Effect Of the US Immigration Bill 2013 On the American And Indian Economy

Executive Summary

Eight U.S. senators from the Republican and Democratic parties have submitted a new bill,i.e., the US Immigration Bill 2013, to overhaul the immigration system, with a focus on immigrant work skills and improved border security. The proposed legislation is 844 pages long.
Under the new proposal, the cap on H-1B visas would nearly double from 65,000 to 110,000, and could rise to 180,000 if certain conditions are met.
Spouses of people holding H-1B visas would be given the right to work and they would not count against the cap on H 1-B visas, if in turn, their country of origin allows the spouses of U.S. nationals working in that country to hold employment.

The Americans feel the top H-1B and L-1 employers are using the programme to substitute tens of thousands of high-wage, high skilled American jobs and give them to non-Americans. The bill proposes that a company that employs 50 or more employees in the United States may not hire additional H-1B or L-visa employees if the number of such employees exceeds: (1) 75% of the total number of employees for FY2015, (2) 65% of the total number of employees for FY2016, and (3) 50% of the total number of employees for each subsequent fiscal year.

These provisions are seen as directly targeting Indian information technology companies. While the U.S. operations of these companies form a large percentage of their revenue, the majority of their employees in the U.S. are foreign workers, mostly from India, working on company sponsored, temporary work visas. The new bill seeks to reduce this number to 50 per cent by 2016, forcing Indian IT companies to hire employees locally in the U.S. Even more damaging than the effort to restrict the number of foreign workers is the so-called outplacement restriction that prohibits any company with more than 15 per cent of its workforce holding H-1B visas from placing those workers at client sites. Similarly, outplacement of L-1 visa workers (employees of an international company with offices in the United States and abroad) by an employer whose workforce is made up of at least 15% L-1 workers is prohibited.

The bill also addresses the alleged wage gap between foreign and U.S. workers by requiring employers to pay significantly higher wages to H-1B employees than currently required. In addition, the bill imposes increased filing fees on H-1B-dependent employers, depending on the percentage of non-immigrants employed by the company. Companies in which non-immigrant (both H-1B and L-1) employees constitute 30 to 50 percent of their U.S. based workforce would be required to pay a $5,000 fee per H-1B application. The fee would double to $10,000 per application for employers with 50 percent or more non-immigrant employees. This price increase, deals a huge blow to H-1B dependent companies, who now have dual restrictions placed on them.

The Indian IT companies’ business model, developed over the past decade, has worked well for them and their American clients. In order to manage technology contracts for a U.S. enterprise, the Indian IT companies determine an optimal balance between utilizing lower paid offshore employees for the majority of the work along with on-site employees for critical tasks. If the bill is implemented, not only will these companies have to reduce the number of their foreign workers, the cost of bringing each one over will exponentially increase. The IT companies will have to pay more by way of visa fees and pay higher wages to H-1B visa holders. Restrictions on placing on-site staff will reduce their flexibility and a larger percentage of the work would have to move offshore. Increased billing rates will lead to higher hiring costs for such companies. There will be a severe shortage of adequately qualified workers among enterprises in all industries. All of this would disrupt the existing business model. If the bill is passed, Indian companies would look for ways to reduce the ratio of visa holders to total employees in the U.S. by either hiring more American workers or acquiring other companies.

Current Economic Scenario Of America and The Repurcussions Of The US Immigration Bill 2013

America’s current economic growth is around 2 percent, with public debt at $ 16 trillion. Job creation and labor market participation remain low.
There is direct link between immigration and economic growth. The current immigration policy should be changed for betterment of the growth figures of US as a nation and also the trade earnings of the associated business partners.
An increased number of immigrants would help to fill in the workforce shortage. More number of businesses would be able to flourish with the acceptance of low and high skilled workers.
The H1-B quota currently puts the application limit to 85,000 which is approximated to be 1/20th of 1% of the overall labor force.

Research tells about 51% of engineering doctorates and 41% of physical sciences doctorates have had to return home. All this ultimately wastes the private and taxpayers’ money in research.
If we look at the Congress Budget office data, 182,000 foreign graduates in science technology fields could have stayed in the US during the period 2003-2007. Their stay would have contributed $14 billion in 2008, that would have included 2.7 to 3.6 bn $ in tax payments.
The current revenue earnings by the US government from international students amounts to 27 bn $ in the financial year 2014-15. and a tax payment in the range of 6-8 bn $.
300,000 of the active H1-B visa holders during the same period would have remained in the country generating revenues of 23 bn $ in 2008 and predictably generating 34-47 bn $ in tax revenue over the next 10 years.

America’s growth rate is hovering around 2%. The budget deficit has exceeded $ 1 trillion for four years in a row and the public debt is at $ 16 trillion.
The country has 3 million fewer jobs than what it had in December 2007, the start of the recession.
The labour force participation rate is at 1981 levels. Only 13 percent of green cards authorizing permanent residence are granted for employment purpose.
U.S. businesses founded by immigrants employed approximately 5,60,000 workers and generated $ 63 billion in sales during 2012, according to a Kauffman Foundation study.
For example, 44 percent of high tech Silicon Valley businesses had at least one immigrant founder.
The latest trends depict about 67bn $ have been contributed by immigrants entrepreneurs out of the 577 bn $ contributed business income in the country in financial year 2014-15.
There have been proposals of auctioning off work permits to employers or visas to individuals . This could be used to raise funds to reduce deficits.

Effect Of US Immigration Bill 2013 on Indian IT Industry and the Indian Economy As A Whole

The US Immigration Reform Bill 2013 could take away 0.3 – 0.4% of India’s GDP in the 2014-15 financial year, as predicted by brokerage firm JP Morgan.

This is said to be caused due to the outplacement clause of the Reform Bill that would restrict the placement of H1-B workers at client sites.

The outplacement clause also imposes significantly higher filing fees on H1-B dependent employers based on the percentage of non immigrants employed in the company.
The current trends of payments for H1-B visa processing are $2500 with an additional $1225 for premium processing.

The Indian IT exports were recorded at $87 billion in financial year 2013-14, which contributed about 4% to the country’s Gross Domestic Product (GDP) and expected to contribute about 7-8% on an incremental basis.

The Reform Bill, if passed into law, could have a multiplier effect, that would consume or slow down the ancillary sectors like real estate, travel and hospitality, as suggested by the JP Morgan Report.

The estimated impact on India’s Financial Year 2015 GDP ( including the downstream multiplier effect ) due to the outplacement clause in the reform bill at 0.3-0.4 % is big enough to raise alarms at the doorstep of the Government Of India. The given percentage slab of 0.3-0.4% would amount to a loss of approximately 7.2 billion $ i.e., 0.4 percent of the current GDP which was recorded at 1.8 tn $ in 2014.

The current growth trends predictions show India to be growing somewhere around 7-8 % which would record our GDP close to 1.94 tn $. Here the incremental loss to the sector would increase to 7.7 bn $ from 7.2 bn $ in 2015.

Even more worrying would be the implications this finding has on downstream lower level employment this sector generates.

The bill would force the Indian IT companies to lower their dependency on H1-B workers, where they would have to shell out more money towards visa processing fee and salaries for Indian employees in comparison to their American counterparts.

According to a clause, where a company having more than 15% of workforce on visa would need to pay extra processing fee, if triggered, the employer is deemed to be visa dependent.

If such a clause is passed, the visa holders of India centric firms would not be able to work onsite.

It is expected that the outplacement can be offset by factors such as local hiring, increasing the offshore content of work or increasing automation.

Crediting to this direct loss of sector revenues would amount to a staggering $ 2.5 billion and the downstream multiplier effect would end up in a loss of $ 6 billion or 0.3% of FY 15 GDP of India which would ultimately affect the job generation.

Way Forward

In order to progress and grow with a substantial rate both the countries need to negotiate on the immigration clauses. The US government needs to realize the benefits and the contributions that the talented immigrant population can provide.
The American population has a talent shortage for high skilled jobs that results in loss of major prospective revenues. These losses of revenues may be in the form of lesser value of business sales or tax collections.
The immigrant population, especially that of India forms the backbone of the post-graduate and Phd university studies.
With the latest recommendations of the immigration bill, this conglomerate nexus of Indian intellectual base may suffer a big blow.
The government of United States would need to relax the immigration norms in terms of the number of temporary high skilled work visas.
The cap on these H1B work visas will have to be increased to involve and provide oppurtunities to the immigrant population in the business process.
Also diplomatic talks need to be scheduled for enablement of facilitative business or trade practices.
India and U.S. being the powerhouse of growth and innovation in the years to come, need to develop a resonating symbiotic relationship that would help India evolve from being a fast developing nation to a developed one and US can utilize India’s brilliant human resource power to leverage their growth to the next level or standards.

Conclusions

As it can be clearly seen the effects of the immigration bill may be detrimental and can prove to have a downstream multiplier effect on not only the IT sector but also various sectors that are directly or indirectly associated.
Here, the implications are clear for an immigration bill not supporting the immigration population coming from overseas.
It needs to be realized by the US government that to succeed in the long run countries will need to welcome the best of human resources from across the world so as to cover the weaknesses or shortages.
It is evident that leading future economies would be ones having diverse work forces and knowledge equipped populations.
Knowledge populations can have staggering effects on business generation and consequently employment generation.
This positive environment of growth would facilitate the progress of the nation in terms of improved Gross National Incomes per Capita and living standards.
The developed countries like US need to realize facilitating business for high potential growing countries like India would not just help the foreign country but would inturn catapult their own growth levels to a different dimension.

References

http://www.manhattan-institute.org http://economictimes.indiatimes.com knowledge.wharton.upenn.edu