H1-B visas: innovation driver or job killer?

Is the H1-B visa system finally headed for reform?

On Tuesday, the White House issued an Executive Order directing federal agencies to offer improvements to the annual H1-B lottery, favoring an approach that allocates these guest-worker visas to the “most skilled or highest-paid applicants.”

The H-1B visa was designed to attract the world’s best talent – people with rare skills needed to help the U.S. economy. But critics on the right and the left have long complained the program is abused by global outsourcing firms. Those critics are right, but to fix the problem, we have to look a bit deeper. 

It’s not just that H1-B visas often go to guest workers with common skills, displacing higher-paid American technology professionals in the process. The bigger issue is how they accelerate the offshoring of U.S. jobs. At the same time, certain tech jobs are already coming back to America. Unless we understand these two deeper trends, visa reform could be useless at best and harmful at worst.

First step to offshoring

Even knowledgeable observers tend to underrate the role of the H-1B in offshoring.

Having workers onsite is essential at the beginning of an offshoring engagement. Typically these are guest workers with H-1B visas. But as these workers gather information about systems and processes in the U.S., their firms gradually transition 60%-95% of the work overseas. Lower labor costs offshore mean savings for U.S. clients and higher profits for outsourcers.

Thus the H-1B has enabled an offshoring bonanza. The Indian tech industry makes about 60% of its $100-plus billion revenue through jobs outsourced by US companies.

The limits of offshoring

Despite these savings, American businesses have discovered IT offshoring isn’t a silver bullet. The reason comes down to the nature of modern software development services itself.

Forget the stereotype of the lonely, introverted coder. Developers today rely on frequent, real-time communication and collaboration with their colleagues, partners and clients. Waiting for a team member on the other side of the world to wake up and answer a key question isn’t always practical. Communication disconnects often lead to misunderstandings and frequent rework.

Accordingly, American businesses are warming up to homegrown tech development. Amazon recently announced plans to train veterans to take on tech jobs.

A new breed of 100% U.S. “domestic sourcing” companies, including mine, has emerged. We build software for some of America’s most successful companies.  We employ hundreds of tech workers in places like Michigan and Indiana, which have relatively low costs but also a wealth of local universities and abundant talent.

Industry analysts have observed many advantages to this model: they include cultural affinity, shared schedules and faster delivery, as well as access to valuable skills like innovation and customer-experience design.

At Nexient, we do sometimes hire H-1B workers if we cannot find a citizen with a critical skill – exactly as the program was intended. In fact, the first one we hired is now a U.S. citizen, one of our most senior technology leaders who often mentors junior developers.

Though still young, the industry is scalable and cost-competitive; one analyst firm reports a 70% jump in client inquiries in domestic sourcing.

Solutions

The American IT industry looks different depending where you stand. While cutting-edge, customer-facing tech work is returning to the U.S., routine tasks remain vulnerable to offshoring or automation.

This suggests we need to be careful with H-1B reform. Increasing the number of H-1B visas could perpetuate the existing problem. Limiting their availability might feel politically satisfying, but could push U.S. companies to accelerate offshoring programs. USCIS statistics suggest global outsourcers applied for fewer H-1B visas this year. That might seem like good news, but likely indicates plans to shift U.S. jobs to higher-profit offshore locations.

Smart reform needs to reduce incentives to offshore jobs that can be done better in the U.S. It needs to encourage trends returning high-paying, innovation-driven tech work to America, while giving U.S. workers time to transition to a quickly automating world.

For example, companies that sponsor H-1B visas for their employees should also commit to sponsoring their green cards. This would disrupt the offshore model, while helping American companies attract and retain highly valued employees with unique skills. Increased visa application fees and other administrative levies could be invested in domestic STEM workforce development and incentives. Some lower-cost options should be preserved for startups to help fuel the next generation of American innovation and employment.

Reforming the H-1B system won’t stop offshoring, nor should it. Some tech jobs are best done overseas, where they can provide a good living at wages that would be prohibitively low in the United States. At the same time, the future of U.S. innovation depends on attracting people with unique skills, no matter where they live.

As published in USA Today