The counterplan makes everything worse – it would chill the industry which turns solvency.

The “H-1B discount” occurs through several mechanisms and the exact wage savings that is achieved is difficult to accurately estimate; a 20% savings is a reasonable estimate of the combined effect of the large supply of guestworkers (H-1B, L, OPT) used by the IT industry. The savings take the forms of (1) a direct savings of lower pay for a guestworker as compared to a domestic worker; (2) the “chilling effect” of having a large supply of guestworkers that constrains current workers from requesting wage increases or for employers to increase wages to retain workers (i.e., because incumbent workers are easily replaced with the large available supply of guestworkers; (3) replacing older, higher paid workers with younger, lower paid workers. The wage-depressing effects of H-1B and other guestworkers is observed directly (from fieldwork) and from observing no increase in average wage levels for the past 10 to 18 years despite claims of shortages and difficulties in hiring. As a point of comparison, petroleum engineers were in great demand and the observed starting salaries jumped from $43,674 in 1997 to $50,400 in 1999, $55,987 in 2003, $61,516 in 2005 (Bureau of Labor Statistics, 2004, 2006), and $86,220 in 2010 (National Association of Colleges and Employers, 2010). That is, in petroleum engineering, where there was demonstrated high levels of demand by industry, starting salaries doubled.

In contrast, multiple studies show firms pay H-1B workers less1 (e.g., Matloff, 2013, examining a wage analysis conducted by Kerr (2013) found using a foreign STEM worker led to “…a 17% drop in original wage”; Matloff, 2013; 225) and that firms using H-1B workers have lower average payroll costs. 2 The combined effect is difficult to precisely calculate, but an average payroll savings of 20 percent over the past decade is a conservative estimate.

The most compelling evidence that firms view the H-1B program as labor discount program comes from the firms themselves; they state this quite directly (see Testimony for full quotes and citations)—in 10-K and 20-F statements, firms state that if they are unable to obtain sufficient H-1B visas, the effect will be:“…to replace existing offshore resources with local resources, or hire additional local resources, potentially at higher wages.”… “…cost of doing business would increase”….

Interestingly, none of the companies state that they would not be able to find a sufficient number of U.S. workers, just that it would increase costs.

The evidence suggests that the primary use of H-1B program is by offshoring companies and they would be limited in conducting work offshore without sufficient numbers of H-1B workers because of increased costs; the second use of H-1B and other guestworkers is for lower cost labor onshore. Both of these uses have the combined impact of constraining U.S. IT wages; as all studies have shown (even the Brookings study often cited as evidence to the contrary actually reports similar findings 3 ), IT wages have stagnated since the dot-com bust, at about late 1990s levels. Thus the supply of H-1B workers is a direct need for offshore work and lower cost labor, and an additional effect of having a large supply of young, entry-level and early-career workers to replace domestic workers, older workers, and generally signal that positions can be easily filled and, through this labor market distortion, hold down average wages (i.e., by paying lower wages, replacing exiting workers directly and through moving the work offshore, and by replacing older workers with younger workers); it is through these mechanisms that the DHS H-1B lottery provides the “Black Friday discount” to the profitable IT industry.