Analysis: If N.J. sees H-1B use driving down wages, will Congress?

Evidence about how the visa program affects wages is growing

WASHINGTON, D.C. -- When Alan Greenspan, the former chairman of the Federal Reserve, told a U.S. Senate committee recently that tech workers are a "privileged elite" whose wages are protected by the H-1B cap, it's clear he hadn't talked to New Jersey's IT chief.

Adel Ebeid, New Jersey's CTO, said he has seen hourly wage rates for IT contractors decline, a falloff he attributes to H-1B visa workers employed by IT contracting firms. The visa workers "are willing to settle for an hourly rate that would not be tolerated by other folks." And Ebeid's view that the availability of the visas "is driving down wages," is reflected, he said, in the state's quarterly analysis of wage rates.

Ebeid's view is backed by a recent study that found H-1B visa use is reducing IT wages in some fields, including programming, by as much as 6%. That comes from research by Prasanna Tambe, an assistant professor of information, operations and management sciences at the New York University's Stern School of Business, and Lorin Hitt, a professor of operations and information management at Wharton School of the University of Pennsylvania.

Ebeid's experience and that study may play a role if a bill co-sponsored by Sens. Chuck Grassley, (R-Iowa), and Dick Durbin, (D-Ill.) -- the H-1B and L-1 Visa Reform Act (S.887) -- advances to a hearing.

This bill sets a number of provisions that are aimed at clamping down on H-1B use. For instance, it prohibits companies from having more than 50% of their workforce using H-1B and L-1 visas. That provision is drawing ire from the Indian government and offshore providers because these firms rely heavily on visas to deliver services. It would likely require them to increase their onshore workforce, which would cut into their margins.

But the provision aimed at offshore providers in the Grassley-Durbin bill doesn't address Ebeid's point that the H-1B visa is driving down wages in his state. New Jersey's IT work can't be done offshore by law, unless the state grants a specific exemption. The competition on wages is coming, in some instances, from in-state IT contractors that hire numbers of H-1B workers.

There's another provision in the Grassely-Durbin bill that may force H-1B employers to increase the salaries of their visa-holding workers. By law, employers that hire H-1B workers are required to pay prevailing wages, but critics say those wage levels are too lax.

Prevailing wages are pegged to geographic regions in the U.S. and as a result can vary widely. But using Trenton, N.J. -- a relatively high-wage region -- as an example, the prevailing wage for computer systems analysts at the lowest level, level 1, is $25.45 an hour or $52,936 a year. Level 2 begins at $32.33 an hour or $67,246 a year. Among the provisions in the Grassley-Durbin bill is one that requires "wages not less than the highest of the median wage for skill level 2," which means that employers wouldn't be able to use level 1 pay scales to set wages, likely boosting costs for IT services firms that use relatively large numbers of H-1B visa workers. (Wages are set at four levels and the highest, again for the Trenton area, is $46.08 an hour or $95,846 a year.

The long-term outlook for the Grassley-Durbin bill is uncertain. With the exception of a restriction included in the federal stimulus bill that set limits on H-1B use for financial services firms, H-1B legislation -- and immigration-related legislation generally -- has been held up by backers of comprehensive immigration reform.

Grassley and Durbin will likely argue that high-levels of fraud in the H-1B program require action sooner rather than later.

Copyright © 2009 IDG Communications, Inc.

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