Sunday, March 22, 2015

Immigration Reforms Needed to Protect Skilled American Workers

Hal Salzman, Ph.D.
Professor
E.J. Bloustein School of Planning & Public Policy
J.J. Heldrich Center for Workforce Development
Rutgers University

Hearing on:  "Immigration Reforms Needed to Protect Skilled American Workers"

Submitted to the Senate Committee on the Judiciary, U.S. Senate
March 17, 2015
(Link (pdf))

Summary and Concluding Remarks

Our analysis of the data finds that high-skill guest worker programs supply the preponderance of all new hires for the IT industry. The inflow of guest workers is equal to half of all IT hires each year and fully two-thirds of annual hires of workers younger than 30.

As the wage analyses show, wages in IT jobs have been stagnant for over a decade while guestworkers have steadily increased, now comprising 40 percent or more of some computer occupations. The evidence strongly indicates that the current levels of guestworker supply are a key factor in the depressed wages of U.S. IT workers, by both providing a large supply of entry-level workers that can substitute for U.S. workers, and particularly older workers. Important to note is that the large supply of guestworkers is required by IT services firms for offshore development. That is, as stated in these companies’ SEC filings, without a large supply of guestworkers, they would be unable to move IT work offshore at competitive rates. At the very least, they would have to hire U.S. workers for the portion of their workforce on assignment in the U.S.

As increases in the supply of guestworkers are being debated and proposals developed to speed the path to green cards, U.S. colleges are already graduating more than twice as many science, technology, engineering and math (STEM) graduates than the number of STEM openings generated by our economy each year. In short, the overwhelming evidence does not support a need for the escalating numbers of new guestworkers called for in the Senate’s S744 legislation or the I-Squared legislation. As Figure 15 shows, increases of the magnitude proposed would supply guestworkers for more than 100 percent of the industry’s hiring needs. Such increases can only exacerbate current trends of stagnant wages and poor career opportunities in IT and STEM fields. In particular, the likely impact of large-scale guest worker programs, which stand to hurt all STEM graduates, will have especially negative impacts on minorities who are underrepresented in high-tech, as well as other, recently arrived foreign-born workers who compete most with newcomers.

Labor Markets and the Economy

Markets are supposed to reflect demand through the price mechanism of markets. In the case of labor, the "price" is wages. How can it be, then, that if the IT industry is experiencing labor shortages, wage levels in this highly profitable industry are no higher than they were in the last millennium? How can an industry expect to attract the best workers without raising wages? Is there what economists call a "market failure" here? As the evidence presented suggests, STEM labor markets do work as expected. In the case of petroleum engineers, shortages led to wage increases which, in turn, led to near tripling of graduates. There is no plausible explanation for the observed IT labor market trends and outcomes other than, quite simply, large supplies of guestworkers that allow many firms to swap out higher-paid, high-skill domestic workers for lower-paid guestworkers, as found by many researcher including a Brookings Institution study that concluded "it is likely that the extra supply of foreign-born workers does bring downward pressure on the wages of incumbent workers, as research suggests" (Rothwell and Ruiz, 2013) .

All the evidence suggests the IT labor market is still bound by the usual dynamics of supply and demand. When we look at the trends of the past 20 years, we see that when wages increase, the number of computer science graduates increases. When wages fall, the number of graduates falls. When the supply of guestworkers increases, wages stay flat, and too many domestic students must find employment in other fields.

Some commentators argue that this last result is good for the economy: science and engineering skills are now being used in millions of non-STEM jobs. But an alternative view is that far too many domestic STEM graduates are in jobs that do not fully use their education, which represents a loss of our greatest source of innovators. Moreover, students observing these trends pursue careers outside of STEM fields, putting their talents to work in industries such as finance and law but not contributing to the innovation that drives the long-term and sustainable strength of the nation.

Yes, employers claim they have thousands of unfilled job openings, but the evidence is hardly compelling. Only about half to two-thirds of engineering graduates find engineering jobs and fewer than half of graduating Ph.D. scientists find career jobs. At the largest IT jobs website DICE.com, over half of the advertisements are for contract, short-term and part-time jobs — assuming these jobs exist at all. But even if they are available, these are not the types of jobs that U.S. graduates will find attractive, nor are they the types of jobs that will allow these graduates to pay off student loans, much less enter the middle class. Those on the front lines of IT now tell students that given the industry’s stagnant wages and unstable career tracks, better students should seek jobs elsewhere. An extensive survey of a recent college cohort by the National Center for Educational Statistics corroborates their advice. Only two-thirds of computer science graduates went into IT jobs in 2009. Of those not landing an IT job, half said they found a better job elsewhere. Fully one third reported there were no IT jobs available.

This was also the finding in our analysis of changes in the composition of STEM graduates going into STEM jobs over the past three decades (Lowell, et al., 2009). We found that although the overall supply remained strong, fewer of the highest performing students were going into STEM jobs. Meanwhile studies by Peter Cappelli of the Wharton School and by Burt Barnow of George Washington University find a decrease in the intensity of firms’ recruitment efforts since the recession and an increase in pickiness about whom they are willing to hire. Again, the inference seems obvious: the supply of potential workers is already plentiful relative to employer demand. This should be the evidence that guides current legislation rather than anecdotal accounts and thin claims about the need for guestworkers and the U.S. falling behind in the global high-tech talent search.

H-1B guestworkers are concentrated in computer programmer and system analyst jobs; in fact, they fill 85 percent of them. But most of these are commodity-like production jobs in IT services, doing back office programming for companies. A disproportionate number of H-1Bs provide onshore customer management for offshore programming teams. Ironically, without the visas, much of the programming work couldn’t have been offshored in the first place.

There may be highly innovative guestworkers, but most are in jobs far away from the innovation frontier. The Economic Policy Institute’s Ron Hira found that few of the largest H-1B employers could be considered technology innovators, with most generating very low levels of patents. So an often-heard argument for a massive increase in guestworkers — that we’ll gain a few key innovators for America — is in reality a high stakes lottery with few winners but, like most lotteries, many losers. Large increases in the number of guestworkers will not ensure that we admit, among the tens of thousands of guestworkers, the few geniuses who could make a decisive contribution relative to American workers. If the intent of guestworker and immigration policy is to attract the high performing students and workers with potential to innovate and make substantial contributions to the economy, a much different set of polices is needed than those currently proposed.

In Summary

Currently, U.S. colleges graduate far more scientists and engineers than find employment in those fields every year — about 200,000 more — while the IT industry fills about two-thirds of its entry-level positions with guest workers. At the same time, IT wages have stagnated for over a decade. We cannot expect to build a strong STEM workforce and encourage domestic innovation by developing policies that undermine the quality of STEM jobs. Before asking government to intervene in labor markets by handing out more guestworker visas and green cards to STEM graduates, we should ask for audits of shortage claims and workforce impacts as a first step toward developing evidence-based policy on this issue, an issue critical to the nation’s future. Asking domestic graduates, both native-born and immigrant, to compete with guest workers on wages is not a winning strategy for strengthening U.S. science, technology and innovation.

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