Expanding the H1B Foreign Work Visa Quota Would Help Small Businesses Most

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A sweeping immigration reform bill was introduced to the Senate in April, and legislators are poised to begin debate over one of the most contentious issues in the country.

Besides the most important issue of illegal immigration, another key provision of the bill is the expansion in the number of H1B temporary work visas for workers with college degrees or in skilled occupations from the current cap of 65,000 a year to 110,000.

As is true of illegal immigration, the issue of legal work immigration is contentious, with many voices supporting the plan to expand the number of H1B visas granted each year, and many others opposing it.

Those who argue in favor of expansion typically say the US has a shortage of American graduates with Science, Technology, Engineering and Math (STEM) degrees. Foreign workers on H1B visas are thus required to fill a shortfall in STEM job positions.

A recent landmark Brookings Institution study, for example, found that jobs in sectors that frequently hire H1B employees go unfulfilled for a longer time than those in non-STEM occupations, even after control factors like wage rates or level of education and experience are removed from the equation.

As such, the H1B visa cap hurts the ability of American firms to compete for top talent in the global pool, those in the pro-expansion camp, like much of Silicon Valley, argue.

On the flip side, some argue that while the intentions of the H1B visa program are good, the reality is a whole different story. A Computerworld report from February found that the largest employees of H1B workers are actually Indian outsourcing firms like Infosys Ltd ( INFY ) and Wipro Limited ( WIT ), the majority of whose employees are located overseas.

"These outsourcing firms like Infosys, Wipro, Tata Consultancy Services Limited (NSE:TCS) and others -- Americans would be shocked to know that the H1B visas are not going to Microsoft Inc. ( MSFT ); they're going to these firms, largely in India, who are finding workers, engineers, who will work at low wages in the US for three years and pay a fee to Infosys or these companies," said Senator Richard Durbin at a Congressional debate on the immigration bill in April, neatly summarizing the chief problem many have against the H1B visa program.

"I think that is an abuse of what we're trying to achieve here. Most people would think, well, Microsoft needs these folks, and they'd be shocked to know that most of the H1B visas are not going to companies like yours; they're going to these outsourcing companies," Durbin continued.

But while Durbin and others in his camp feel that the H1B visa program hurts American workers, Meaghan Tuohey-Kay, a New York-based immigration lawyer whose clients are mostly small- to mid-sized manufacturing, engineering, and IT companies with under 30 employees, says that expanding the program is counterintuitively better for job creation in America because it makes it easier for small businesses to hire foreign talent.

Each year, the annual H1B cap of 65,000 is reset on Oct. 1, when the fiscal year for the federal government starts, Tuohey-Kay explains to Minyanville. Since the government allows you to apply six months ahead for any H1B that you might need, applications can be filed April 1 for a job that starts Oct 1.

For 2013, the H1B cap was reached in the first five days of April. So by March, companies would have had to make a decision to hire somebody and have him or her start work on Oct. 1 so as to get the application in on time.

"That means that if a small company gets a big contract and has to hire new people, they can't. They would have to wait till April 2014 to file an application and the person wouldn't be able to start until Oct. 2014. A company is thus limited in their ability to grow and hire new people because of the cap," says Tuohey-Kay.

A small H1B cap disproportionately hurts smaller firms because they "don't have a lot of fat in terms of employees" compared to large corporations like Google Inc. ( GOOG ) or Facebook Inc. ( FB ), Tuohey-Kay says.

Ray Schmitz, founder of LeadPlace, a real estate tech startup, agrees that small companies are at a disadvantage in competing for talent because of the foreign work visa cap.

"Big companies sponsor most of the H1B hires because smaller companies seldom sponsor. Whether small firm managers think the process is too expensive, or too slow -- which it is -- is beside the point. Too many small companies are not hiring the best talent they can, and this puts someone who needs a sponsor at a disadvantage -- no matter how talented they are," Schmitz, who has one foreign employee on a H1B visa on his payroll, says.

"If you can only work at a few very large companies, you are at a disadvantage, because they have the greater bargaining power. The big companies know this. Similarly, if you are an unemployed American and trying to get a job at a big company, they will take advantage of that, too."

Thus, Schmitz hopes that the H1B process can be made "faster, cheaper and maybe even especially friendly for small new companies. [That way,] it's harder for companies of any size be exploitative."

Twitter: @sterlingwong



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: FB , GOOG , INFY , MSFT , WIT

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