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H1-b visas and Economics 101

Tuesday, May 1st, 2007 by Nigel Jones

USA Today has a story today about how 123,000 applications were received within 48 hours of this years H1-b visa lottery being opened on April 1. Given that there are 65,000 visas granted a year, there seems to be a large mismatch between supply and demand. Although the USA Today story talks about some of the sexy positions (Supermodels! Complete with alluring photograph!), the reality is that most of these applications are for the fields of electronics and computing, including embedded systems.

This topic interests me, in part because I came to the USA on a similar visa program (actually an E2 – but that’s another story).

Anyway, whenever this topic comes up, there’s normally some quote from a high tech industry executive explaining that they simply can’t get enough talented folks – and hence the need for the program. Whenever, I see this argument advanced, I’m always struck by the failure of the journalist to ask a basic question – namely “What would you do if the program was eliminated?” I suspect that the honest executive would answer:

  1. Lobby like mad to get it reinstated
  2. Pay what I had to to get the talent I needed
  3. Look to put the work where the talent is (i.e. ship it overseas).

Whereas I could probably discourse for a long time on answer 1, it’s the other two that intrigue me.

The reality today is that enrollment in engineering is dropping. If one was to look at non first / second generation immigrant enrollment, I’d hazard a guess that it has all but collapsed. This is despite the fact that engineering in general (and electrical engineering in particular) is always one of the highest paying jobs upon graduation, with recent graduates earning about $65K, versus the $30K earned by your typical liberal arts major. So, what would happen if these salaries doubled? Would this be enough to attract more home grown talent in to the industry? Economics 101 would suggest that if you raise the salaries high enough then supply will rise to meet the demand. The question is, by how much would salaries have to rise?

Economics 101 also suggests that as the price of a good / service rises, it is highly likely that the consumer will look for a substitute. At present this works by bringing folks in on the H1-b program. If the program was eliminated, then I assume that this would be done by shipping more work overseas.

I guess this leads me to the point of my post. The USA prides itself on its capitalist approach – and the belief that the free market is inherently the best way to solve all (OK, most) problems. As a result, Americans normally abhor government interference in the market place. But isn’t that exactly what is being done here?

If we genuinely believe in the free market, then the H1-b visa program should be abolished. Salaries would rise for engineers, more students would study engineering – and more work would go overseas. I have no idea whether the end result would be beneficial to engineers or not. It would however be ideologically consistent.

The economic purists might argue that the H1-b visa should be scrapped in the sense that anyone who wished to work here should be allowed to do so. I agree that this is also ideologically consistent. However, the reality is that the USA limits immigration in all fields. Thus to be truly consistent this would require the USA to do the same for all jobs – which is tantamount to saying there are no limits on immigration – something which isn’t going to happen.

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2 Responses to “H1-b visas and Economics 101”

  1. Ashish says:

    “However, the reality is that the USA limits immigration in all fields”I am guessing, this limited immigration in other fields is done through H1-B like visas!We can always scrap the employment based visas and only limit the number of immigrants (across all categories or just abolish the categories). That way, free market can reign and immigrants will be attracted based on jobs that are in demand in the US.

  2. Prashanth says:

    Nigel,Good post there! Being a non-immigrant visa holder myself, I would like to ask, how would shipping the work overseas encourage locals to enroll in engineering? It sounds to me like this will only dissuade locals from enrolling in engineering programs. With shipping the work overseas, the CEO’s and the powers that be get the work done at a lower cost. I wonder where the profits go, because, they definitely aren’t going into the R&D budget, okay maybe about 2 or 3% at the best. No brownie points for guessing where they go. In a capitalistic economy, everyone is being a capitalist and this is the way it will be for a long long time to come IMHO.

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