Seeking reforms in guest worker programmes

Seeking reforms in guest worker programmes

Proponents of expanding American guest worker programmes such as the H-1B, L-1, and B-1 visas argue that these programmes supply workers who complement the American workforce. But the evidence shows that they are often used to bring in less-expensive foreign workers who substitute and compete against American workers. The programmes are clearly displacing and denying job opportunities to American workers, and driving down their wages and working conditions. American workers who lobby their government to close loopholes in the guest worker programmes are simply acting in a rational way, responding to policies that they know harm their economic interests.

Even in good economic times the current programmes would be bad for American workers, but given the current jobs crisis gripping America they are especially harmful for American workers. The depth and severity of the American jobs crisis has been understated by most commentators, many of whom point to the eight million jobs lost in the Great Recession beginning in 2007. The reality is that the American economy hasn’t been creating enough jobs for more than a decade and has a shortfall of at least 18 million jobs. This protracted jobs malaise is a historic first.

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For the 60 years between 1940 and 2000, America’s economy had been a consistent job creation engine, generating on average 26% additional jobs every ten years. Yet during this past decade, 2000-2010, America’s job creation went into reverse—actually losing 3% of its total number of jobs. This wasn’t due to decreased population or a rise in the share of elderly. America’s population increased by 25 million in the past ten years yet there are one million less jobs. The labour market has a severe shortage of jobs and a surplus of workers, not the other way around.

This is even true in the technology and engineering occupations that dominate guest worker use. US government labour statistics tell the story. Unemployment rates for Computer Professionals (IT workers) was 5.6% in 2010, a rate higher than for its peer group All Professionals, and more than double the unemployment rate we would expect when those occupations are at full employment. While few employers, such as Facebook and Google are adding some workers, those gains do not outweigh the large scale layoffs of American engineers by major firms. In spite of its record profits, IBM has eliminated at least 30,000 of its American jobs in the past seven years. Compare that with Google which, with its spectacular revenue and profit growth, still only employs 24,400 workers worldwide.

Given the current American labour market, try placing yourself in the shoes of one of those American IT workers en route to the unemployment line by way of training his foreign replacement? His future will likely be long-term joblessness and if he is lucky enough to get one of the few jobs available it will come at a significantly lower salary.

There is no doubt that outsourcing harms American workers. This has been made clear by none other than McKinsey Global Institute, a leading evangelist and beneficiary of offshoring. In its widely publicized 2003 report, Offshoring: Is It A Win-Win Game?, McKinsey found that while the American economy gained from offshoring, American workers were the major losers. The report estimated that with no offshoring American workers received 72 cents for each dollar of economic activity, while after offshoring began American workers received only 45 cents—a 38% reduction. The harm came in the form of job and wage loss.

Why does the employment situation in the US matter for guest workers and offshoring? During times when the economy is generating abundant quantities of jobs, the adverse effects on American workers, of lost jobs and opportunities, will be softer. As Diana Farrell, lead author of the McKinsey report, wrote, “Can we trust the resilience of our economy? The starting point is convincing people of the probability of re-employment. … Over the past 10 years, the US economy has created a total of 35 million new private sector jobs, or an average of 3.5 million new jobs per year. At this rate of job creation, the vast majority of displaced workers are re-employed within 6 months." The current situation is a far cry from the rosy jobs scenario Farrell assumed, which still meant major losses for American workers. The adverse impact of offshoring today is far worse since the American economy is not even creating jobs, let alone 35 million.

So, what’s the best way to move the policy discussion forward? Here are two suggestions.

First, offshore outsourcing firms can learn much from the actions Japanese companies took in the 1980s. To stave off additional formal policy responses from Washington, they began building a footprint in America, and most importantly hiring American workers. While many leading offshore outsourcing firms have discussed hiring more Americans, it has remained almost entirely talk and no action. Second, the US policy discussion needs to explicitly include labour mobility. It’s obvious that many firms use these visa programmes for temporary labour mobility rather than to bring workers to America for permanent residence. Yet, for political expediency, the coalition of employers and universities lobbying for these programmes continue to claim they are mostly used as bridges to permanent immigration. So, we should begin a discussion on the best way to accommodate labour mobility in these programmes without adversely affecting American workers. How do American policy makers ensure these guest workers are complementing, rather than substituting American workers? What types of labour market tests should be used? What wages floor should be set? What types of working conditions are acceptable? And how long should the work visa be valid?

Ron Hira is a professor of public policy at the Rochester Institute of Technology in Rochester, New York.

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