H-1B Restrictions Driving Companies’ Outsourcing, Offshoring

As the Trump Administration tightens up its restrictions on the H-1B visa (as well as the H-4 EAD, which it wants to eliminate completely), it’s worth examining how companies are reacting to the restrictions. Fortunately, one professor at the Wharton School of Business has taken a stab at that kind of analysis (big hat tip […]


As the Trump Administration tightens up its restrictions on the H-1B visa (as well as the H-4 EAD, which it wants to eliminate completely), it’s worth examining how companies are reacting to the restrictions. Fortunately, one professor at the Wharton School of Business has taken a stab at that kind of analysis (big hat tip to Forbes for surfacing the research paper).

That professor, Britta Glennon, wrote in the May 2019 paper
that she used a dataset that combined “firm level data on H-1B visas and
multinational firm activity” to examine some key questions about company usage
of H-1Bs, including:

“First, do restrictions on H-1B visas result in increased high-skilled foreign affiliate employment? Second, how does any impact differ across firms, industries, and countries? Finally, do these restrictions also affect the location of innovative activity?”

Based on her analysis, Glennon
concludes that H-1B restrictions lead to more outsourcing (she also supports
the theory, voiced by other researchers, that H-1B immigrants have little
impact on local employment rates). Companies that spend most heavily on
research and development—such as technology firms—are most likely to engage in
this sort of practice. From her paper:

“Firms were more likely to open new foreign affiliates abroad in response [to H-1B restrictions], and employment increased at existing foreign affiliates. The effect is strongest among R&D-intensive firms in industries where services could more easily be offshored. The effect was somewhat geographically concentrated: foreign affiliate employment increased both in countries like India and China with large quantities of high-skilled human capital and in countries like Canada with more relaxed high-skilled immigration policies and closer geographic proximity.”

Glennon’s conclusion seems supported by reports earlier this
year that firms were looking
to open Canadian offices
rather than deal with unpredictability related to
the U.S. government’s H-1B policies. “Talented international professionals choose destinations
other than the United States to avoid the uncertain working environment that
has resulted directly from the agency’s processing delays and inconsistent
adjudications,” Marketa Lindt, president of the American Immigration Lawyers
Association, told a U.S. House of Representatives hearing during July testimony
about delays at U.S. Citizenship and Immigration Services (USCIS), which
processes H-1Bs.

Meanwhile,
the U.S. government has continued its tightening policies. For example, USCIS
wants to institute
a $10 registration fee
for each H-1B visa application. The agency claims
that the added money will allow it to better “adjudicate” applications. The
agency recently began asking companies about
the type of work
 that
H-1B visa recipients will be doing, such as vendor agreements, subcontractors,
and lists of projects. These requests for evidence (RFEs) may have driven a
declining rate of visa approvals
, and helped spark dozens of corporate lawsuits against
the federal government
. But is that activity also driving outsourcing (and
offshoring)? Give the paper a
read for yourself.

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