Another Look at the Grubby Innards of the H-1B Labor Market

By David North on December 6, 2011

We should all be grateful to a U.S. Department of Labor Administrative Law Judge for a peek at what might be called the secondary market or "aftermarket" in H-1 B workers, in this case, physical therapists working in the State of Missouri.

The decision of ALJ Alice M. Craft on why a physical therapy firm owed the workers, all from Philippines, more than one third of a million dollars in back pay was reported in an earlier blog.

Judge Craft, in her 97-page decision, did more than sort out a large number of intricate back-wage claims, she explored the little reported aftermarket in H-1B workers. This is the labor market where aliens with H-1B jobs sometimes move – with the government’s consent – from one H-1B employer to another.

One might borrow the vocabulary of the used car business, and call them "pre-owned" workers. It is not exactly a free market, it is one in which both workers and employers are encumbered by various sets of chains, but it appears to work anyway, after a fashion. From the outside one wonders why any employer would go through these hurdles to hire such an alien, when a green card holder or a citizen could be hired without the extra trouble and expense, but hire them they do.

The workers bear most of the chains. All H-1B workers, by definition, are tied to American employers by their visas. If they displease their employer he can not only fire them, he can threaten to have them deported.

In addition, in many firms, H-1B workers stay with their initial employers because he has, or could, promise them a green card – permanent status in the U.S. This discourages the kind of job-hopping that is the American norm.

In further addition – and this is where Judge Craft comes in – many H-1B workers sign a contract with their employers in which they agree to a cash penalty if they voluntarily leave their employer before the end of their contract. In the Missouri case these agreements were for two years, and the penalties ranged from $3,000 to $10,000.

You might think that such penalties would all but eliminate any job-changing by H-1Bs, but you would be wrong.

What happens is that other employers pay the penalties in order to "steal" the H-1Bs from the original employer, presumably also offering a more attractive pay package than the worker is now getting. What the new employer is getting is a fully-licensed physical therapist who already has some experience in the U.S., and he obtains these workers without the trouble and expense of recruiting them from the Philippines.

What is less obvious, but clearly part of the picture, is that the wage levels of the H-1Bs are so low that it makes financial sense for the second employer to ignore U.S. physical therapists, and pay three different premiums to hire the Filipino. These premiums are: 1) the higher rate of pay needed to lure the worker away from the initial employer; 2) the penalty laid on the worker for leaving the first job that the second employer has to pay; and 3) the fee that must be paid to the government to hire or transfer an H-1B.

I am all for labor market mobility for all workers, the sign of at least some economic justice in the workplace, and I am pleased that Judge Craft has shed some light on this obscure part of the marketplace.

What it shows, of course, beyond anything else is that the H-1B provision of the INA creates a low-wage environment, and that is unfair to both the alien workers directly involved in it and to those American and legal-immigrant workers with whom they are competing.