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July 2014, Volume 21, Number 3

Labor, H-1B, Inequality

The US unemployment rate fell to 6.1 percent in June 2014, the lowest rate since September 2008, as employers added 288,000 jobs, about 10,000 a day. The Federal Reserve has said that an unemployment rate of six percent could trigger a rise in short-term interest rates that have been close to zero for the past six years.

The labor force participation rate, the share of persons 16 and older who are employed or looking for work, was unchanged at 62.8 percent, well below the 66 percent before the 2008-09 recession and the lowest LFPR in three decades.

With the economy adding an average 200,000 jobs a month in 2014, employment has surpassed its previous peak of 138.4 million in January 2008. However, the labor force participation rate remains well below pre-recession levels, which is one reason that the unemployment rate has fallen.

The slow pace of economic and job growth has raised doubts about the recovery. Treasury Secretary Jacob J. Lew in June 2014 said: "There are questions about whether America can maintain strong rates of growth and doubts about whether the benefits of technology, innovation and prosperity will be shared broadly."

There are positive signs. Between 1948 and 2009, the number of unemployed workers who were jobless less than 15 weeks was always greater than the number without jobs 15 weeks or more, making most unemployment a short-term problem. Between 2009 and early 2014, the number of long-term jobless was greater than the number of short-term unemployed. In May 2014, the number of short-term jobless exceeded the number of long-term unemployed, returning to the usual pattern.

In 2010, health care (NAICS 62) accounted for 16 percent of US employment, followed by 13 percent in retail trade (NAICS 44), 10 percent in accommodation and food services (NAICS 72), and 10 percent manufacturing (NAICS 31). These four two-digit sectors accounted for half of US employment.

What is the appropriate role of workforce intermediaries, the organizations that match workers with jobs? Some workforce intermediaries, especially those that receive government job-training funds, help low-skilled workers to improve their skills before placing them in jobs. Many workforce intermediaries work closely with employers, since employers must ultimately be persuaded that the workers referred by an intermediary should be hired.

Latinos. The slowdown in Mexico-US migration has reduced the share of the foreign-born among Hispanic workers. Since 1995, when data were first reported, there have been more foreign-born than US-born Hispanic workers. However, in the fourth quarter of 2013, the US-born share of Hispanic workers was over 50 percent.

Between 2009 and 2013, the number of Hispanics with jobs rose by 2.8 million, and fewer than 500,000 of these newly employed Hispanics were immigrants. By contrast, between 2004 and 2007, Hispanic employment rose by almost 2.5 million, and two-thirds of newly employed Hispanics were immigrants.

Wages. President Obama in February 2014 issued an executive order requiring federal contractors to pay at least $10.10 an hour to their employees in any new or renegotiated federal contracts after January 1, 2015. Think-tank Demos in a June 2014 urged Obama to issue another executive order requiring federal contractors who obtain at least 10 percent of their revenues from the federal government to respect employees' collective bargaining rights and pay living wages and decent benefits.

According to Demos, over eight million workers employed by federal contractors who satisfy the 10 percent threshold are paid less than 150 percent of the federal poverty line. Demos estimated that a new executive order would raise the wages of workers whose employers had federal contracts and earned less than the $16 an hour median wage in the private sector by at least 20 percent.

H-1B. There are 65,000 regular H-1B visas available each year, plus 20,000 for foreigners who hold advanced degrees from US universities, and an unlimited number for nonprofits. In 2007 and 2008 as well as in 2013 and 2014, US employers requested far more than the 65,000 regular H-1B visas, and USCIS used a lottery to determine which foreigners received H-1B visas.

If employer requests for H-1B workers represent demand for computer-related workers in a metro area and actual computer-related employment represents supply, the difference can be considered the "deficit" in computer-related workers because: (1) too few H-1B visas were available; and (2) the jobs employers wanted to fill with H-1B workers remained unfilled. Across 353 metro areas, the deficit attributed to the lack of H-1B visas was an average of four percent in 2013-14. However, in Trenton, New Jersey and Wilmington, Delaware, the deficit was higher, and high-deficit areas also had fewer jobs for US college-educated workers and slower wage growth.

Stories of US workers being required to train replacement H-1B workers as a condition of receiving severance pay appear regularly in the IT press. Computerworld in June 2014 noted that most US employers may lawfully lay off US workers and replace them with H-1B workers.

Only H-1B dependent employers who have at least 15 percent H-1B workers and more than 50 employees must try to recruit US workers before hiring H-1B foreigners. H-1B dependent employers can avoid this recruit-US-workers-first requirement by paying their H-1B workers at least $60,000 a year or hiring foreigners with advanced degrees from US universities.

Some outsourcing firms use H-1B visas to understand the needs of US customers, and keep some in the US to handle day-to-day needs. However, many send most of the computer work to India. Outsourcers Infosys and Tata Consultancy Services were the two largest users of H-1B visas in 2013.

Most foreigners holding H-1B visas are employed in IT, but some are employed in schools and health care services. The head of Human Resources at the Garland (Texas) Independent School District promised to sponsor Filipinos for H-1B and eventually immigrant visas, and charged Filipinos seeking jobs $1,000 to be interviewed and another $5,000 if they were hired. Garland filed 642 H-1B applications between 2001 and 2014, compared to 25 in comparable school districts.

Many H-1B temporary workers hope that their US employers will sponsor them for immigrant visas during the maximum six years they can remain in H-1B status. Employers sponsor H-1B and other foreigners for immigrant visas by going through the labor certification process, that is, they post ads for the vacant job, find that no US worker is available, and then DOL certifies that the specified foreigner is needed to fill the job and is granted an immigrant visa.

As soon as the foreigner has an immigrant visa, she has freedom to change employers, and many ex-H-1B workers who receive immigrant visas do change employers.

DOL normally takes employer assertions at face value, that is, in over 85 percent of cases in which employers say qualified US workers are not available, DOL does not check employer documents and certifies the need for foreigners. However, in the 15 percent of employer applications that are audited, the approval rate falls to less than 60 percent, as DOL finds problems with employer efforts to find US workers.

In recent years, over 95 percent of the foreigners that US employers sponsored for immigrant visas were already in the US, and most were already employed by the employer with some kind of temporary work visas. A third of the employers and jobs involved in employer-sponsored immigrant visas were in computer-related occupations. In the four-tier ranking of their jobs by qualifications, a third were deemed by employers to be entry-level or level one and another third were deemed to require experience and competence, levels three and four. The most common type of job was "qualified," more than entry level but not experienced.

Inequality. The extent and reasons for rising income and wealth inequality in the US were widely debated in spring 2014. As fewer young men get college degrees, the gap between the earnings of college-educated workers and less-educated workers has widened, reflecting the demand for college-educated workers rising faster than supply.

Between 1979 and 2012, the difference in annual earnings between a two-earner, college-educated household and a two-earner, high-school educated household nearly doubled to $58,249.

Economic changes that have increased the demand for college-educated workers include electrification, mass production, motorized transportation and telecommunications that reduced the demand for physical labor and raised the demand for cognitive labor. More recently, computerization extended the scope of innovation by displacing workers who perform routine, codifiable cognitive tasks, such as bookkeeping, clerical work and repetitive production tasks.

One way to reduce inequality, according to unions and some economists, is to raise the minimum wage, which is $7.25 at the federal level and higher in many states. Massachusetts in June approved the highest state minimum wage, from $8 in 2014 to $11 an hour by 2017.

Seattle in June 2014 raised its minimum wage to $15 an hour for employers in the city who have more than 500 workers (throughout the US) and do not provide employees with health insurance; the increase will be phased in by 2017. This ordinance prompted a suit by fast-food franchise restaurants that would have to pay $15 in 2017 even if they employed only 20 or 30 workers because they are part of national chains. The $15 minimum wage will be phased in through 2021 for smaller employers.

CEOs of fast-food restaurant chains earned 1,200 times more than a typical non-managerial employee in 2012 according to an April 2014 report from Demos, an average $27 million compared to $22,200. In the broader accommodation and food services sector, the ratio of CEO pay to average worker pay was 540 to one, more than the 330 to one ratio between all CEOs and all US workers.

Some restaurant chains pay their workers more than the minimum wage. California-based In-N-Out Burger pays all employees at least $10.50 an hour, in part to attract the best employees and to reduce turnover that often exceeds 200 percent, meaning that two workers must be hired during the year to keep one job slot filled. McDonald's CEO Don Thompson countered that the fast-food industry pays "fair and competitive wages" while providing "job opportunities and training for those entering the work force."

There were 2.2 million Americans in jail or prison in 2012, an incarceration rate that is five times higher than in other OECD countries. The US has about five percent of the world's people and 25 percent of those incarcerated, and annual federal, state and local criminal justice costs are about $1 trillion.

Almost 80 percent of US residents 65 and older are white, while only half of children under 15 are white. Hispanics are a quarter of US residents under 15 but less than eight percent of residents 65 and older.

Southwestern states have the widest gaps between the share of whites who are 65 and older and children under 15. For example, in Arizona, 82 percent of those 65 and older are white, but only 41 percent of children under 15 are white.

Demos. 2014. Fast Food Failure: How CEO-to-Worker Pay Disparity Undermines the Industry and the Overall Economy. Giloth, Robert. Ed. 2004. Workforce Intermediaries for the 21st Century. Temple University Press.