Immigration Reform Splits Tech Industry Afflicted by Outsourcing

April 29 (Bloomberg) -- U.S. Representative Mario Diaz-Balart, a Republican from Florida, talks about the prospects for immigration overhaul legislation. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

As both worker and boss, Neeraj Gupta has profited from the H-1B U.S. immigration program.

The visa, intended for skilled workers, allowed him to stay in the U.S. after earning a master’s degree in electrical engineering from the University of Alabama in 1991. Later, the H-1B provided a steady supply of foreign-born employees for a technology-services company where he worked as an executive.

Today, Gupta is an outspoken critic of the program that helped start his career and that technology moguls, including Microsoft Corp. (MSFT)’s Bill Gates and Facebook Inc. (FB)’s Mark Zuckerberg, want Congress to expand.

“Somewhere along the way, the program’s been hijacked,” says Gupta, 45, chief executive officer of Systems in Motion, a closely held company based in Newark, California.

As lawmakers consider the first major overhaul of U.S. immigration law since 1986, the high-technology industry is divided over the H-1B program. While both industry leaders and startups seek the world’s most innovative thinkers, outsourcing firms, hired by corporate clients to help cut costs, got more than half the 85,000 visas available last year.

Gupta, a native of India who’s now a U.S. citizen, says the H-1B is leading to “economic abuse.” Outsourcing companies -- such as Cognizant Technology Solutions Corp. (CTSH) and Infosys Ltd. (INFO) -- use the program to import thousands of lower-paid information- technology workers instead of employing Americans, even as the program fails to meet the talent demand at firms such as Google Inc. (GOOG) and Facebook, he says.

Photographer: Sanjit Das/Bloomberg

Infosys Ltd. employees walk past the K. Dinesh Communication Design Center at the company's campus in Electronics City in Bangalore, India, on Feb. 4, 2013. Close

Infosys Ltd. employees walk past the K. Dinesh Communication Design Center at the... Read More

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Infosys Ltd. employees walk past the K. Dinesh Communication Design Center at the company's campus in Electronics City in Bangalore, India, on Feb. 4, 2013.

His company -- using American workers based in Ann Arbor, Michigan -- competes against the outsourcing companies.

Surging Demand

The demand for the visas was underscored this month, when companies exceeded the annual H-1B cap within five days of the start of the annual application process, meaning a government lottery will be held later this year to determine visa winners.

The outsourcing companies’ dominance of the H-1B visa pool is “creating a big squeeze,” says Luis Arbulu, managing director of Hattery, a San Francisco-based venture capital and product-development firm. “It’s putting pressure on everyone, from the Googles and Intels of the world to startups.”

The inflow of H-1Bs -- more than enough workers each year to staff a new Apple or Google -- also is hurting American workers, some studies show. Skilled immigrants using H-1Bs and other visas take one-third to one-half of new IT jobs each year, and their presence is keeping inflation-adjusted industry wages at late-1990s levels, according to a study by the labor union- funded Economic Policy Institute in Washington.

Photographer: David Paul Morris/Bloomberg

The inflow of H-1Bs -- more than enough workers each year to staff a new Apple or Google -- also is hurting American workers, some studies show. Skilled immigrants using H-1Bs and other visas take one-third to one-half of new IT jobs each year. Close

The inflow of H-1Bs -- more than enough workers each year to staff a new Apple or... Read More

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Photographer: David Paul Morris/Bloomberg

The inflow of H-1Bs -- more than enough workers each year to staff a new Apple or Google -- also is hurting American workers, some studies show. Skilled immigrants using H-1Bs and other visas take one-third to one-half of new IT jobs each year.

Raising Cap

Congress created the H-1B program in 1990 to help U.S. companies fill job vacancies with skilled foreign workers. Proposed legislation drafted by a bipartisan group of eight senators would raise the annual visa cap to 135,000 and allow for further expansion to 180,000 depending upon economic conditions.

The draft bill also aims to discourage companies from outsourcing computer jobs via the H-1B route by barring the program’s heaviest users from obtaining additional visas and raising fees for “H-1B-dependent” employers. And it would require companies to advertise the jobs first before hiring foreign workers.

“More home-grown American talent is something we all should applaud,” Senator Richard Durbin of Illinois said at a Judiciary Committee hearing on April 22.

Two Populations

From its inception, the H-1B program has included two different populations: global all-stars who command salaries well in excess of $100,000 to develop products, and journeymen engineers working for outsourcing firms that take over computer operations for clients, including JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Commerzbank AG.

Photographer: David Paul Morris/Bloomberg

U.S. Senator Richard Durbin, a Democrat from Illinois, has said that "more home-grown American talent is something we all should applaud." Close

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Photographer: David Paul Morris/Bloomberg

U.S. Senator Richard Durbin, a Democrat from Illinois, has said that "more home-grown American talent is something we all should applaud."

“We’re very, very different companies,” says Damien Patton, chief executive of social media startup Banjo, which employs several H-1B holders. “We’re your innovators. They’re your -- I don’t know -- your labor pools.”

Cognizant, of Teaneck, New Jersey, the largest single user of H-1B visas in fiscal 2012, says its use of employees based in both the U.S. and India allows its more than 820 clients to benefit from “intellectual arbitrage” -- the ability to tap technology specialists in both countries. The company’s share price has doubled over the past five years while the Standard & Poor’s 500 Stock Index has risen less than 14 percent.

More H-1Bs are needed because the tech industry can’t find enough top American computer experts, industry executives say. The jobless rate in March for workers in computer and mathematical occupations was 3.5 percent, according to the Bureau of Labor Statistics, compared with the national figure of 7.6 percent.

10,000 Openings

Four companies -- International Business Machines Corp. (IBM), Intel Corp. (INTC), Microsoft and Oracle Corp. (ORCL) -- have 10,000 U.S. job openings, according to the Silicon Valley Leadership Group, an industry lobby.

Potential workers with the best credentials enjoy a seller’s market. On the Palo Alto campus of Stanford University, recruiters line up outside the Gates Computer Science Building - - named for Microsoft co-founder Bill Gates -- to hand out pamphlets advertising job openings.

“I got one,” said Mehran Sahami, an associate professor of computer science. “I said, ‘I already have a job!’ But, our students come out with multiple job offers.”

H-1Bs provide significant numbers of skilled workers for some of the country’s top technology firms. About 5 percent of Intel (INTC)’s 53,000 U.S. employees hold such visas, according to Peter Muller, government-relations director for the computer chip maker. “We depend on it,” he said in a phone interview.

Constant Search

Skilled workers from overseas can be especially critical for startups, which have less of a margin for error in filling out their small staffs.

At Banjo, Patton employs 16 corporate recruiters and a team of immigration attorneys in a constant search for employees. The company, which makes a location-based social media application, competes with Google, Netflix Inc. (NFLX) and PayPal Inc. for talent and often can’t find American workers with the skills it needs.

Banjo requires computer specialists conversant in state-of- the-art programming languages. Many American workers have outdated skills or are older and thus unlikely to adapt to the demands of a startup, he says.

“We won’t hire someone who’s marginal,” Patton says. “We don’t hire 6s or 7s. We hire 9s and 10s.”

About one-quarter of the 20-month old startup’s 25-person staff holds an H-1B visa.

Dying Languages

Hattery’s Arbulu, 39, a veteran of six years at Google, says he can’t use middle-aged computer scientists who cut their teeth on dead or dying programming languages such as Cobol or Fortran.

“Now, it’s Python, HTML 5, Ruby-on-Rails,” he says, referring to three cutting-edge programming tools. “They didn’t exist 10 years ago.”

The startups’ argument is echoed by a 2012 Microsoft strategy paper that identifies “the best and the brightest innovators in the world” as the intended recipients of the additional H-1B visas.

Yet Microsoft and other major companies only get a minority of the annual H-1B allotment. The biggest users of the program are tech-outsourcing companies, such as Cognizant, Tata Consultancy Services and Infosys.

Cognizant has streamlined IT operations for six of the top 10 U.S. banks, including JPMorgan, which named the company one of its top suppliers for 2005. Four of the 10 largest European Union institutions also rely on Cognizant.

Indian Nationals

“The vast majority” of the business and technology relying on visas and work permits, the company said in its 2012 10-K filing.

Alan Alper, a Cognizant (CTSH) spokesman, declined to answer questions about H-1Bs beyond a prepared statement saying the proposed legislation would “do more harm than good to our economic recovery, global competitiveness and customer service.”

Spokesmen for Tata and Infosys weren’t immediately available for comment.

Critics of the H-1B program, such as Ron Hira, a professor at the Rochester Institute of Technology in New York, say those companies capitalize on immigration-law loopholes to undercut American workers.

They do so by employing computer specialists from India who earn 15 percent to 20 percent less than comparable U.S. workers, according to Norman Matloff, a computer science professor at the University of California, Davis. A 2011 Government Accountability Office report found that 54 percent of H-1Bs went to workers who were paid “entry-level wages.”

Wage Pressure

For American workers, the availability of foreign labor puts pressure on wages and working conditions.

Lee Cook, 58, of Durham, North Carolina, has felt the effects firsthand. Since taking early retirement from IBM in 2009, Cook has worked on contract jobs performing IT assignments for employers such as Bank of America Corp. and the U.S. Department of Homeland Security.

The availability of H-1B visa holders allows employers to offer less and demand more, he says. If Cook balks at relocating or working without benefits, foreign competitors will be happy to accept.

“They’ll be in the North Pole on Monday if there’s a job,” Cook says.

Almost four years ago, Gupta opted to put his knowledge of outsourcing to work building a business model based on domestic labor. Instead of using foreign workers, he hires a mix of new college graduates and laid-off automotive engineers to handle IT projects.

The Systems in Motion website advertised 25 separate job openings one day this month, including positions for entry-level and senior quality-assurance positions. Many of the openings shared a single admonishment: “We do not sponsor H-1B visas.”

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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