The following comments are in response to the publication of proposed new regulations on the H-1B program, which can be seen at Docket Number ETA-2020-0006.
I am filing these comments on behalf of myself, David North, and on behalf of the Center for Immigration Studies, a Washington, D.C.-based independent, non-partisan, non-profit, research organization, where I am a senior fellow.
The Center for Immigration Studies
Since its founding in 1985 by Otis Graham, Jr., the Center for Immigration Studies has pursued a single mission — providing immigration policymakers, the academic community, news media, and concerned citizens with reliable information about the social, economic, environmental, security, and fiscal consequences of legal and illegal immigration into the United States. Staff at the Center have testified before Congress over 130 times, and our research has been cited by the Supreme Court, among others.
I have worked with foreign labor programs for more than half a century, beginning with a tour of duty as assistant to the U.S. secretary of Labor for Farm Labor back in 1965, at a time when the department was undoing the controversial Bracero Program. Since then, I have been frequently involved with foreign labor programs in a variety of capacities, such as a White House and, later, Department of Interior, staff member, as an independent consultant on contract research with the old Manpower Administration, as a consultant to the Ford Foundation and German Marshall Fund, as a frequent expert witness before congressional committees, and for the last 10 years as a senior fellow with the Center for Immigration Studies.
The Department of Labor is to be highly commended for raising the wages of H-1B workers in these regulations; this will make the program more expensive to employers, some of whom may be tempted to do what they should have been doing all along: hiring U.S. citizen and green card workers, rather than the H-1Bs.
On the other hand, the way the department calculates the total expense of the program to employers exaggerates the resulting amount of expenses and thus provides, as they say in tennis, an unforced error. Yes, the new rules will run up the costs to employers who stay in the program, but not by as much as the current document suggests.
The department, using the bland term "transfer", says that the annualized additional costs to employers would average, over the next 10 years, $23.253 billion a year. That figure is billions of dollars too high, and thus plays into the hands of an industry that is opposed to these reforms.
The department, on page 63904 of the Federal Register on October 10, stated that it is using a fringe rate of 42 percent, and an overhead rate of 17 percent in its calculations. My sense is that one uses 100 percent of salary, applies the 42 percent, for a total of 142 percent, and then calculates an additional 17 percent (which adds 24 percent) to get 166 percent of wages, at least that was the formula when I wrote a number of contract proposals to the department in past years.
The Department of Homeland Security estimates that there are 585,000 H-1 workers; if all, or nearly all, of them get raises from the new regulations, that would be about $40,000 per worker each year.
Working backward from the $40,000 or so in extra costs, and using the formulae above, we get about $24,096 in wages, $10,120 in fringes, and $5,760 in overhead, for a total of $39,966, or about $40,000 a year. It is in the estimation of the fringe and overhead costs that the department has erred. These two elements constitute, as can be seen above, about 40 percent of the total extra costs or transfers.
The use of these formulae is both understandable (they are easy to use), and highly unfortunate because it exaggerates the cost of both factors, probably by billions of dollars a year.
When a company brings on high-wage workers, the costs of fringe benefits do not rise in easy harmony with the rise in wages. Let's take just four examples:
- Medical insurance; most private insurance costs are based on factors other than income; they relate to the experienced health costs of the company's workers and the family structure, genders, and ages of the workers; these factors do not change when a worker gets a raise.
- FICA or Social Security taxes max out at $137,000 a year; many H-1Bs will be making more than that under the new scheme.
- In New Jersey, where I worked with the state agency that handled social insurance, the wage ceiling for taxes for unemployment insurance and the state's own disability insurance program both max out at $35,300, and all H-1Bs make more than that. Thus, there would be no increase in these fringe benefit costs for these workers' employers after the H-1Bs secure bigger salaries.
- Similarly, in California, where the largest single delegation of H-1Bs is employed, the wage maximum for unemployment insurance taxes is even lower, $7,000 a year; and in New York, also the locus of much H-1B employment, it is $11,600 a year.
Similarly, with corporate overhead, it is foolish to apply a standard formula in situations where workers' salaries are increased, even a lot. Does the rent go up when the H-1B gets a $24,000 a year raise? Does the cost of electricity and running water rise? Does the cost of supervision increase? Does it cost more to keep the building clean?
My suggestion would be that, in the future, the department simply use raw wages as a measure of the program's impact, adding that to some extent this would increase some of the fringe benefit costs of the employers. I would leave out any consideration of overhead.
So while DoL has brought forth a fine new set of regulations, raising the incomes of the H-1Bs and perhaps leading to some more jobs for Americans, its total dollar-cost estimates have been overstated, probably by billions a year, and that is damaging to the cause of H-1B reform.