HI-B Visa Fee Hike: Indian Companies Will Be Hit But The Move Will Deal A Bigger Blow To US Economy

However, back in 1940, the American sociologist Samuel A Stouffer had already proposed the law of intervening opportunities, another analytical framework that offered interesting insights into understanding the drivers of the brain drain, arguing the number of persons going a given distance is directly proportional to the number of opportunities at that distance and inversely proportional to the number of intervening opportunities. Such analysis is particularly relevant to highlight the fact that the brain drain can also happen intra-region, as international migration of highly qualified persons can occur from one location to another within the borders of the same continent.

That also explains why global centres like New York, California or London witness high rates of migration, both inter as also intra continental that also results in accrual of immense economic benefits for the local population.

H1-B Visa Progamme And Its Significance  

With restrictive barriers apparently imposed on H1-B visas the US administration has now nudged hiring companies to pay $100,000 per year for HI-B visas. The H1-B programme of the US Department of Labor applies to employers seeking to hire non-immigrant aliens as workers in specialty occupations, or from crafts associated with distinguished merit and ability.

The Donald Trump administration intends to use the amount mopped through proposed higher fees to cut taxes and pay down debt, also encouraging the firms to go more local in future hiring.

Further, the administration has been floating the idea of a “gold card” to eventually replace select categories of the visa programme for foreign investors, with a hefty price tag of $1 million, or a Platinum card for which $5 million needs to be coughed, as a fast-track route to American citizenship.

Top echelon of policy makers has told in no uncertain terms the EB-5 immigrant visa programme, which enables foreign investors with large money to create or preserve American jobs to become permanent residents, can be dispensed with the proposed cards.

This needs to be seen in continuation of the already imposed tariffs on goods.

H1-B Visas, Another Form Of Trade War

The present measure takes the trade wars to services impacting IT sector that is exposed to the US. The main rational for this fee hike is presumption that employers have exploited the programme to hold down wages, disadvantaging US workers.

The visa fee hike is going to impact both Indian companies and the US companies alike. The US companies now face the uncertainty on the current workforce and need to fill vacancies given the impact of order. The barrier to labour drastically reduces its ability to innovate and grow the economy.

Region wise India was the largest beneficiary of H-1B visas last year, accounting for 71 per cent of approved beneficiaries, while China was a distant second at 11.7per cent.

Thus, the impact on Indian IT firms is natural and the effect will be felt by the sector’s outlook in the short run. The impact of the new fee structure will be ~10% of the total profits. Further, the administration has clarified that visa quotas are not changing; the annual limit remains 65,000 regular visas plus 20,000 for advanced degree holders from local universities.

The decision to put barriers to the labour movement is clearly short sighted and even the internal analysis with the US does not support the rhetoric.

Foreign workers fill a critical need in the US labour market—particularly in the science, technology, engineering, and mathematics (STEM) areas. Immigrant workers in the United States creates new job opportunities for local/native-born workers. This happens because the H1B visa worker fills gap that generates downstream employment for native worker.

That is why unemployment rates are relatively low in occupations that employ large numbers of H-1B workers.  Immigrant workers mostly spend and invest their wages in the US economy, thus positively affecting the American economy. H-1B workers do not earn low wages or drag down other workers’ wages as median wage of the US has increased over the years.

Further there is geographic concentration of H1-B visa workers who are concentrated mainly in New York, California, Texas and Illinois, centres of financial and technical entrepreneurship and innovation. Thus, there is no generalisation, and the overall US wage rate cannot be impacted by just a few select geographies.

Analysis of the H1-B visa sponsorship reveals large US tech behemoths, Amazon to Microsoft to Meta to Apple to Google to Cognizant apart from firms like JP Morgan Chase, Walmart and Deloitte being the largest beneficiaries, with TCS being the lone Indian entity in the top10 club.

With a third of Nvidia’s or Apple’s workforce comprising of Indian talent (it could be higher for firms like Google which has ~43 per cent of employees as Asian), it’s hard not to interpret the fallacies of the retrospective arguments as the benefits of H1-B visa programme seems to have evolved into some sort of public good through accelerated technological proliferation globally. The economic gains of the US, attracting talent from across the world, can hardly be reversed through myopic decisions that would harm the interests of US the most in days to come.

Role Of Immigrants In US Growth Story

The US has benefitted from economic contributions, innovation, and population growth coming from migrating communities. Immigrants fill labour shortages, start businesses at high rates, and contribute to the US workforce and tax base, with over 40% of Fortune 500 companies founded by immigrants or their descendants.

In all if there is any rational conclusion that can be drawn, the present policy is going to impact the US growth outlook in the short run. It is unlikely that fee alone will even partially correct the US fiscal deficit that has other reasons for being high. The recovering taxes through fee while foregoing high income tax base will only widen the deficit assuming the policy does work in the long run.

(The author is Member 16th Finance Commission and Group Chief Economic Advisor, State Bank of India. Views are personal)