President Trump’s 2017  “Buy American and Hire AmericanExecutive Order is the impetus behind a press release on October 6, which announced the interim final rule (IFR) that “strengthens the H-1B nonimmigrant visa program to protect U.S. workers.” His statement can be found here. Nothing drives home the administration’s commitment to the American worker better than the opening statement:

“The H-1B program was intended to allow employers to fill gaps in their workforce and remain competitive in the global economy, however, it has now expanded far beyond that, often to the detriment of U.S. workers. Data shows that the more than a half-million H-1B nonimmigrants in the United States have been used to displace U.S. workers. This has led to reduced wages in a number of industries in the U.S. labor market and the stagnation of wages in certain occupations. These latest efforts on H-1B visas are part of a larger Trump Administration goal to protect American workers.”

The announcement was made in a joint press briefing by the Deputy Secretary of Labor, Patrick Pizzella, and by Ken Cucinelli, acting deputy secretary of the Department of Homeland Security.

Some of the specifics of these changes that the administration is implementing and are quoted as follows:

  • Reining in what it calls “shadow employers”, what others term Indian outsourcing companies, the main middlemen in the H-1B business;
  • Cutting down the time period for initial visas for these employers from the current three years to one year, to give the government greater opportunities to monitor compliance; and
  • Changing how the prevailing wage for H-1B workers is calculated, which will force these H-1B employers, on average, to increase the wages paid to these workers.

The Department of Homeland Security (DHS) and the Department of Labor (DoL) are both revisiting and revising H-1B regulations. The names of the documents reveal the focus of each department. One document from the Department of DHS named, Strengthening the H-1B Nonimmigrant Visa Classification Program focuses on tightening language to aid the USCIS (Center for Immigration Studies) efforts to properly define qualifications and requirements for foreign workers. The other document from the DoL called, Strengthening Wage Protections for Temporary and Permanent Employment of Certain Aliens in the United States, hammers out the details of wages.

Representational Image: iStock

Analysis of the Revisions

David North, a fellow for the Center of Immigration studies issued an insightful summary of what could arguably be a dry read if you were to slog through the original documents from the respective agencies.

He illustrates the administration’s robust response to long-overdue changes in policies that have drifted toward displacing American labor in favor of foreign labor to lower costs.

David North reports that this administration is creating sound policies that make it more difficult to “exploit the H-1B program to replace Americans, and by creating a more realistic yardstick for wages that must be paid to foreign workers.” North’s conclusion is that the DoL has done a better job of addressing reform in the controversial program because it used “numbers not words” to strengthen the regulations:

“While both documents have excellent discussions of the nature of the H-1B program’s problems, Labor (disclosure: one of my alma maters) used numbers to bring real reform, while DHS employed words to describe a proposed tightening of the administration of the program in a way that will bring some more order to it, and some new costs to employers, but will not produce — according to the text — any major changes in the usage of this over-used program.

DoL’s new formula for the prevailing wage to be paid to H-1B workers will raise the costs to employers remarkably, which will, one hopes, cause fewer H-1Bs to be hired and the creation of some jobs for citizen and green card workers.”

In the DHS portion of the reforms, definitions are “tightened” to help employers both better understand the regulations as well as foster better accountability. Some of these definitions include, “tightening of its definition of specialty workers (those getting H-1B visas) and of the terms of the rental of some H-1B workers by staffing companies (the Indian outsourcers that use more than a third of all H-1B visas), and the provision that the latter must seek visa extensions every year, instead of every third year.” Outsourcing firms (those who hire people in remote locations like customer service phone banks in India) will take the heaviest hit. Much of the reform seems to address these offsite “bodyshops”.

North continues that, while refining definitions and securing more “careful vetting of the applications before the agency”, the DHS reforms have not yet been as successful as intended due to difficulties in accurately vetting Alien application approvals by the USCIS. His analysis added the calculated percentages, thus laying bare the challenges of meeting the expected guidelines:

“This is shown by the remarkable increase in approvals of initial H-1B petitions in the year 2019, which can be seen in the table below. In the prior year, USCIS was approving only 54.2 percent of the initial applications, but in 2019 that rate went up to 88.4 percent.”

North rightly questions that if “the staff gives a go-ahead to 88 percent of the applications when the rules are relatively simple, can it be expected to be more discerning if the rules get more complex?”

Other data noted in the relatively “transparent” document is worth mentioning. He mentions the “differential fraud rates in the H-1B program attributable to the staffing companies, as opposed to other employers..” As noted in the DHS document here:

“Further, DHS analyzed the results of the compliance reviews from FY16-FY19 and found that the non-compliance rate for petitioners who indicated the beneficiary works at an off-site or third-party location is much higher compared to worksites where the beneficiary does not work off-site (21.7 percent versus 9.9 percent, respectively).” Analysis like this will be important to truly reform the worker program.

As for the DoL side of the analysis, North sees potential for more real-world reform because of its data-driven approach to the matter-aimed at the bottom line of the American employer. The Department of Labor shows its understanding of the challenge here as follows:

“Further, the Department’s analysis of the likely effects of H-1B and PERM workers on U.S. workers’ wages and job opportunities shows that the existing wage levels are not advancing the purposes of the INA’s wage provisions. As explained below, under the existing wage levels, artificially low prevailing wages provide an opportunity for employers to hire and retain foreign workers at wages well below what their U.S. counterparts — meaning U.S. workers in the same labor market, performing similar jobs, and possessing similar levels of education, experience, and responsibility — make, creating an incentive — entirely at odds with the statutory scheme — to prefer foreign workers to U.S. workers.”

North explains this important aspect of the changes in wages better than I can so I quote him in full here:

 “INA is the Immigration and Nationality Act, and PERM is an in-house DoL term for aliens who have been admitted to the U.S. as workers, and who are now permanent resident aliens, or green card holders…DoL collects prevailing wage data for various jobs in various H-1B-using industries. It does this for four levels of proficiency in each of these jobs, defined as: Level I “entry level”, Level II “qualified”, Level III “experienced”, and Level IV “fully competent”. Most H-1Bs are hired at levels I and II.

Currently, H-1B employers can pay their entry-level workers at the 17th percentile of the wage distribution; at the less-used level II it is at the 34th percentile, and at the still less common levels III and IV, it is at the 50th and 67th percentiles. This means that five-sixths of Level I workers are making more than the wage level set for Level I H-1Bs; it also means, to use non-DoL language, that these H-1B workers are a screaming bargain for their employers.

The new regulations move those percentile benchmarks up, respectively, to 45, 62, 78, and 95. The department uses a multi-page explanation of why the new math is more appropriate than the old math.”

The bottom line, these refinements in wage levels meaningfully shift the incentives for employers to take a harder look at hiring American workers. The costs of the new benchmarks to employers are substantial and the DoL estimates that “The annualized transfer (additional cost) over the 10-year period is $23.25 billion and $23.5 billion at discount rates of 3 and 7 percent, respectively.” That is a change that will surely incentivize an employer to take a good hard look at its hiring practices.

Both sets of regulations are interim final rules as referenced above. They slated November 9th as the deadline for public comment meaning the IFR will be effective 60 days after its publication in the Federal Register.