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July 2004, Volume 11, Number 3

Labor, H-1B

US employment growth accelerated in spring 2004, and the unemployment rate was stable at 5.6 percent in April, May and June 2004; employment rose at a 200,000 a month pace during the first five months of 2004, but slowed to half that rate in June. The unemployment rate for IT workers reached an all-time high of 6.7 percent in the first quarter of 2004; about 672,000 computer scientists and systems analysts were employed.

So-called rule-based jobs, such as many manufacturing and call center jobs, are increasingly outsourced or replaced by computers, such as those that provide flight information or schedule appointments. Face-to-face jobs, by contrast, require a human presence, someone to teach students or clean a warehouse. Recent US job growth has been concentrated, among professionals and managers, whose employment rose by two million, and in services, where employment rose by two million. Annual earnings for professionals, most of whom have college degrees or more, average $45,000 plus benefits, compared to $20,000 in services, and often without benefits, for workers who may not have graduated from high school.

The question is how many traditional face-to-face professional jobs can be converted to rule-based jobs and outsourced. Trade and technology, as well as the immigration of workers at the extremes of the education ladder, are hollowing out the middle of the labor market.

There are about 16 million foreign-born workers in the US labor force, including five to six million who are unauthorized, and one of the most-debated issues is whether the presence of foreign workers depresses wages and/or increases unemployment, as economic theory would predict. It has been very hard to measure wage depression, which is often attempted by comparing wage trends for demographic groups believed to compete with migrants in cities with different shares of migrants, such as Blacks and women in Los Angeles and Atlanta. Such studies have found little wage depression. The generally low unemployment rates in immigrant cities has been attributed to the fact that workers tend to move away from migrant areas rather than staying and remaining unemployed.

Economist George Borjas used Census data from 1960 through 2000 to conclude that there is wage depression as a result of immigration. Borjas estimated that the arrival of foreign-born workers between 1980 and 2000 lowered the wages of US-born male workers by an average of 3.7 percent, and of US-born high-school dropouts by 7.4 percent. Half of the wage drop for US-born high-school dropouts, according to Borjas's estimates, is due to the presence in the labor market of unauthorized Mexican migrants. The result was that the wages of U.S.-born Hispanic workers were reduced by an average of five percent, and U.S.-born Blacks experienced a 4.5 percent wage drop.

Borjas says that a 10 percent increase in labor supply is usually associated with a four percent drop in wages. Other studies find that a 10 percent increase in the supply of labor is associated with less than a one percent drop in wages, and some speculate that an influx of immigrants shifts out both the supply and demand for labor, minimizing the wage-depressing effect of immigration. The larger the wage depression due to immigration, the larger the net gain to US owners of capital and to consumers. Thus the net economic gains to Americans due to immigration increase with wage depression. Most of the increased economic output associated with immigration goes to the immigrants, who generally have higher incomes in the US than they had at home.

The number of US workers 25 and older who do not have a high-school diploma has fallen, so that immigrants have become a larger share in that category. In 1980, about 17 million of 80 million US workers did not have a high-school diploma; in 2000, it was 12 million of 120 million.

TeamX (SweatX), a Los Angeles garment factory that opened in 2002, was going to show that garment sewing did not have to be sweatshop work; it is now out of business. TeamX paid its 30 sewers represented by UNITE $11 an hour plus benefits, and had costs far above industry averages. With some polls showing that consumers would pay almost twice as much for "sweat-free" clothing, TeamX sought out unions, colleges, and church groups, but many complained that their orders arrived late or were poorly made. Some of the company's employees and much of its machinery have gone to American Apparel, a 2,000 employee non-union garment firm.

Mexican-born Workers. According to CPS data, there were an estimated 9.3 million unauthorized foreigners in the US in 2002, including 5.3 million Mexicans (57 percent). In 2001 and 2002, an estimated 430,000 Mexicans a year arrived in the US despite the recession, so that, among Mexicans who have been in the US less than five years, over 80 percent are unauthorized.

Another five million Mexicans are legally in the US, meaning that 10 percent of all Mexican-born people in the world, and 15 percent of all Mexican-born workers in the world, are in the US. Most Mexican-born workers have little education- a median 9.2 years in 2002, compared to 13.5 years for US-born workers. However, 15 percent of Mexicans with 12 or more years of education are in the US, including 11 percent of those who have at least a college degree. In one 1993 survey, 30 percent of Mexican-born persons with PhDs are in the US.

There are several reasons for the presence of more unauthorized Mexicans, including fewer returns of those who enter the US and the preference of some US employers for unauthorized Mexican workers over Americans. In 1992, an estimated 20 percent of unauthorized Mexicans in the US returned to Mexico within six months; by 1997, the return rate was down to 15 percent within six months, and by 2002, seven percent. A third of Mexican-born workers are employed in US jobs that require little education. For example, Mexican-born workers are 20 percent of those employed as landscapers and groundskeepers, 14 percent of food preparation workers and 11 percent of janitors.

Migration has become deeply embedded in Mexican society. According to one study, only 93 of Mexico's 2,400 municipos (counties) do not send migrants abroad or receive remittances.

The New Immigrant Survey is tracking a sample of 9,600 foreigners receiving immigrant visas or green cards in 2003. A pilot survey of 1996 immigrants found that the wage gains of immigrants in the US were lower than average per capita GDP measures would suggest. For immigrants marrying US citizens and those sponsored by US employers who had less than 12 years schooling, the average difference in per capita GDP between countries of origin and the US was about $21,000 in 1996, but the average US earnings gain was only $7,000. For those who had at least 16 years of schooling, average GDP per capita differences were $18,000, and the average earnings gain was $16,000. For legal Mexican immigrants in 2003-04, the earnings gain after immigration averaged $10,000.

H-1B. Infosys Technologies, an India-based software development company with its U.S. headquarters in Silicon Valley that gets about 75 percent of its $1 billion in annual revenue in the US, asked the state of California to reduce its tax liabilities because two-thirds of its U.S. work is done offshore, and it pays its Indian engineers a ninth of US engineer's salaries. In 2002, Infosys paid its US employees an average of $72,924 a year, compared to $7,992 for Indian employees. In its petition for tax relief Infosys said: "The offshore employees are at least as skilled, and in many cases more so, as the employees based in the United States."

The National Science Foundation reported that 38 percent of US science and engineering employees with doctorates and 29 percent of those with master's degrees in 2000 were immigrants. In 2000, the US awarded about six science degrees per 100 24-year-olds, ranking 25th among nations; top-ranking Finland awarded 13 per 100.

H-2B. On March 10, 2004, the 66,000 limit on H-2B visas was reached for the first time since the program was created in 1990 to bring temporary foreign workers to fill nonfarm US jobs. The ceiling was reached because applications for H-2B workers at winter ski resorts were higher than in previous years, and employers who normally employ H-2B workers had their applications rejected when they applied in spring 2004.

Employers formed an organization seeking an "emergency" increase in the cap. http://www.RaiseTheCap.org

The number of H-2B visas rose from 10,000 in 1995 to more than 60,000 in 2002. Resort hotels and crab processors complained that they could not hire H-2B seasonal foreign workers after the 66,000 annual quota was exhausted. In Virginia, crab processors report that an experienced US or H-2B picker paid the prevailing rate of $2.25 per pound for crab meat can earn between $65 and $100 a day; some processors pay H-2B workers the federal minimum wage of $5.15 an hour.

Some summer hotels that had assumed that H-2B workers would return used the J-1 program to obtain workers instead. J-1 educational and cultural exchange visas allow foreigners to work while in the US.