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Here's How to Fix the H-1B Visa Program to Drive Startup Growth

The current system is a boon for foreign job placement firms but does little to help promising startups looking for talent that's in short supply.
Here's How to Fix the H-1B Visa Program to Drive Startup Growth
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It’s difficult to have a calm immigration policy discussion following President Donald Trump’s Jan. 27 executive order, which banned migrants from seven Muslim-majority countries. I felt, as an immigrant to the U.S., both the spirit and implementation of that order were discordant with the American values that convinced me to leave my family and move here. The next executive order could hit my new home, Silicon Valley, hard.

The administration has released a draft copy of an executive order that would overhaul the H-1B visa program, once a vital recruiting tool for American tech startups. The contents of the order remain unknown, but the stakes are high. Trump could throttle H-1Bs, exacerbate America’s tech talent shortage and stifle innovation. Or he could draw foreign engineers away from outsourcing firms and into fast-growing technology companies, which build products we all use and create new jobs for Americans.

Rather than join the chorus of outrage towards changing immigration policy, I want to focus on ways to make positive changes to the H-1B program. The H-1B overhaul is an opportunity, not a threat, if done correctly.

Beyond the rhetoric

I’m optimistic there’s potential for Trump to implement a positive H-1B plan. One of his allies, Rep. Darrell Issa (R-Vista), has a reasonable proposal that he introduced Jan. 4. H.R. 170, called the Protect and Grow American Jobs Act, would raise the minimum salary for exempt nonimmigrant H-1B workers from $60,000 to $100,000. It would also eliminate an exemption that allows companies to avoid the salary minimum if the candidate has a master’s degree or higher.

At least one democrat shares Issa’s general perspective. On Jan. 31, Rep. Zoe Lofgren (D-San Jose) introduced a more nuanced bill, The High-Skilled Integrity and Fairness Act of 2017. It would effectively raise the minimum exempt H-1B wage to $132,000, and its “market-based allocation” system would favor H-1B visas for candidates who are offered the highest wages, an indicator of their relative talent and value to the U.S. economy. Notably, the bill reserves 20 percent of the annual H-1B visas (now 85,000) for small and startup employers, defined as having 50 or fewer employees. Lofgren, too, calls for eliminating the master’s degree exemption.

There’s more to each bill, but based on those key points, I could see Issa and Lofgren reaching a bipartisan bill. They clearly have the same target: IT outsourcing firms.

The lottery flood

Ten years ago, when I moved from England to the Bay Area, startups were hiring exempt H-1Bs all the time. At my company Triplebyte, where we help businesses find technical talent, we’ve noticed that startups have stopped trying to hire H-1B workers.

H-1Bs are simply a bad bet for startups. In 2016, 236,000 foreigners applied for H-1Bs, but only 85,000 get visas each year. When the number of applicants exceeds the limit, the government resorts to a lottery. Twenty-thousand of those slots are reserved for foreigners who earned master’s degrees or doctorates in the U.S. Therefore, if you sponsored an H-1B candidate with a bachelor’s degree -- at a minimum cost of $1,075 -- your chances were roughly one in four.

The H-1B lottery is oversubscribed because outsourcing firms have learned that it pays to flood the system. Last March, Dawn Kawamoto from InformationWeek reported that in 2015, the top eight employers of H-1Bs took 49,539 out of the 85,000 visas available. The companies have a few important things in common. Six of the eight are headquartered abroad (five in India, one in Ireland). All but one paid a median wage in the $60,000 to $70,000 range, and the majority have faced criticism or legal action for favoring H-1Bs over U.S. workers.

Essentially, the $60,000 minimum salary created a business plan. First, apply for as many H-1B applications as possible. Second, hire visa recipients at or near the minimum salary. Third, bill out H-1B workers far above their hourly wage to make a massive profit.

Raising the minimum exempt H-1B wage to $100,000 or $132,000 would make it unprofitable for outsourcers to play this game. If outsourcers bowed out, startups would have significantly better odds of obtaining H-1B visas for foreign engineers, which they desperately need.

Engineers and new jobs

Outsourcing firms want the cheapest engineers that can fill desks, do grunt IT work and never leave the company. A Silicon Valley company wants the best engineers and can’t underpay them because competitors would poach them immediately.

That’s why Lofgren’s wage-based allocation system makes so much sense. Silicon Valley companies are already paying their H-1B engineers more than the minimum wage required under the current H-1B program and the new proposals. Why would they do this if they could find an equally qualified engineer locally? Why place that once-a-year bet on H-1Bs when you’re growing fast and needed a new engineer yesterday?

Trump needs to understand that if he blocks access to H-1B workers, he will starve American innovation. Engineers have a ripple effect in startups. Typically, they create new products, which attract customers and create work for marketers, salespeople and many other professionals. Shifting H-1Bs from outsourcers to startups would create new jobs in America’s tech hubs.

Related: Should U.S. Visa Control Tighten, Here's How Overseas Tech Firms Might React

A better H-1B program

Technology startups, by definition, create innovation. Trump may have the fate of this American innovation in his hands. Silicon Valley has no monopoly on great ideas; the Bay Area is only as good as the talent it attracts. Issa and Lofgren offer a good starting point for changing the H-1B program to help startups. I’d like to build on their proposals with a few ideas:

1. Minimize “America-first” hiring requirements.

If startups could find all the talent they need in the U.S, they would. Startups survive by moving fast, so they’re intrinsically motivated to look locally first. Trump’s draft proposal promises to “prioritize the protection of American workers.” If that were implemented unreasonably -- by, for instance, forcing companies to prove they reviewed 50 American candidates before recruiting abroad -- the program would backfire. Onerous protectionism just forces companies to find alternatives and workarounds. Why keep your startup in the U.S. if you can’t hire the engineers you need to compete effectively anyway?

Related: Why It's Time to Reform the H-1B Visa Program

2. Use a dynamic minimum salary.

Engineers in Silicon Valley command higher salaries than those in other areas. In Silicon Valley, the average is $147,220 vs. $64,280 in Cheyenne, Wyo. Therefore, Lofgren’s $132,000 minimum helps Silicon Valley while potentially making it impossible for other areas to afford H-1B talent. I’m a strong advocate for Silicon Valley, but county-by-county minimums might help get broader buy-in for changing the program.

Related: Charging a Startup with a VISA -- Just Not the Kind You Think

3. Divide H-1B into multiple categories.

H-1B visas are for people in a “specialty occupation,” an ambiguous category. Workers ranging from software engineers and data scientists to teachers and artists apply for the same visa. If Trump (or Congress) carved H-1B into industry pools like Technology, Education, Finance, etc., the State Department could match quotas and salary minimums to the correct levels for each industry.

It would be ironic if an Indian engineer, rejected by an H-1B program designed to safeguard American jobs, helped build the next Google in Bangalore and created 10,000 new jobs there instead. Depending on what happens in the next few days, that is a real possibility.

If Trump overhauls the H-1B program to stop outsourcing firms from arbitraging foreign talent, great. Smart immigration policies help turned Silicon Valley into a magnet for the world’s best talent. Let’s keep it that way.

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