Skip to navigation
Skip to main content
July 2012 Volume 19 Number 3
Labor, Shortages, Foreign-born, H-1B
The US unemployment rate was 8.2 percent in May 2012; the rate is kept low in part because fewer Americans are in the labor force. The share of men 16 and older in the labor force fell to 70 percent, the lowest male labor force participation rate in half a century. The US in 2012 was producing goods and services with about the same value as the economy produced in 2007, but with five million fewer employed workers.<< back
Economists suggest that job growth of 100,000 a month or less will help Republican Mitt Romney, while job growth of 200,000 a month or more will help Democrat Barack Obama.
The job-vacancy rate, which compares the number of job openings to total employment, was 2.6 percent in February 2012. The link between the job-vacancy rate and the unemployment rate appears to have changed after the 2008-09 recession. Between 2000 and 2007, a 2.6 percent job-vacancy rate was associated with a 5.7 percent unemployment rate. Since the 2008-09 recession, a 2.6 percent job-vacancy rate has been associated with a 8.2 to 8.3 percent unemployment rate.
The Economic Policy Institute estimated that the real hourly earnings of men who recently graduated from high school were $11.68 in 2011, down from $15.64 in 1979. During this period, the share of US jobs offering health insurance fell from 63 percent to 23 percent.
The federal minimum wage has been $7.25 an hour since July 2009, generating $15,080 for a full-time worker; 18 states have higher minimum wages. Some 3.8 million US workers earned the federal minimum wage or less in 2011, including restaurant workers who also receive tips. Bills introduced in Congress, but given little chance of enactment in 2012, would raise the minimum wage. For example, S 2252 would raise the federal minimum wage to $8.10 in the year of enactment and to $9.80 a year later.
The US home ownership rate, which peaked at 69 percent in 2004, fell to 65 percent in 2012 as Americans lost their homes to foreclosure and became renters (75 million of the 114 million US housing units are owner occupied). The median rent across the US was $720 a month in 2012.
There were 395,000 business start-ups that created 2.3 million jobs in 2010, meaning that start-up firms accounted for only about two percent of total employment as against four percent of employment in the late 1980s.
Shortages. Though almost 13 million US workers are jobless, some employers complain of shortages of workers, especially skilled workers. California Steel Industries, for example, said that it cannot find experienced electrical and mechanical technicians to fill jobs that pay up to $64,000 a year plus benefits. Workers do not need college degrees, but they do need strong math, reading and writing skills and must be willing to work different shifts; the plant operates around the clock. The average hourly wage in US manufacturing is $24 an hour or $48,000 for a full-time worker.
It is very hard to evaluate grower claims of labor shortage because the "need" for farm workers depends more on wages and prices than on nature. Farmers routinely do not harvest all of their fruits and vegetables because of low prices or low yields; if the price the farmer will receive does not cover harvesting costs, farmers will not harvest. Similarly, if yields are so low that workers, who are often paid piece rate wages, do not earn at least the minimum wage, there will be few pickers even if crops are ready to harvest. To bolster earnings, fields and orchards that were once harvested three or four times are now harvested once or twice to increase worker earnings.
Farmers producing perishable crops have economic incentives to request more workers sooner than they are truly needed because farm employers rarely pay for the time workers wait until crops are ready to harvest. Farm labor contractors and other intermediaries, on the other hand, have incentives to promise more workers than they have available to win the business of farmers. The contradictory incentives in this decentralized system, farmers requesting too many workers too soon and contractors promising too many workers too soon, practically guarantee labor shortage complaints from employers and unemployment for workers.
Farm work, especially seasonal harvesting, is a 10-year job for most workers, not a lifetime career. As soon as workers can find nonfarm jobs offering higher wages, easier or more hours of work, many leave the seasonal farm work force. They are typically replaced by newcomers, usually Mexican men between the ages of 18 and 22. The recent slowdown in Mexico-US migration has reduced the arrival of newcomers, one reason for the labor shortage complaints.
If net Mexico-US migration remains close to zero, will the US government allow farm employers to hire guest workers on terms similar to those of unauthorized workers? Farm employers would like an E-Z guest worker program, that is, reforms to the H-2A program to make it less costly to hire H-2A guest workers, such as ending the requirement to provide housing and reducing the super-minimum wage, the AEWR. Worker advocates are attempting to block such H-2A changes unless they are accompanied by legalization of at least some unauthorized workers.
Foreign-born. About 16 percent of US workers, some 24 million, were born outside the US in 2011 (www.bls.gov/news.release/forbrn.nr0.htm). Foreign-born adults are more likely than US-born adults to be in the labor force, 67 compared to 64 percent, reflecting the very high labor force participation rate of foreign-born men, 80 percent compared to 69 percent.
In 2011, the unemployment rate of foreign-born workers averaged 9.1 percent, compared to 8.9 percent for US-born workers.
Almost 60 percent of foreign-born workers are men, compared with 52 percent of US-born workers. Some 75 percent of all foreign-born workers were between the ages of 25 to 54, compared with 65 percent of the US-born. Half the foreign-born workers were Hispanic and almost a quarter were Asian. A quarter of the foreign-born 25 and older had not completed high school (compared to five percent of the US-born), and 32 percent of the foreign-born (and 26 percent of the US-born) had a bachelor's degree.
Foreign-born workers are concentrated in particular occupations, including food preparation, janitorial services, production, construction, and farm worker. In all occupations, the average weekly earnings of foreign-born workers, $610 a week in 2011, were about 80 percent as much as US-born workers, $780.
The largest foreign-born versus US-born earnings gaps was for those with little education; foreign-born workers without a high-school diploma earned an average $420 a week, compared to $500 a week for similar US-born workers. However, both foreign- and US-born workers with college degrees earned an average $1,150 a week.
H-1B. There are 65,000 regular H-1B visas a year available, plus 20,000 for foreigners who have earned advanced degrees from US universities, plus an unlimited number for foreigners hired by US universities and nonprofits. By June 2012, employers had requested all 65,000 regular and 20,000 advanced degree H-1B visas for FY13, which begins October 1, 2012.
The so-called Moran-Warner bill would add 50,000 H-1B visas to the 20,000 available for those who earn advanced degrees from US universities in STEM fields and 75,000 "entrepreneur visas" for H-1B visa holders who register a new business in the US or raise $100,000 in capital to open a US business.
On January 30, 2012, Jennifer Wedel complained to President Obama that her husband, an engineer laid off by Texas Instruments, could not find another job. Obama responded that the US was short of engineers and asked for Darin Wedel's resume. After an initial flurry of calls to Wedel, recruiters said that since he wanted to remain in the Dallas area because of a child-custody agreement, they could not hire him. Wedel blames the H-1B program for making younger and less expensive foreign engineers readily available to US employers.
Jack B. Palmer, an employee of Infosys, complained to his managers in October 2010 that Infosys was unlawfully using B-1 business visitor visas to bring Indian workers to the US. Infosys has about 15,000 US employees, mostly Indians. Palmer eventually sued Infosys, alleging that the Indians in the US on B-1 visas were paid low Indian salaries while Infosys charged the US firms where they worked the higher wages required for H-1B visa holders. Infosys counters that visa rules are complex, and that the employment of B-1 visa holders at US firms did not violate the law.
Norcross, Georgia-based Semafor Technologies LLC in June 2013 agreed to pay $740,000 in back wages to H-1B workers for time when "they were nonproductive because the company did not assign any work." So-called "benching" is reportedly common among firms that hire IT specialists and move them from job to job.
India filed a complaint with the World Trade Organization in April 2012, alleging that a 2010 US law that raised employer fees for hiring H-1B workers violated US commitments to the WTO. The normal H-1B fee includes a filing fee of $320, an anti-fraud fee of $500, and a training fee of $750 to $1,500. In 2010, Congress required employers with more than 50 percent of their US employees on H-1B visas to pay an additional $2,000.
The Congressional Joint Economic Committee released a report in April 2012 concluding that the US is producing too few graduates in science, technology, engineering and math (STEM). Advocates use such reports to argue that the US must import more foreign STEM students and workers, while critics argue that US employers hire foreigners to save on labor costs, fueling the diverse talent versus cheap labor debate.
IP. The Department of Commerce released a report in April 2012 on 75 "intellectual property-intensive industries" that employed a total of 40 million workers in 2010, over a quarter of US workers (27 million are hired directly by IP firms and 13 million employed indirectly in "supply-chain" industries). In emphasizing the importance of intellectual property and the need to protect it from Chinese and other foreign competitors, DOC concluded that IP-intensive industries account for $5 trillion or a third of US GDP, and $775 billion in exports, over 60 percent of US exports.
Under the DOC definition, the largest IP-intensive industry is grocery stores, with 2.5 million employees, followed by depository credit intermediation (1.7 million employees), computer systems design and related services (1.6 million), insurance carriers (1.4 million), and management and technical consulting (1.2 million). Many IP-intensive industries are manufacturers who rely on patents, such as electronic instrument manufacturing (408,700 employees).
Manufacturing contributed $1.8 trillion or 12 percent of GDP in 2011, up slightly from a low of 11 percent in 2009 but far lower than the peak 28 percent of the 1950s. Reasons for a rebirth in US manufacturing include unions that agreed to reduce wages and benefits, lean manufacturing techniques that allow fewer employees to produce more output, and subsidies from federal, state and local governments.
Between 2000 and 2012, the US lost over 55,000 factories and between five and six million factory jobs. Workers who lose one factory job and get another typically do not suffer wage losses, but those who lose jobs in manufacturing and move to services, and those who change their occupation, typically suffer wage losses of 10 to 15 percent.
Migrant Selection. How should immigrants who can bolster the economy be selected? There are two broad approaches. The supply approach selects individuals with characteristics that are likely to make them successful in the destination country, awarding points for youth, education, knowledge of the language and similar factors. The demand approach allows employers to decide who is best suited to fill a particular job for which local workers are not available.
Supply and demand can converge if extra points are awarded for having a job offer or employers can select only foreigners with at least a college degree.
Under the Canadian point system, immigrants pay fees of $1,000 or more to immigrate, but receive integration services after arrival. In the US demand-system, employers pay fees to obtain immigrant visas. However, some employers (and the immigrants they sponsor) have to wait several years for immigrant visas to become available for foreigners who employers argue are uniquely qualified to fill vacant jobs.
Some economists favor auctions rather than first-come, first-served immigrant visa allocations. Auctions, they argue, could allow employers who most "need" a particular foreigner to pay more, thus raising money for the government. Given the fact that some foreigners are willing to pay $20,000 or more to be smuggled into the US, it is easy to imagine that auction fees could quickly rise higher than the less than $5,000 employers now pay to obtain immigrant visas for particular foreigners.
Supply systems that use points and demand systems that allow employers to select immigrants are at the extremes of the selection-mechanism spectrum. The advantage of points is that the individuals selected by government agencies have the characteristics that can help them adjust to changing labor markets. The disadvantage is that they may find jobs that do not use their skills, leading to brain waste, a problem that can be offset in part by awarding more points for having a job offer.
The advantage of employers selecting migrants is that they should have jobs waiting for them. The disadvantage is that the employers may prefer foreigners over local workers, making oversight of employer efforts to recruit local workers difficult. Once foreigners receive immigrant visas, they have freedom in the labor market, so they may very well leave the job for which the immigrant visa was issued.
Migrants are generally the major beneficiaries of migration, with employers, consumers and others the second-round beneficiaries. Systems that give selection power to employers can lead to a preference for foreigners, while point systems can support an army of brokers and advisors to help individuals qualify.
Economists agree that migration generates trade offs. For example, a flexible labor market and economy maximizes the economic benefits of migration to receiving countries, since migrants can move to areas needing workers and employers can invest in response to more workers and consumers. However, flexible labor markets offer fewer protections to workers. Further, employers may respond to the availability of migrants by using labor-intensive techniques, which could reduce productivity growth, the fundamental source of higher incomes over time.
J-1. The Department of State revised regulations in May 2012 governing the student exchange program that admits about 100,000 foreign university students a year for three months of work followed by a month of travel around the US. Asserting that some of the sponsors who charge students to find them US jobs have put work before culture, DOS revised its regulations to prohibit J-1 students from working in most factory and construction jobs. The revised regulations say that US jobs "must provide opportunities for participants to interact regularly with US citizens and experience US culture during the work portion of their program."
The J-1 program was created in 1961 as a cultural exchange program. In the northwest corner of North Dakota where extracting oil from shale is a booming business, many service businesses rely on J-1 visa holders, many of whom hold two jobs. In one survey, over 90 percent of the J-1 visa holders in North Dakota held two or more jobs.
DOS reminded US sponsors of J-1 students that they must "confirm" annually with employers that no American workers were displaced by foreign students. J-1 visa holders are supposed to hold US jobs that resemble paid internships. However, it is very hard to ensure that internships, whether filled by Americans or foreigners, provide useful work experience.
A million US students hold internships each year, and half are not paid. Critics complain that, with unemployment high, some employers are taking advantage of youth trying to obtain jobs. Internships have spread from fashion, film and music to many other fields over the past decade, and some interns have filed suit to recoup unpaid wages.
Tax Credits. The largest federal anti-poverty program is the earned income tax credit, which provides payments to 28 million low-income taxpayers with children each year, a fifth of those filing tax returns. Half of American families with children received the EITC at least once between 1989 and 2006.
Low earners with children can claim earned income tax credits, meaning they can receive checks from the IRS, using Social Security Numbers or ITINs. Some two million ITIN filers received EITC payments worth $4.2 billion for 4.5 million children in 2010, when total EITC payments were $28 billion.
The median wealth of US families was $77,000 in 2010, down from $126,000 in 2007; median family income fell to $46,000 from $50,000 in the same period. The Federal Reserve's Survey of Consumer Finances reported that 75 percent of US households had some debt, and that 40 percent have a median $2,600 in credit card debt. A third of US families reported no credit cards.
Middle-class families suffered the largest fall in wealth, largely because most of their wealth is in housing, whose value declined. The average wealth of the top 10 percent of US households was $2.9 million.
Perlin, Ross. Intern Nation: How to Eat Nothing and Learn Little in the Brave New Economy. Verso. 2011. www.versobooks.com