Federally Subsidized Job Discrimination? Yes, in an Almost Hidden Program

Americans need not apply

By David North on February 15, 2018

There are federal subsidies for lots of things that society has decided would be good for the country, such as school lunches for low-income kids and better highways for all who use cars, trucks, and buses.

On the other hand, there has always been widespread discrimination in, among things, the hiring process. There are oodles of federal and state programs that make that kind of discrimination illegal, appropriately so.

Let's put those two elements together and ask what at first glance seems to be a very strange question: Is there a federal program that actively subsidizes work-place discrimination against one class of workers in favor of another class?

A program that invests more than $1 billion a year to promote that kind of discrimination?

Does such a program not only fund job discrimination, does it specifically go after a group of people usually thought to be, to say the least, harmless — U.S. citizen and green card college graduates?

And does that program use funds swiped from the trust funds for Social Security and Medicare that are so helpful to our elderly population?

The program's description above, though 100 percent accurate, sounds like our government's policy in this area had been taken over by those all-too-skillful Russian hackers.

In this Marxist opium dream, U.S. employers are given financial incentives, by their own government, to discriminate against their own citizens. Such a program would seem be both highly unattractive and politically indefensible. What sort of weird political arrangements would facilitate such a program?

Well, it was not passed by Congress. It was created on a small scale within the Bush II administration, expanded mightily by the Obama administration, and so far, has been tolerated (in silence) by the Trump administration. It survives because it was born in and continues to grow in virtual secrecy, and because it is never described in the accurate, if harsh, terms used above. It is no opium dream; it is reality.

It is called Optional Practical Training (OPT) and it is for foreign graduates of U.S. schools. Its slogan should be: "Americans Need Not Apply", as U.S. citizens and green card carriers are not eligible for its benefits.

How does it work? There are two stages, the second of which is worse than the initial one. In the first, or student phase, CPT (a form of OPT for current students, called Curricular Practical Training), allows the employers of foreign students, whether on or off campus, as well as the student concerned, to avoid paying payroll taxes.

These are the taxes that support the Social Security and Medicare programs, and the federal part of the unemployment insurance program. These taxes come to about 8.25 percent for both the employer and the worker. U.S. resident college students get the same break if they happen to work on campus, but they must pay the full rate if they work off-campus, as many of them do; so, to the extent that they do work off campus, the Americans are disadvantaged.

The second and more controversial phase, OPT, is for alien alumni, and the discrimination against American college grads is more pronounced. No matter where the domestic resident grads work, they and their employers must pay the full payroll taxes. Meanwhile the foreign grad, no longer a student, but still with a student visa, does not pay the payroll deductions, and neither does his or her employer. (OPT uses a magic wand to convert foreign alumni to foreign students for these tax purposes.)

OPT runs for a year for most college graduates; but it is three years for those with degrees in the STEM (science, technology, engineering, and mathematics) fields. Many foreign alums have STEM degrees.

So employers are, in effect, encouraged to discriminate against U.S. citizen and green card grads in favor of the foreign ones; these employers would, one would presume, prefer to buy $1 worth of labor for about 92 cents, rather than the full dollar. Meanwhile, the foreign student, knowing that he or she will get the full dollar in wages, might be willing to shave that amount by a few cents per dollar. So every job held by an alien college grad OPT is one that might have gone to an American grad, were not the subsidy in place.

To get these tax breaks the student and the employer enter into a meaningless "training program" that has no relation to reality. These tax breaks, are, in fact, open to pizza shop workers as well as engineers. Similarly, the post-graduation tax breaks for foreign students are handed out equally to those leaving Harvard or Stanford and to those getting degrees from fourth-rate visa mills, or compromised colleges, institutions we described in an earlier CIS Backgrounder.

Colleges and universities like OPT because it makes their alien students and their recent alien grads a bit more prosperous, and the army of H-1B employers (the real "haves" in this case) like it because the STEM provisions mean it's easier to move an alien grad of a U.S. college into employment despite the uncertainties of the H-1B program. (Many a H-1B worker spends a year or two in OPT status before obtaining the H-1B.)

Meanwhile, those hurt by the program, notably the U.S.-resident college grads, are unlikely to know of the program, and do not realize that one of their classmates (from abroad) might get the job they want because of the federal subsidy of the alien's wages. A program that is well known to its beneficiaries, but unknown to its victims, is likely to survive politically.

Numbers. How many jobs does OPT impact, and how much is that costing our trust programs for the American elderly and the American unemployed?

The Student and Exchange Visitor Program (SEVP), which runs OPT, issues a numbers-filled report, "SEVIS by the Numbers", every six months. Despite the importance of the OPT program for both the foreign students and alumni, and against domestic students and alumni, the program is never mentioned in these reports. Further, although USCIS, another DHS agency, routinely publishes an exhaustive set of statistics on all of the programs it runs, SEVP (a part of ICE), does not publish comparable numbers. I have made a formal request for FY 2017 numbers, which will probably be honored in a month or so.

In the meantime, we have data from 2013, which gives a hint at the extent of the program today — there are more foreign students and alums now than then, the program is used more often, and wages are higher, so that the 2013 numbers are perhaps half to two-thirds of the current ones.

According to our summary of research by the Economic Policy Institute, there were 140,000 OPT-subsidized jobs in 2013. If the salary for each job was $50,000, that would mean that $1,155,000,000 was taken from the trust funds to reward employers hiring foreign college students and alums rather than American ones.

The program simply should be abolished, with those in it now allowed to stay in the program till their part of it expires, so that there would be no need for mass deportations.

If the political will cannot be summoned for such a transition, then the program might be continued, but only for the alien students who were in the top 10 percent of their college classes. If one wants to retain the "best and the brightest" of the alien students, this plan would sort out most of the mediocre alumni right away, and reduce the impact on recent American alumni and on the trust funds. And the top-10-percent-only provision would be a death sentence to the visa mills and compromised colleges that currently feed off the OPT program.