Economic research

Economic Research Reveals Significant Flaws in DOL H-1B Visa Rule

Forgotten in the flurry of legal activity over the Trump administration’s new H-1B visa rules, economic research has revealed significant loopholes in the regulations. This can be seen in a new motion for a preliminary injunction filed against the Department of Labor’s H-1B wage rule. New research further undermines the administration’s claim that immigration restrictions on the ability of foreign-born scientists and engineers to work in America would help the US economy.

On October 19, 2020, Harvard and Wharton economists released findings on the negative impact of the Trump administration’s June 22, 2020 proclamation that suspended entry of foreign nationals on H-1B and D visas. other temporary visas. “We are studying the immediate economic impact of this HE [executive order] on America’s largest companies by estimating the cumulative average abnormal stock returns of Fortune 500 companies in response to the policy announcement,” concluded Dany Bahar (Brookings Institution and Harvard), Prithwiraj Choudhury (Harvard Business School) and Britta Glennon (Wharton School UPenn) in a new report. “We find that the June 22 shock eroded the market valuation of the 471 companies in our sample by approximately $100 billion.”

“The significant negative effect on the economy reflects the fact that investors – and markets more generally – understand that many of these companies will not be able to perform as well without the ability to hire top talent from abroad. “, wrote the authors in a summary of The results. The research produced similar results to a 2019 study by a Federal Reserve Board economist and Columbia University researchers, which found that the Trump administration’s trade policies significantly reduced the value of stocks. corporate actions. (On October 1, 2020, a federal judge issued a preliminary injunction against the June 22 proclamation.)

The $100 billion loss estimate is on point because the report contradicts the argument made in the Department of Labor’s new rule to force employers to pay inflated wages to H-1B visa holders and immigrants. based on jobs will help the US economy. The latest filing of the law firm Wasden Banias in ITServe Alliance v. Eugene Scalia, Labor Secretary refutes the Trump administration’s premise that foreign nationals are underpaid and pose an economic threat to American workers and the American economy.

First, economists who reviewed the studies and data cited by the Department of Labor to justify its H-1B wage rule concluded that the DOL had produced shoddy regulation that ignored basic economics and a significant amount of relevant research. “Professor Madeline Zavodny, an expert in labor and immigration economics, reviewed the studies the DOL cited in support of its hypothesis regarding wages paid to H-1B workers,” according to the motion for preliminary injunction. complainants. “As a published expert in the field of labor economics, Professor Zavodny has determined, based on his knowledge and review of the studies cited by the DOL, that none of them includes an analysis of the salaries of H-1B workers in direct comparison with other workers with the same level of education, experience or responsibility.

“DOL further claims that four other studies show that H-1B workers earn wages 25% to 33% lower than American workers, but after reviewing these studies, Professor Zavodny concludes that none of the studies support the DOL position“, write the complainants. “One of the studies does not provide any source of data for its analysis; another study does not provide a comparison with native-born workers; and a third study does not appear to have an analysis of wages for H-1B workers. The fourth study cited from a journal blog post is not locatable. Similarly, the Associated Press article that the DOL cites is based on unclear and problematic methodology. (Emphasis added.)

Zavodny found that the studies cited by the Labor Department don’t even say what the DOL claims, let alone prove the agency’s case. “Thus, after careful inspection by an expert in the field, the sources cited by the DOL for its hypothesis that H-1B workers are underpaid find no clear empirical support in the sources cited by the agency,” concludes the motion. Zavodny is a professor of economics at the University of North Florida (UNF) in Jacksonville with a Ph.D. in Economics from the Massachusetts Institute of Technology. She worked as an economist at the Federal Reserve Bank of Atlanta and the Federal Reserve Bank of Dallas. She is also a research fellow at the National Foundation for American Policy.

Second, economists have also found problems with the Department of Labor’s assertion that requiring large wage increases for highly skilled foreign nationals so that many will be shut out of the US labor market, would help the US tech sector or the American economy. Francesc Ortega, professor of economics at Queens College, also consulted with the plaintiffs and explained that the higher mandatory wages would slow growth in the types of companies that the Department of Labor said would increase hiring after the start of force of the rule.

“In a recent study, Mayda et al. (2020) show that restricting access to H-1B visas when the availability of skilled national workers is low (as is currently the case for workers in computer-related occupations) has a negative effect on firm-level outcomes, such as growth (in sales and employment). ) and profit margins. Therefore, the expansion of the computer and information technology industries could be hampered by the new wage calculation rules in place,” according to Ortega. The Ministry of Labor did not take this study into account in its regulations.

“The new rules will be an obstacle to hiring foreign workers specialized in the computer and information technology industry,” concludes Ortega. “This will likely have negative effects that ripple through the rest of the economy. Due to social distancing requirements, the survival of many businesses depends on their ability to adapt quickly to the new environment by creating an effective online presence. and by establishing safe and efficient online collaboration systems for their employees. . . The new rules may have long-term negative effects in terms of reduced rates of innovation and economic growth.

Third, while the DOL says the new rule is necessary to tackle the unemployment rate, the regulation ignores the available data and misrepresents the likely impact of the rule. “Current unemployment rates remain very low in the main ‘skilled occupations’ that will be affected by the interim final rule,” notes Professor Ortega. “The new rules will be ineffective in reducing unemployment in occupations most affected by the Covid-19 pandemic.”

To argue that the Department of Labor had no “good reason” to circumvent the rule-making process established in the Administrative Procedure Act, the plaintiffs cited research by the National Foundation for American Policy (NFAP ) which showed that the US unemployment rate in IT occupations was 3.5. % in September 2020, has not changed significantly from the unemployment rate of 3% in January 2020.

“The DOL’s claimed urgency to radically restructure the existing salary system is belied by the agency’s twenty-year delay in resolving the alleged problem,” the plaintiffs argue. This statement references NFAP research which observed that the highest unemployment rate for IT and math occupations in 2020 was 4.6% (as of August). “The 4.6% unemployment rate in these occupations has been exceeded in 51 individual months since 2020 and the Department of Labor has never cited this before as a reason to issue a regulation to change prevailing wage rates H -1B, including immediately as a provisional final rule. “, according to the NFAP report.

The Department of Labor ignored other important economic facts in its rule, such as the fact that employers cannot simply pass on increased labor costs to customers. Complainants note: “Other members [of the ITServe Alliance] are unable to pass on increased costs to their customers due to tariffs already agreed under signed contracts. The plaintiffs write: “Following the IFR [interim final rule], member companies will go bankrupt, be forced to lay off workers, or conclude their operations in the United States by moving their operations overseas. The company’s plaintiffs said they were “unable to find enough qualified domestic workers to meet their labor demands in IT-related occupations”.

The Department of Labor rule ignores the existence of the global economy and research shows that in response to immigration restrictions, companies are likely to shift jobs out of the United States. “[A]All policies driven by concerns about the loss of native jobs should consider that policies aimed at reducing immigration have the unintended consequence of encouraging companies to move jobs overseas,” according to data at the level of enterprise in research by Britta Glennon, assistant professor at the Wharton School of Business.

The Department of Labor has not addressed Glennon’s research. Madeline Zavodny points out that several important studies on the benefits of H-1B visa holders that contradict the DOL’s findings were also not addressed or even mentioned in the DOL rule.

As a matter of law, it is significant that the Department of Labor’s H-1B regulation misrepresents facts, ignores important economic research, and misrepresents the studies it presents. “It is black letter administrative law that unsubstantiated claims by an agency cannot survive judicial review,” the plaintiffs write. “An agency’s fundamental error of fact also renders its decision arbitrary and capricious. Nor is an agency allowed to ignore studies that undermine the factual basis of its rule. The DOL’s new current salary rule fails in every respect within the scope of these established standards.