U.S. Companies Denied H-1B Visas Hire Talent Abroad

Updated research shows placing restrictions on H-1B visas backfires and causes U.S. companies to hire more talent in other countries. The study comes at a time when two U.S. senators have reintroduced legislation that, if enacted, would likely result in more jobs leaving the United States.

“This paper combines visa microdata and comprehensive data on U.S. multinational firm activity to demonstrate that firms respond to restrictions on H-1B immigration by increasing foreign affiliate employment at the intensive and extensive margins, particularly in China, India and Canada,” according to research by Britta Glennon, an assistant professor at the Wharton School of Business at the University of Pennsylvania. “The most impacted jobs were R&D [research and development] intensive ones, but there is some evidence that non-R&D employment was also affected. The paper highlights a means by which firms can circumvent constraining policies and mitigate country-level risk.”

Glennon found companies active in international markets are the most likely to offshore jobs in response to H-1B visa restrictions. “The most globalized multinational companies (MNCs) are the most likely to respond to these restrictions by offshoring, highlighting that firm capabilities—in the form of prior internationalization—shape the decision and ability to offshore in response to skilled immigration restrictions; indeed, these firms hire 0.9 employees abroad for every visa rejection. More broadly, the paper provides evidence of a push factor for internationalizing knowledge activity: artificial constraints on resources result in firms circumventing restrictive policies in ways that may not be anticipated by policymakers.”

The updated research takes a closer look at the most globalized multinational companies. “When U.S. firms are denied H-1Bs, they go abroad, setting up new foreign affiliates and hiring talent there instead of in the U.S.,” said Glennon in an interview. “For the most global multinational companies, this is at almost a 1:1 rate. The results demonstrate an important unintended consequence of immigration restrictions: the movement of jobs and talent abroad, with major implications for U.S. competitiveness.”

A recent national survey of more than 500 human resources professionals supports Glennon’s findings. The survey conducted by Envoy Global and Cint found restrictions on H-1B visas and immigration lead to more jobs, workers and resources being sent outside the United States. According to the survey, “86% of companies hired employees outside the U.S. for roles originally intended to be based inside the country because of visa-related uncertainties.” (Emphasis added.)

In March 2023, Senators Richard Durbin (D-IL) and Charles Grassley (R-IA) reintroduced legislation that its sponsors must understand would drive more jobs out of the United States by making the H-1B and L-1 visa category virtually unusable for employers. The legislation, a variation on the same bill introduced since 2007, would enact many measures that would expose employers to significant legal liability whenever they employed an H-1B visa holder or transferred an employee in L-1 status into the United States.

In violation of the General Agreement on Trade in Services (GATS), the bill would extend H-1B “nondisplacement” of U.S. worker mandates to all employers and to a time period described as “at any time” rather than 90 days before or after filing an H-1B petition. Given the legal ambiguity in the existing statute and under the Durbin-Grassley legislation on “nondisplacement” and other measures, including the recruitment mandate, many company legal departments would likely advise to forgo hiring high-skilled foreign nationals in the United States if at all possible. A reasonable observer would conclude that is the intended purpose of the legislation.

Nearly all the highly restrictive measures for H-1B visa holders in the bill would also apply to L-1 visa holders, discouraging investment inside the United States from foreign and American companies. The bill narrows the “specialized knowledge” definition for L-1 visa holders. It limits eligibility for H-1B status based on experience. Placing an H-1B or L-1 visa holder to conduct work with a customer would not be allowed without permission—a waiver—from the Department of Labor. DOL would be given essentially unlimited investigative authority over employers hiring high-skilled foreign nationals. The bill attempts to inflate the salaries of H-1B and L-1 visa holders well above normal market wages that take into account a worker’s experience level. It also significantly narrows the number of H-1B visa holders who would qualify for the exemption from the H-1B numerical limit for universities and nonprofit research institutes.

Those who favor employment-based green cards over H-1B temporary visas should recall that many people waiting in immigrant backlogs blamed Sen. Durbin for blocking (or at least not supporting at a key juncture) legislation to eliminate the per-country limit. It is likely exemptions from the annual limit on green cards for foreign nationals with a master’s degree or Ph.D. in science and engineering fields would now be law if Sen. Grassley had not stopped the measures from being included in the CHIPS and Science Act in 2022.

“This study finds causal evidence that U.S. multinational companies respond to restrictive skilled immigration policies by expanding foreign affiliate employment at existing foreign affiliates and by adding new foreign affiliates,” writes Glennon.

Policymakers should better appreciate the implications of the research. “The finding that skilled foreign-born workers are hired at foreign affiliates rather than in the United States also may have important implications for the innovative capacity of the United States. If skilled foreign-born workers are at a U.S. firm’s foreign affiliate instead of in the United States, the innovative spillovers that they generate will go to another country instead. . . . In short, restrictive H-1B policies could not only be exporting more jobs and businesses to countries such as Canada, but they also could be causing the United States’s innovative capacity to fall behind.”

Glennon’s research paints a picture of unintended—but, to many analysts, predictable—negative consequences caused by elected officials and executive branch officials pushing or imposing immigration restrictions against highly skilled foreign-born scientists and engineers.

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