I-Squared Equals I’m Screwed

March 15, 2013 | Economic Opportunity Institute

By Stan Sorscher, EOI Board Member

This January, Senators Hatch and Klobuchar introduced The Immigration Innovation Act, known as “I-Squared.” It will triple the number of foreign temporary workers from about 800,000 to over 2.3 million. This will distort the labor market for jobs in science, technology, engineering and math (STEM), which has only 4 million workers all told. I-Squared will seriously depress the domestic STEM labor market.

STEM enrollments and graduation

Figure 1. Trends in STEM enrollments and graduations compared to H-1B employment.

Inside the STEM labor market
Figure 1 shows increasing pressure that the H-1B program for temporary high-tech workers puts on the STEM labor market. H-1B workers in our labor force already dominate the annual graduation rate of 150,000 students from all U.S. engineering schools combined including about 20,000 bachelors, masters and PhD graduates in computing.

Roughly 130-150,000 initial H-1B visas are issued each year. Tens of thousands of foreign workers use other temporary visa programs, or stay in the workforce while they pursue permanent status.

Claims of labor shortage are overstated
Employers argue that they cannot find enough domestic workers. On the other hand, acceptance rates on job offers are above 90%, which means employers enjoy a market advantage, while most students will accept whatever is offered. Many recent college graduates and mid-career unemployed STEM workers are unemployed or underemployed and STEM occupations show no upward wage pressure.

Employers testify that unemployment for engineers, computing and other professionals is about half the rate for the total workforce nationally.

Figure 2 puts that unemployment rate into context. Unemployment for STEM and other professionals is stuck at just over 4% — double what it was before the recession, and holding stubbornly after many years of recovery. The effect is worsened when we count discouraged workers and underemployment. In a real labor shortage, STEM unemployment would be below 2%, instead of above 4%.

unemployment rates

Figure 2. Unemployment rates for broad employment categories.

Employers express frustration at not finding workers with needed skills. At the same time, they acknowledge receiving dozens or hundreds of applications for each job opening. Peter Cappelli, at the Wharton School of Business, points to a shift in hiring behavior. For many years, employers sought qualified workers who were able to do the work. Lately, employers are hiring fewer workers, and being much more selective. Now they want a perfect match of skills, knowledge and experience. That is, they want someone already doing the work, requiring no training or learning curve. Employers seek a “snowflake” applicant, uniquely qualified to fill their job opening.

In Figure 3, each mark represents an individual employee in a high-demand skill – structures engineering in the aerospace industry. It shows a broad range of skills and experience in the same “skill management” grouping.

Employees in the same skill management group can move easily from one assignment to another within that group. Ironically, in order to be hired, they should present themselves as a unique “snowflake.” Once in the workplace, they are aggregated into a larger group of comparable employees for the purposes of managing assignments, hiring, layoffs, recalls, and salary comparisons.

SPEEA salary review

Figure 3. Workers with similar skills form an internal labor market.

Employee utilization
Referring again to Figure 3, skill team managers will say that employees in the lower quartile are not poor performers. Rather, the work is routine or generic in nature. Even so, the work is important and necessary and must be done. That work just doesn’t justify a high wage, or an exceptional worker.

Workers experience this as underutilization. In fact, a very common complaint from workers is that they are underutilized. Often, we hear this from workers who lowered their job search criteria, and customized their application to match exactly the job description, even though they could handle many other tasks.

On February 19, the New York Times reported a trend in legal professions, that employers hire college graduates even for routine clerical jobs like filing and typing, resulting in widespread chronic underutilization of college graduates.

H-1B workers are workers, like everyone else
“Job shops” dominate the H-1B petition process, and supply high-tech workers under a labor practice that is nearly commodity-like. Ironically, domestic workers are held to a exceptionally high level of precision in the skill set they must possess.

Employers will testify they are unable to find a domestic worker with highly specific skills, but the same employers will bring in foreign temporary workers with generic skills. Some employers file thousands of H-1B petitions, then “bench” workers until an opening is found.

It should be no surprise that about 10% of H-1B workers are in the upper decile, another tenth are in the lower decile, and the great majority of H-1B workers are conscientious, hard-working well-meaning, regular workers who are reasonably well-prepared for their high-tech work assignments.

H-1B workers have no great advantage over the corresponding domestic workers. We see this clearly in the workplace, when domestic workers get layoff notices, then are directed to train their own H-1B replacement workers as a condition for receiving severance.

Suppose for the purpose of dicsussion, that the H-1B program can bring 800,000 geniuses into the workforce. Then predictably, most of them will be underutilized, and underpaid by their employers. We would also transform high-level STEM work into a hobby occupation for domestic workers.

Graduate School as an immigration portal
Foreign students already make up half the enrollment in engineering graduate programs - as much as 90% in some cases – displacing qualified domestic students who want to major in STEM fields. Under I-Squared, STEM graduate school will become an immigration portal, displacing even more domestic students from U.S. college programs, particularly at the masters level.

I-Squared removes the cap on work visas for STEM graduates with advanced degrees. To a foreign student, a STEM graduate degree carries huge economic and social premiums. For domestic students, that same graduate degree carries a comparatively small economic premium. For many domestic students, graduate school simply increases their student debt.

Protect domestic and foreign workers
Former Labor Secretary Ray Marshall proposed a comprehensive immigration framework that protects domestic high-tech workers, while offering foreign workers the America Dream, rather than precarious work in a narrow market controlled by employers.

Senators Durbin and Grassley sponsored H-1B legislation with specific worker protections.

Another approach is to auction H-1B visas to the highest bidder, flipping market forces in favor of workers instead of employers.

I-Squared is obviously attractive to employers, but it sends a clear market signal to students and workers in the domestic economy: I-Squared equals I’m screwed.

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