I talked with a guy in his 50s who does creative work for a company in the San Francisco Bay Area. His employer recently went public advocating against Donald Trump’s positions regarding immigration and travel from certain countries. He described his employer’s stance as “principled.” I said “Wouldn’t Econ 101 suggest that the executives are doing it to keep costs low and thereby help themselves to larger bonuses? Classical supply-demand economics predicts that the only principle an employer needs to support immigration is self-interest.” He responded that this might be right for other kinds of companies but his employer was bringing in immigrants because they wanted extra creativity that could only come from having grown up in an exotic foreign land. He argued that his employer’s ability to hire immigrants would not depress wages for himself or other American-born employees in the same area.
What has actually happened to inflation-adjusted salaries in his industry over the past 30 years? “People get paid about half as much as they used to.” How is he doing personally? “I am not making as much as 20 years ago.” His workplace has gone from basically “no immigrants” to somewhere around one quarter immigrants (but maybe closer to one third).
[On the same day I talked to a hotel manager here in Hawaii. His previous job was managing a hotel in Singapore. He said that it was a tough challenge. How could that be? Weren’t people there educated and efficient? “You never had to tell anyone twice to do anything,” he responded. “And the level of education, skill, and dedication to doing things right is amazing.” What was the problem then? “The government required that 50 percent of our workers be citizens and it was very tough to hire locals to clean rooms or work in the restaurant.” Why not pay more? “Then we would have had to raise our rates to uncompetitive levels.”]
You are exactly right. In most cases, employers bring in foreigners to keep wages down. This is true for agricultural workers. It’s also just as true for IT workers.
In some cases, where you need very high level of skill, it makes sense to hire the best in the world. Say, scientists or perhaps some very advanced positions at Google or Facebook.
This situation is extremely rare, however. This “very high skilled” argument is “fig leaf” to cover the reality of why companies really use foreigners to fill US IT jobs. Corporate IT in the Bay Area is often heavily non-native.
I live in Silicon Valley and like to attend seminars and Meetups on tech topics. Looking around the meeting rooms, I would say that 80-90% of the attendees are foreign born. The rest are old timers like me who are retired. I don’t know what has happened to US born engineers. Most likely the US students major in non-engineering fields.
On your other post re PhDs, I recently listened to a radio interview of a tech recruiter. He breathlessly said that there is a big demand for people with degrees like statistics for big data analysis jobs. He said a recent grad could get ~$250K/year.
That got me to thinking. I graduated with a Stanford PhD in electrical engineering in got a salary of about $22K. I bought a house soon thereafter for $72K. We still live in the same house and similar ones in my neighborhood are selling for ~$1.5 million. So the house price has gone up 20X and a starting salary would have to be ~$440K for someone to have the same house affordability as I did.
I conclude that even in white hot technical areas like data science, the immigrants imported by the bug tech companies are depressing wages. Now wonder the big name CEOs are posturing that they support the “human right” to come to the US to work for them for low wages.
Bob, do you think that the fact that homeowners in these areas voted to avoid essentially all new construction might have something to do with the ratio of home prices to salaries, as well?
Certainly the principles of the employers here do seem to align neatly with their interests – and whose do not?
The Bay Area house price phenomenon is fairly easy to understand – demand was much lower immediately after World War 2, when defence contractors started to expand in a series way as the Cold War developed, and when Stanford’s Business Park scheme started to succeed and companies like Intel turned the Valley into _silicon_ valley, and young engineers could buy a house for $70k. Now, business success without parallel combined with insanely tight building restrictions have created an incredible supply crunch. Doubling or quadrupling all the salaries in the area would of course not affect the _supply_ at all – so, Econ 101, the house prices would simply rise by a corresponding factor.
The empirical (non-anecdotal) evidence on immigration is that it doesn’t reduce wages, so let’s leave that to one side. The short version is that immigration simply substitutes airlines for wombs, and the babies arrive pre-educated and ready to work, and that in the same way states don’t get richer by banning non-native talent, neither do countries. If you _do_ want an anecdote, look at what happened when countries like Poland joined the European Union; Sweden, the UK and Ireland immediately allowed Polish people to come to live and work, while all other EU member states said “come to live, if you like, but not to work” (the right to work being delayed for some years). I don’t know what happened in Sweden, but in the UK and Ireland, lots of ambitious young Polish people with questionable language skills turned up and started renting, shopping and working. Salaries and unemployment were better in the UK and Ireland than most European countries before accesssion, and they are still better, essentially because the events of the last two centuries have lead us to take Adam Smith fairly seriously.
The likes of France, Spain, Italy? Still sending emigrants here. We say “Failte romhat!” and put them to work. The tragedy is that the very protections that countries like those have created for the already-employed essentially make it very difficult for new people (immigrant or native born) to enter the workforce. Add in really difficult rules around new construction (I’m looking at you, Italy) – and you can see why a lot of the best young people in these countries get on a plane.
I don’t have time to properly crunch the numbers, but it appears that nursing salaries have gone up faster than the median since 1980 and I would wager that the share of immigrant nurses has also gone up faster than the median since then.
Former high school physics teacher here.
Could it also be that the best and the brightest have abandoned careers in engineering, math and science simply because the rewards are so disproportionate? Small sample, I know, but in my last few years my best grads (Princeton in Math, MIT in EE, UofT Engineering Physics) wound up working in the financial industry after post graduate work.
If you get a lot of this happening, it makes lots of room for well-educated immigrants in the tech industry. And there are LOTS of them, as you suggest.
It’d be a fine balance. Cut off your H1B program and you really think all those grads from US schools would fill the void? More likely you’d get your design and development work further offshored. We’d love to have more of it up here in Canada. Not a lot cheaper, but at the margins, there’s always an effect. Ask Hollywood.
@Ed: “the empirical (non-anecdotal) evidence on immigration is that it doesn’t reduce wages”
Nope, wrong. The data here in this link shows a clear negative correlation between the rising wages increasing immigrant population. The greatest increases for the bottom 90% occurred from 1945-1970 when immigration was almost nil, since then wages have been flat.
Source for the data.
Let me get this right: it might be difficult to get Singaporeans to work for a pittance in the hotel industry but (1) it is possible and (2) they work hard and well. Obviously the folks running Singapore have figured out something that folks in the US are missing.
For fun compare the average San Franciscan’s view on national immigration vs local immigration. As per the policies of their elected officials they are all for foreign nationals coming to America. As per the policies of their local zoning boards the only people who should live in SF need to have owned or rented property there for decades. Find their frequent complaints about “tech industry people moving in and pricing locals out”.
That’s actually a good point: traditionally it’s been the pro-business right that’s favored higher immigration levels, whereas progressives like Paul Krugman argue for reducing low-skill immigration (because of its effect on wages). Krugman, writing in 2006:
Having a large proportion of immigrants in a field harms the social prestige of it, which is one of the reasons you see fewer native entrants into the affected fields. It’s a vicious cycle. Americans with options simply do not want to work alongside people with accents and little social capital in America.
This social prestige aspect is probably independently as important as wage impacts. We’ve got all these “jobs americans won’t do” now. Well even with the relatively low paying jobs a large part of it is you’d be the only American there speaking English.
Given that the rest of the world has reach parity with the US in many engineering fields, won’t banning or limiting H1Bs simply just push jobs overseas? As an American, I would prefer to work for less pay (say what H1Bs make) than to be unemployed.
Also, in graduate school at a top 5 engineering school, I was definitely close to the bottom of my class. Almost all the top students were international students, as determined by publications and research impact. By limiting H1Bs, you will also push all the talented students out of the country, which will be the death knell of American engineering.
> Given that the rest of the world has reach parity with the US in many engineering fields, won’t banning or limiting H1Bs simply just push jobs overseas? As an American, I would prefer to work for less pay (say what H1Bs make) than to be unemployed.
Why keep the H1B system and make the Intels, Googles, and Apples the main beneficiaries? Just adopt an Australian, points based system, and keep good metrics on the effect of expanded immigration versus wages versus offshoring and adjust as the political winds blow.
H1B’s are only the tip of the iceberg. Typical scenario nowadays – an Indian “outsourcing” firm calls on CFO. “How much does your in-house IT dept. cost each year?” CFO replies $X million. Indian outsourcer salesman, “We will do it for half as much. The difference will go right to your bottom line.” CFO, “Where do I sign?” Next thing you know, the entire IT staff are given pink slips. They can leave that day and get nothing or else, they can work for 90 days as “consultants” and will get another 90 days “severance pay” for doing nothing. Most choose the latter option. The next day, an Indian H1B who makes $60k/year show up to shadow the former $120K employee and learn his job.
BUT, here is the kicker – the H1B will not be doing the job permanently. He will take his knowledge back to Bangalore where the real replacement is waiting. THAT guy gets $6k/ year. The H1B only greases the skids but the REAL kicker is when the job moves to Bangalore.
Google and Apple are not the main beneficiaries. There is some stupid lottery system dominated by Indian software houses who game the system. Your chances of winning the lottery depend on how many applications you have submitted, so a handful of Indian shops flood the zone with thousands of applications each (only a small % of which are approved) and use up the annual quota on the 1st day. Then every other employer is SOL for the rest of the year.
It certainly feels like most folks here have no knowledge of the fact that talented foreigners may apply for a US permanent residency without any wait or a need to be affiliated with a US-based business. https://en.wikipedia.org/wiki/EB-1_visa Or, for the less ambitious: https://en.wikipedia.org/wiki/EB-2_visa
So, all talk of the talent shortage is just garbage. A decently talented foreign worker can be easily accommodated, and at least when I applied (**blush**) in 2001-02 there was no annual quota and the wait was at most 6 weeks long. This is not even in the same ballpark as a non-immigrant H1B visa with a dependency on the employer’s whims, an annual salary of ~$65K, a compensation of about 50% of an entry-level engineer at a competitive company such as Google.
H1B only helps to keep salaries down and it’s not an immigrant visa to boot, so whoever claims that H1B helps attracting talented talented immigrants is a liar. If you want to be convinced, ask the Congress to double the required salary to $130K (still less than Google’s total comp package for college graduates) and see who swims naked and who gets washed out by the tide.
Setting the H1B base to $130k might be ok for Silicon Valley but for other disciplines, it will price out even PhDs. For example, a starting salary for a PhD in semiconductor fabrication is closer to $100 or $110k. For MechE type jobs, the salaries are even lower.
The EB2 visa requires a PhD. We are talking about talent, remember?
If $130K is too much, apply to Google, work for a couple years, then quit. Surely beats being held up on H1B from Tata Consulting.