa)
US worker trains foreign worker
Foreign worker returns to country of
origin and task migrates with him
US worker laid off or re-assigned
Ron Hira, RIT
rhira@mail.rit.edu
8
On-site Offshore Outsourcing Scenario
• Company Brings in Lower-Cost High-Skill
Worker to Deliver Services On-Site in US
H-1B or L-1 visa used
Advantages
o Lower labor cost
o Better management of offshore team
o Training
Business model for most major IT offshore
outsourcing firms
o Cognizant, Infosys, Tata Consultancy, Wipro, etc.
Ron Hira, RIT
rhira@mail.rit.edu
9
Visas Vital for On-site OO Firms
• Firms Report in SEC Filings
Changes in US visa laws are a significant risk
Vast majority of workers in US are on H-1B or
L-1 visas
o Infosys, Cognizant, Wipro, Satyam
• Visa Application Fees Large Enough to
Affect P&L Reporting to Investors
E.g., Patni, Infosys
Ron Hira, RIT
rhira@mail.rit.edu
10
On-site OO Business Model
Tata has about 8,000 employees in North
America, primarily in the U.S., and about 7,200 of
them are here on some kind of visa. Among its U.S.
workers, about 65% have H-1Bs, and the remainder
hold L-1 visas, said spokesman Victor Chayet.
He added that many of Tata's U.S.-based
employees are graduates of universities in India and
that only a handful ever seek permanent residency
here. The company doesn't discourage workers from
applying for green cards, but its service delivery
model is based on the ability to move people from
country to country as needed. "Keeping that fluid
workforce is to our benefit," Chayet said.
- Patrick Thibodeau, “H-1B backers want bigger increase in cap,” ComputerWorld,
November 29, 2004
On-site OO Business Model
“Our wage per employee is 20-25% lesser than
US wage for a similar employee. Typically, for a TCS
employee with five years experience, the annual cost to
the company is $60,000-70,000, while a local American
employee might cost $80,000-100,000. This (labour
arbitrage) is a fact of doing work onsite. It's a fact
that Indian IT companies have an advantage here and
there's nothing wrong in that.”
- Phiroz Vandrevala, Executive VP, Tata Consultancy Services,
quoted in, Shelley Singh, “US Visas are not a TCS-specific issue,“ Business
World, June 30, 2003.
H-1B Prevailing Wages
Says Sanyogita Mukerjee (name changed on request),
who works at a top-five Indian software company with a
contract to develop complex software systems at International
Monetary Fund in Washington, "I get an annual cost-tocompany salary of $46,800 and a net salary of $36,300,
despite being in the software industry for more than five
years. An American with a similar experience gets around
$80,000 a year."
Mukerjee is not alone. Her company has H1-B and
L1 employees in New York, Chicago, Atlanta, Boston and
San Francisco working with some of the best brands in
the world, and almost everyone has a similar grouse. She
said her company told her she is being paid at prevailing
wages.
- Sachin Kalbag, “H-1B visa holders get paid less than Americans: Report,” DNA
India, Sept. 8, 2006
Ron Hira, RIT
rhira@mail.rit.edu
13
Brain Capture Squeeze:
FY05 Approved H-1B Applications
Company
Infosys
Job Title
Programmer
Analyst
Tata Consultancy Programmer
Services
Analyst
Integrated Optics Director of
Communications Engineering
Corporation
Annual Wage
$17,908
$19,029
$120,000
Source: R. Hira Analysis: US Dept of Labor LCA Database: www.flcdatacenter.com
Emerging Global IT
Services Business Model
Name
Infosys
Wipro
Electronic Data
Systems
Computer
Sciences Corp
HQ
India
India
Market
Cap
$19,877
$15,268
Latest
FY
Sales
$1,592
$1,627
Profit
Margin
(5 yr Avg)
27.93%
20.59%
US
$12,517
$25,865
2.74%
US
$10,015
$14,059
3.23%
Dollar figures in millions; Retrieved from Reuters.com on November 13, 2005
Ron Hira, RIT
rhira@mail.rit.edu
15
Infosys: Still Dependent
on On-Site Revenues
Revenue Source
Q2 07
Q2 06
Onsite
Offshore
50.3%
49.7%
48.8%
51.2%
Source: R. Hira Analysis: US Dept of Labor LCA Database: www.flcdatacenter.com
Ron Hira, RIT
rhira@mail.rit.edu
16
WTO GATS (Mode 4) &
Guest-worker Visa Programs
• Developing Countries Pushing Hard
 View quotas and prevailing wages as non-tariff barriers
to trade
 ~70% of revenues for On-site OO firms derived from
H-1B and L-1 use (Hira 2004)
• Congress
 Singapore & Chile FTA new H-1B visas
 Australia FTA did not include H-1B
o Instead new E-3 visa created – 10k cap
• USTR
 Encouraging US industry to lobby for liberalization
Ron Hira, RIT
rhira@mail.rit.edu
17
Innovation Implications
• Knowledge Transfer a Body Contact Sport
Learning on most advanced equipment and
most sophisticated customer market
Indian H-1Bs with US experience are sought
after in Indian job market
Accelerate offshore transfer speed
• Brain Capture Squeezed Out
Increasing share of H-1B cap being used by
On-site OO
Better job opportunities back home
Ron Hira, RIT
rhira@mail.rit.edu
18
Innovation Implications
• Impact on US Workers and Potential US Workers
 Direct competition for jobs that must be done in US
 Shift into non-H-1B occupations
• US National Innovation System
 Accumulation of knowledge goes to foreign workers
o National capacity to innovate
 Loss of spillovers –
o e.g., next generation of entrepreneurs
 Creating competitors
Ron Hira, RIT
rhira@mail.rit.edu
19