What are the Costs and Benefits of Limiting H1-B Visas?

I recently finished reading the book The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent, by Vivek Wadha. Wadha’s book is a wake-up call for America that its economic malaise is not going to change any time soon in part because of the artificial limits placed on the H1-B visa program that has been responsible for bringing in foreign-born and well educated entrepreneurs that build businesses and fuel economic growth.

Everything changed for the U.S. after September 11, 2001, after which time the immigration process slowed down to a frustrating pace, and became unpredictable and unpleasant that migrants stay away.

Life in immigration limbo is awful. Immigrants on H1-B visas, which are issued to workers, must be sponsored by a specific employer. This visa can be used to employ a skilled foreign national for up to six years. They cannot change jobs without jeopardizing their application. Their careers stagnate. They do not know whether they will be deported, so they hesitate to put down roots, buy a house or start a company. Sometimes their spouses are barred from working. More and more immigrants look for alternatives and places such Canada, Australia and Singapore are ready to welcome them with open by handing out visas swiftly and without hassle.

Wadhwa’s finds are alarming. Since no nationality may receive more than 7% of employment-based green cards, Chinese and Indian applicants are treated more harshly than citizens of less populous nations. The time they must spend in limbo has shot up. If they have a great idea for a new company, they can go home and start it straight away. In America, if they quit their day job, they may be deported.

In a survey, Wadhwa found that most Indian and Chinese students in America expect problems in obtaining a work visa when they graduate, regardless of the demand for their skills. An unprecedented number now plan to go home. Wadhwa believes that immigration policy has halted the surge in high-tech firms founded by immigrants, and possibly reversed it. In Silicon Valley the proportion of high-tech start-ups they founded has fallen from 52% in 2005 to 44% this year.

In October, the US Citizenship and Immigration Services began receiving petitions for the H-1B visas for the fiscal 2013 beginning October, 2012. The congressionally mandated numerical limitation on H-1B petitions for the fiscal year 2013 is 65,000, as has been in the previous years. Additionally, the first 20,000 H-1B petitions filed on behalf of individuals who have earned a US master's degree or higher are exempt from the fiscal year cap.

The numerical limitation for H-1B could be filled up very soon than previous years. This isn't surprising, with the unemployment rate in the technology sector below 4 per cent. Ironically, these are the fields of study least desired by U.S. college students, all too many of whom, I believe, do not want to put in the extraordinary amount of time and effort to master those fields.

According to an informative study by the National Venture Capital Association (NVCA), over the past 15 years immigrants have started 25% of U.S. public companies that were formerly venture backed. In addition, more than 50% of the employment generated by U.S. public venture-backed companies has come from immigrant-founded companies including companies like Intel, eBay, Yahoo!, Sun Microsystems, Juniper, NVidia and Webex.

There is no question that immigrants have played an important role in driving many of the major innovations that have occurred in the technology, manufacturing and medical sectors—all important and fast-growing areas of the U.S. economy. Moreover, immigrant-founded venture-backed public companies today employ an estimated 220,000 people in the United States and over 400,000 people globally.

India, with 32 companies (22 percent), ranks first as the country of origin for immigrant-founded venture-backed public companies, followed by Israel with 17 companies (12 percent), and Taiwan with 16 companies (11 percent). Canada, France, the United Kingdom, Germany, Australia, China, Iran, and two dozen other countries are also represented.

Here are some examples of leading immigrant-founded companies by country of origin and employment from the NVCA study.

Company                                    Country of Founder                Employment #

Intel                                           Hungary                                        99, 900

Solectron                                   Taiwan                                          53, 000

Sanmina                                    Bosnia, Croatia                              48, 621

Sun Microsystems                     Germany, India                               31, 000

E-Bay                                       France                                           12, 600

UT Starcom                               China                                             6, 300

Google                                      Russia                                           5, 680

The top industry sectors for private immigrant-founded firms are software, semiconductors, and biotechnology. Nearly all the immigrant founders (95%) would start their companies in the U.S. if given the choice today.

The question for me as a blogger on ethics is whether the restraints placed on the H1-B visa program are ethical. On the one hand, it clearly limits the number of talented people who come to the U.S., start profitable venture-capital based firms, and employ thousands of people. Putting aside the issue of national security that has been of great concern since 9/11, the question remains whether the 65,000 immigrants who come into the U.S. are taking jobs away from our home-born students. I say the results are clear and the answer is no. A study by the Institute of International Education indicates a different pattern of fields of study with U.S, students opting for “soft” subjects while international students look more to engineering, the hard sciences, and math and computer science.

The take-away for me is that American students see the college degree as a path to a job while foreign-born students see it as more of a career choice. We have serious problems in the U.S. because of the disconnect between what’s needed going forward to drive our economic engine in an increasingly globalized world and what U.S. students choose to study. All the while China waits in the wings to replace the U.S. as the largest economy.

Blog posted by Steven Mintz, aka Ethics Sage, on December 17, 2012