Tuesday, February 17, 2009

TARP and the H-1B Visa issue

Saw news that Senators Grassley (IA) and Sanders (VT) inserted language that further restricts firms which receive TARP (Troubled Asset Relief Program) funds from using the H-1B visa program.

This is short sighted on several levels. First, these companies are in trouble. That's why they need access to the TARP funds. Giving them funds with one hand while limiting their ability to access global talent is counterproductive. It's like handing someone with a broken leg a crutch with your left hand, while whacking them in the knee with your right. Two policies working in total opposition to each other.

The larger problem, however, it that tighter H-1B restrictions will push more work offshore, not slow the process. Here's why.
  • Imagine a high value service operation that, to be successful, requires people with several different skill sets. If this was pharma research, these might be genomics engineers, database people, lab techs, chemists, biologists, etc. For simplicity, we'll just call the skills required A, B, C, and D.
  • The United States faces critical shortages of skilled people in many technical areas. Over half of graduate engineering students are foreign born, and the ratios are far worse in electrical engineering, physics, etc.
  • Assume that a firm can not find a world class person with skill C in the local market. I'm not talking someone who thinks he can do the job, or someone who could be trained over a number of years to do the job. But someone who is world class today. Without skill C, the whole operation will underperform.
  • The H-1B visa program is intended to allow a firm to bring that person to the US to work and live here, strengthening the overall operation and making all the other jobs more secure.
  • Remember, the H-1B program applies only to "specialty occupations" and requires potential employers to pay prevailing wages. So there is no cost savings here. In fact, it generally costs more because the firm has to arrange for visas, transportation, etc. Firms are using the program to gain access to scare skills.
  • The H-1B application also asks (but does not require) whether the firm has done a local search to identify local talent to fill the position. While not legally requires, I can tell you from experience that not doing a local search is almost guaranteed to cause a rejection.
In the end, the program allows firms to keep jobs in the United States. If we don't allow high tech firms to bring world class workers to do work here, those firms will take the work to them, overseas. And positions A, B, and D will move overseas as well.

Restrictions on the H-1B visa program are one of the major drivers of the rise of the Indian software industry in the late 1980s and early 1990s (see chapter 4 of the Services Shift). They are also the reason that Microsoft has a huge graphics research operation in China (it could not bring the talent to Seattle), Bechtel has it's largest Engineering, Procurement, and Construction Management center in India, etc.

The real choice facing firms is whether to do the work near their home base, or somewhere offshore. Most firms would rather do it close to home. But if government policy makes this tough, we simply force them offshore.

The Grassley-Sanders visa restrictions may be good politics, but they are shortsighted and counterproductive policy. While presumably well-intentioned, the Senators have done their country a disservice. Their amendment will force more jobs offshore.

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