Self-harm: America’s H-1B visa fee hike signals the triumph of ideology over market forces

The reason for this, according to the White House website, is because the H-1B visa “has been deliberately exploited to replace, rather than supplement, American workers with lower-paid, lower-skilled labor. The large-scale replacement of American workers through systemic abuse of the program has undermined both our economic and national security."

To understand whether these claims are plausible, let’s begin with a reminder that the H-1B is a non-immigrant visa used to temporarily employ foreign workers in “specialty occupations" in fields like technology, science and medicine.

There are roughly 700,000 H-1B visa holders in the US. Over 60% of these are in computer-related fields and the remainder is split mostly between engineering, science and healthcare workers. About 70% of all H-1B visas go to Indians. This visa has been crucial to the growth of the IT industry both in India and the US.

Gaurav Khanna and Nicolas Morales show that “high-skill migration raised the average welfare of workers in each country." We could go further and argue that because IT is embedded in every industry, skilled immigrants in America’s IT industry have helped raise productivity and accelerated trade around the world.

This is a classic ‘spillover’ situation in which positive developments in one domain generate increasing returns in nearby or related domains.

Another way to think about this is through the framework of a ‘gold rush economy.’ A new, large finding of gold or oil—analogous to the emergence of a groundbreaking new technology like AI—has disruptive and cascading effects.

It draws in new capital and labour—money to fund new infrastructure and equipment and migrant workers to do the new work. New demand for business services (banking, law, security) and personal services (education, health, entertainment) results in even more new workers employed, thanks to a multiplier effect.

The California gold rush exploded San Francisco’s population from about 1,000 in 1848 to over 50,000 by 1856. A village became a city almost overnight, then a port. Soon it catalysed statehood for California.

Later, the San Francisco Bay Area became a major hub of education, banking and medicine. The computer industry began there almost unnoticed in the 1960s, and from the 1990s, Silicon Valley became the world’s most recent and consequential gold rush centre.

We can take two main points from this.

First, any new technology needs new labour with new skills. If skilled labour is not allowed to migrate to the place where this technology originates (such as Silicon Valley for IT and the US more generally), the fruits of the advancement will wither on the vine.

The US influx of Indian IT labour began with a specific situation—the Y2K problem that, if unresolved, could have thrown concrete in the gearbox of commerce everywhere. Even after the Y2K problem was resolved in the late 1990s, growth in the US tech industry’s demand for skilled labour was unmatched by local supply. Why that happened is a question for another day.

Second, whether H-1B visa holders are “taking jobs away from Americans" should be analysed in the context of all jobs created directly and indirectly by the IT industry. This new ecosystem has created millions of new jobs precisely because of changes wrought by the IT revolution.

The computer industry has grown from two subcategories in the US Census in 1980 to 12 subcategories now. At the same time, many new types of jobs have been created in fields from accounting to supply chain management because of technological change. To look only at a few hundred thousand jobs in a narrowly defined sector, instead of the whole ecosystem, is short-sighted to say the least.

No doubt, there is abuse of the H-1B system—perhaps to the tune of tens of thousands of jobs—but that is a bug and not a feature of the system; it is episodic rather than systemic.

The ecosystem’s growth is driven by innovation. The evidence on the outsized contributions to innovation, productivity growth and entrepreneurship by skilled immigrant workers is so overwhelming that even a deeply conservative think- tank like the Cato Institute has warned, “Don’t Ban H-1B Workers: They Are Worth Their Weight in Innovation."

There is virtual consensus among expert analysts that: (a) skilled worker migration provides the US with substantial net benefits through innovation and wage growth for the native population; and (b) restricting this flow of workers may have the effect of offshoring work or redirecting them to other countries and granting the latter an advantage.

The unavoidable conclusion is that America’s new H-1B policy is driven by ideological rather than market considerations. This dissonance between politics and markets is not new, nor unique to the US.

In India, for example, there is a big disconnect between the reality of the country being the world’s second largest beef exporter (about $3.5 billion annually), while beef producers face significant restrictions and risk of violence in several large states.

The US administration’s challenge is to maintain the country’s position as the global STEM leader while appearing to protect American jobs. I say ‘appearing to’ because it is all about appearance, not facts.

Anti-immigrant ideology is a core attribute of this administration’s voter base, which is one that seems least interested in a careful analysis of spillover effects or the economics of innovation.

Policies such as the H-1B fee may provide instant gratification for an ideological itch, but adaptation in the US markets for labour and innovation is likely to extract a heavy price in the longer term.

The author is a professor of geography, environment and urban studies and director of global studies at Temple University.