DOL H-1B Visa Wage Rule: Donald Trump’s Bad Parting Gift To Immigrants

Two contrasting views on the Trump administration’s rule imposting higher salary requirements on H-1B visas. The first from the National Foundation for American Policy opposes the change, the second, from the Niskanen Center, supports it. From a self-interested Canadian perspective, the Trump rule provides an immigration advantage to Canadian firms.

Starting with opposition to the change: 

The Department of Labor (DOL) reissued a controversial rule designed to price H-1B visa holders and employment-based immigrants out of the U.S. labor market, setting up new legal battles and a decision by the Biden administration on whether to keep a rule that fulfills a key part of White House adviser Stephen Miller’s anti-immigration agenda. The final rule makes only minimal substantive changes from the original rule and was drafted to avoid the violations of the Administrative Procedure Act (APA) that caused three judges to issue opinions blocking the regulation.

Under immigration law, employers must pay H-1B visa holders the higher of the prevailing wage or actual wage paid to similar U.S. workers. DOL determines the prevailing wage with data from the government’s Occupational Employment Statistics (OES) wage survey and uses a mathematical formula to create four levels of wages for each occupation.

A formula is already problematic, since it is much less accurate than asking employers what they pay employees at different levels of experience. A formula can be manipulated to achieve a result, as analysts note, by artificially raising the required wage. That is what the Department of Labor has done in the two versions of its wage rule.

The Department of Labor (DOL) reissued a controversial rule designed to price H-1B visa holders and employment-based immigrants out of the U.S. labor market, setting up new legal battles and a decision by the Biden administration on whether to keep a rule that fulfills a key part of White House adviser Stephen Miller’s anti-immigration agenda. The final rule makes only minimal substantive changes from the original rule and was drafted to avoid the violations of the Administrative Procedure Act (APA) that caused three judges to issue opinions blocking the regulation.

Under immigration law, employers must pay H-1B visa holders the higher of the prevailing wage or actual wage paid to similar U.S. workers. DOL determines the prevailing wage with data from the government’s Occupational Employment Statistics (OES) wage survey and uses a mathematical formula to create four levels of wages for each occupation.

In October 2020, the Department of Labor issued an interim final regulation that raised the required wage employers must pay not just to H-1B visa holders but for employment-based immigrants who required labor certification. Three courts blocked the rule on grounds that it violated the Administrative Procedure Act by claiming a “good cause” exception to allow the regulation to go into effect immediately without notice and comment. Judges cited, among other things, a National Foundation for American Policy analysis that showed the unemployment rate for computer occupations had not increased during the pandemic.

The new rule does not go into effect for 60 days. It also phases in the latest higher salary requirements over several months. Trump officials hoped that would force employers and universities to argue that the regulation violates the statutory language or did not properly address comments, rather than the more straightforward violations of the Administrative Procedure Act contained in the original rule that were defeated in court.

The Fragomen law firm summarized the regulation’s phase-in:

  • “Phase 1, Rule Effective Date through June 30, 2021: LCAs [labor condition applications] filed and PWDs [prevailing wage determinations] issued during this timeframe are to remain subject to current wage levels, with Level I at the 17th percentile, Level II at the 34th percentile, Level III at the 50th percentile and Level IV at the 67th percentile.
  • “Phase 2, July 1, 2021 through June 30, 2022: The new wage levels will take effect, however, they are to be adjusted downward as follows – Levels I and IV are to be set at the higher of either 90% of the wage value calculated at the 35th and 90th percentile or the mean of the lower one-third of the current OES wage distribution. Levels II and III are to be set using the wage calculations outlined in the Immigration and Nationality Act (INA), which rely on the amounts listed in Levels I and IV.
  • “Phase 3, July 1, 2022 and after: The new wage levels are to take effect without any adjustments, with Level I at the 35thpercentile, Level II at the 53rd percentile, Level III at the 72ndpercentile and Level IV at the 90th percentile.”

“The revisions to the rule don’t change the fact that it still fails to do what the law requires—to reflect the actual, prevailing wage for workers in that geographical area doing similar work,” said Kevin Miner, a partner at Fragomen, in an interview. “The fact that Level 1 wages are now tied to around the 35th percentile rather than the 45th percentile doesn’t change the fact that it is artificially inflating required wages. Prevailing wage data published by DOL should reflect the actual wages paid in the market. It should be math, not politics. If Congress wants to make changes to the H-1B statute, it can do so. But DOL shouldn’t be trying to do that through rulemaking.”

The new rule has the same defects as the earlier version, even if the wage effects are slightly less extreme, according to a preliminary analysis by the National Foundation for American Policy. In effect, at the 35th percentile, the new rule would require employers to pay an entry level employee the same or more than 35% of the people working in the same occupation and geographic location, even if those individuals have much more experience.

One way of looking at the new rule is since the current Level 2 wage is at the 34th percentile, and the new Level 1 is at the 35th percentile, then what the new rule does is eliminate the entire Level 1 wage level and pushes everything else upwards. “That is one of the ways the rule violates the statute,” said Miner.

The wages mandated under the DOL rule do not reflect market wages or meet the definition of a prevailing wage. “The prevailing wage rate is defined as the average wage paid to similarly employed workers in a specific occupation in the area of intended employment,” according to the Department of Labor.

Compared to the regulation in effect for years, the new DOL rule will require employers to pay, on average, 34% higher salaries at the Level 1 wage for biochemists and biophysicists, 29% higher for software developers and database administrators, and 28% more for computer programmers, according to a National Foundation for American Policy (NFAP) estimate of the new rule’s impact.

To examine how much above the market wage the new rule requires employers to pay, NFAP looked at private wage survey data. Under the new DOL mandated minimum salary, an employer in the San Jose, California area would pay an electrical engineer at Level 4 more than $41,000 above the market wage, as indicated by a private wage survey (Willis Towers Watson). At Level 1, an employer in San Jose would pay an electrical engineer more than $36,000 above the market wage, according to an NFAP estimate.

The Department of Labor wage rule is designed to make it as difficult as possible for employment-based immigrants and visa holders to enter or work in America. The DOL wage rule should be viewed the same as Trump administration’s policies that ended nearly all refugee admissions, prevented individuals from applying for asylum, banned people from several Muslim-majority nations and stopped family immigrants from entering the United States.

H-1B visas are important because they generally represent the only practical way for high-skilled foreign nationals, including international students, to work long-term in the United States and have a chance to become employment-based immigrants and U.S. citizens. Analysts note the visas are a crucial part of America’s ability to innovate at a time when elected officials want companies to develop and produce more products and services in the United States.

Pricing visa holders and immigrants out of the U.S. labor market will push more work to other nations and further discourage international students from coming to America. Economists recognize there is a global market for labor, which is ignored in the DOL rule: “[A]ny policies that are motivated by concerns about the loss of native jobs should consider that policies aimed at reducing immigration have the unintended consequence of encouraging firms to offshore jobs abroad,” according to research by Britta Glennon, an assistant professor at the Wharton School of Business.

Litigation is expected from employers. The more critical issue is whether the Biden administration will implement the Trump administration’s most recent assault on high-skilled immigration or move to rescind or substantially revise the regulation through the rulemaking process.

The DOL wage rule is Donald Trump and Stephen Miller’s parting gift to immigrants, universities and high technology companies. The Biden administration must decide if it wants to carry out the Donald Trump-Stephen Miller agenda on immigration.

Source: DOL H-1B Visa Wage Rule: Donald Trump’s Bad Parting Gift To Immigrants

In support, from the Niskanen Center:

Just days before the 2020 election, the Trump administration proposed a new ruleto change how H-1B visas are allocated. The final rule was announced last week and is set to go into effect before the 2022 H-1B lottery. The Biden administration will have many Trump-era immigration rules to reverse. But this rule — uniquely — is worth supporting after the end of the Trump administration, since it ensures visas go to the best and brightest, reduces risk for H-1B employers, protects native workers, and fulfills one of Biden’s campaign promises.

Allocating visas efficiently

The demand for cap-subject H-1Bs consistently outpaces the 85,000 that are allowed each year. The result is a zero-sum game; one employer’s approval is necessarily one fewer visa available to other employers. And the lottery-based allocation established under the old rules dictates that virtually all employers are equally likely to win, regardless of their petitions’ relative merit.

The new rule replaces the random lottery with a wage-based ranking, awarding visas to employers offering the largest salaries. Under wage-based allocation, U.S. Citizenship and Immigration Services no longer has to be indifferent between a superstar who is a perfect fit for a lucrative niche job and a worker to fill an entry-level position. Instead, USCIS can ensure visas are going to the most valuable workers.

Of course, much of this zero-sum competition is artificially imposed by the low H-1B cap — even the less productive H-1B-eligible workers with sponsors would still be of enormous benefit to the United States. But the Department of Homeland Security can’t get rid of the cap. It can make sure that in the face of the cap, visas go to the best and brightest of the best and brightest.

Pro-worker and pro-business

In addition to allocating H-1Bs efficiently, wage-based allocation yields three other significant benefits.

First, it protects native workers. Labor market competition between H-1B workers and natives is largely overblown, with H-1B workers earning much more on average than natives of the same level of education. However, there are several disturbing cases where businesses use H-1B workers to replace or undercut natives, even if such cases are quite rare. However uncommon, such cases are bad for the native workers affected and bad for the H-1B program’s political prospects. After all, how can lawmakers be persuaded to raise the cap if H-1Bs are already displacing workers?

Naturally, the issue is the lottery system, which often awards visas to the least deserving petitions and incentivizes the proliferation of outsourcing companies and H-1B dependent firms. Assigning visas to the workers who will earn the highest salaries automatically makes cases of abuse financially unviable. Making employers compete for visas by offering better wages is pro-worker and can help recover some of the program’s damaged reputation.

Second, wage-based allocation is good for business and reduces a tremendous amount of waste. Under a lottery, businesses face costly uncertainty about whether all the money and time spent trying to secure a visa will pay off. If an employer wins the lottery, their new employee will make the process worth it, but if they lose, the resources are squandered. On top of the waste, the uncertainty and risk deters some businesses from participating at all. Wage-based allocation addresses these issues, giving high-paying employers security and reliability, while providing lower-paying employers the signal they need to know they won’t win a visa if they petition for one.

Third, a wage-based allocation generates valuable information to lawmakers about the value of H-1Bs. Each year’s salary cutoff — that is, the lowest salary that still secures a visa — sends a  much stronger signal about the demand for H-1B labor than does the number of lottery applicants, which can obscure the underlying need for workers by only including employers who are willing to take on the risk inherent in entering the lottery. As demand for labor increases, it might not show up clearly in the number of H-1B applications because the value of an H-1B application decreases as the probability of winning the lottery decreases. Therefore, the number of H-1B applications is a mixed signal about the demand for workers and the risk-aversion of employers that is hard to disentangle. On the other hand, movement in a salary cutoff can more transparently inform lawmakers how to set the cap and assure them that increasing it won’t lead to low-wage labor.

As it happens, this policy is included in Biden’s immigration plan. “An immigration system that crowds out high-skilled workers in favor of only entry level wages and skills threatens American innovation and competitiveness,” his plan reads. Then it follows with Biden’s proposal to fix it: “first reform temporary visas to establish a wage-based allocation process.” Granted, Biden’s plan indicates that he hoped the change would come from Congress.

Nevertheless, allowing the rule to stand would make sure that talent and resources aren’t squandered in the next lotteries before Congress has a chance to get to it — if it does at all. Meaningful H-1B reform to charge innovation and productivity growth doesn’t stop at wage-based allocation, but it’s a promising start.

Source: Trump’s One Immigration Reform That Biden Should Keep

H-1B Denials Remain High, Especially For IT Services Companies

Some good analysis here (and more on the “Canadian advantage”:

New U.S. Citizenship and Immigration Services (USCIS) data show denial rates for new H-1B petitions increased from 6% in FY 2015 to 21% in FY 2019. Companies that provide information technology (IT) and other services to U.S. businesses had the highest denial rates due to Trump administration policies.

“In FY 2019, USCIS adjudicators denied 21% of H-1B petitions for “initial” employment (which is primarily for new employees) and 12% of H-1B petitions for “continuing” employment (mostly for existing employees),” according to a new National Foundation for American Policy (NFAP) analysis. “The 12% denial rate for continuing employment was the same in both FY 2018 and FY 2019, indicating there has been little change in USCIS policies over the past year.”

USCIS explains that H-1B petitions for “initial” employment are primarily cases that would count against the H-1B annual limit (i.e., new employment). H-1B petitions for “continuing” employment are mostly extensions for existing employees at the same company but could also be for an H-1B visa holder changing to a new employer.

As the NFAP analysis notes, this is the first time that data for all four quarters of FY 2019 are available and can be separated into initial and continuing employment, which provides a clearer picture of USCIS adjudications. The analysis found the 12% denial rate for continuing employment in FY 2019 was four times higher than the 3% rate as recently as FY 2015. The 21% denial rate for initial employment in FY 2019, while lower than the 24% rate in 2018, was still much higher than the 6% denial rate for such cases in FY 2015.

The statistics bear out what immigration attorneys have said for more than a year: “USCIS has raised the legal standard they use to decide whether enough evidence has been presented with petitions to approve them, without any legal authority to do so and without any notice to the public,” William Stock, a founding member of Klasko Immigration Law Partners, LLP, told me in an interview.

The analysis found H-1B denial rates have risen for nearly all major companies. However, it is clear USCIS has used a different standard to adjudicate cases for IT services companies. “The denial rate for H-1B petitions (initial employment) for at least 9 major companies that provide IT services or other consulting services reached over 30% in FY 2019,” according to the analysis, “In comparison, technology product companies, such as Apple, had far lower denial rates for initial employment, ranging between 2% and 7%, although these rates were generally higher than in FY 2015.”

The denials seem focused on H-1B employees who will perform work at customer sites to service contracts. Employers that keep employees primarily in a single location, such as product companies, have much lower denial rates.

Attorneys say there is plenty of evidence that USCIS changed the standards without a change in the law or new USCIS regulations. Between FY 2015 and FY 2019, the denial rate for initial employment increased by 20 percentage points or more for at least 10 major companies that provide information technology or other business services.

For continuing employment, the denial rate for H-1B petitions was 3% between FY 2011 and FY 2015 but increased to 12% in FY 2018 and FY 2019. A USCIS memo that told adjudicators not to provide deference to prior determinations has forced long-time employees waiting for green cards to leave the United States because their cases were denied.

It should not be surprising that the most successful technology companies have needed to hire highly skilled people to grow. The leading employers for H-1B petitions for initial employment in FY 2019 included Amazon, Google and Apple, all of which have passed $1 trillion in market capitalization. When companies recruit at U.S. universities, they find 80% of the full-time graduate students in computer science and electrical engineering are international students.

In contrast, other companies are sponsoring fewer workers. “New H-1B petitions (for initial employment) for the top 7 Indian-based companies declined by 64% between FY 2015 and FY 2019,” according to the NFAP analysis. “The 7 companies had only 5,428 H-1B petitions for initial employment approved in FY 2019. Denials may have contributed to this decline but the primary reason for the drop in H-1B visas is a choice by companies to build up their domestic workforce in the United States and rely less on visas. Moreover, these and similar companies are part of an industry trend when servicing clients to use more digital services, such as cloud computing, bots and artificial intelligence, which require fewer workers.”

The supply of H-1B petitions has been gone before the end of the past 17 fiscal years. The demand for tech talent across industries and the low number of H-1Bs relative to the size of America’s economy are the major reasons. The annual limit of 65,000 H-1B petitions and the 20,000 exemption from that limit for individuals with an advanced degree from a U.S. university comes to 85,000 new H-1B petitions each year – only 0.05% of the U.S. labor force of 164 million people.

High denial rates are not the only problem for companies under Trump administration policies. The percentage of completed cases with Requests for Evidence (RFEs) increased from 22.3% in FY 2015 to 40.2% in FY 2019, according to USCIS, which increases costs and processing time for employers.

Given the problems in the United States, it’s not surprising companies, international students and foreign-born engineers are looking to the north. In Canada, the number of Indians who became permanent residents increased from 39,340 in 2016 to 85,585 in 2019, a rise of more than 117%, according to a National Foundation for American Policy analysis of Immigration, Refugees and Citizenship Canada data.

Under Canada’s Global Skills Strategy, adjudicators approve many applications for high-skilled workers within two weeks with a low number of denials. “Canada is benefiting from a diversion of young Indian tech workers from U.S. destinations, largely because of the challenges of obtaining and renewing H-1B visas and finding a reliable route to U.S. permanent residence,” said Peter Rekai, founder of the Toronto-based immigration law firm Rekai LLP, in an interview. (See here.)

In the United States, we often ignore the positive role technology professionals, both native-born and foreign-born, play in making U.S. companies more competitive. “Digital transformations and digital platforms are just starting to take off and, as we look into the near future, the current skill shortages are going to grow as the demand for digital and IT skills explodes,” said Everest Group CEO Peter Bendor-Samuel. “If this administration wanted to harm U.S. competitiveness, then restricting access to this vital labor would be an excellent approach.”

The situation may grow worse for employers and high-skilled foreign nationals. The Trump administration has pledged to publish a new H-1B visa rule in 2020 to “revise the definition of specialty occupation . . . and revise the definition of employment and employer-employee relationship.”

The rule would put into regulation many of the current USCIS practices that have resulted in higher denial rates – or may be a source of new ways for USCIS to restrict the employment of foreign nationals.