Closing the Workforce Gap and Reducing Demand for Temporary Visas

I recently shared some thoughts regarding proposed legislation governing H-1B temporary work visas and how clients can mitigate risk arising from negative impacts on service providers.  The legislation also raises some broader economic issues. For example, in a recent ISG Research Brief my colleague Sid Pai examined the implications of visa reform on free trade agreements.

Another compelling long-term question is how future demand for labor resources will be met.  The H-1B program dates back to the 1990s, suggesting the existence of a longstanding domestic shortage of workers with specific skill sets. Yet, the provisions in the legislation mandate that this shortage will decline, as the percentage of visa holders that a company can employ must gradually shrink over time. Specifically, As Paul Roy, a Partner with the law firm Mayer Brown, summarizes  in a recent article on the proposed H-1B legislation, “as of 2015, the bill would cap the combined number of H-1B and L-1 employees at 75 percent of a company’s US workforce. In 2016, the cap would decrease to 65 percent, and from 2017 on, the maximum would be 50 percent.”

How would an increasingly larger share of labor demand be met by domestic resources?

One way would be for more qualified U.S. workers to enter the market.  The labor argument holds that there are plenty of qualified Americans and the H-1B program is just a way to suppress wages. If that’s the case, capping H-1B visas would likely result in significantly higher costs and/or lower margins for providers.

The business view, meanwhile, is that serious shortages of skilled workers exist. (Given that unemployment rates in the tech sector are about half of the national average, that view arguably has some merit.) Absent the H-1B vehicle, then, alternative means of closing the workforce gap would be needed. Job training focused on specific skill sets is an obvious choice, and the rural sourcing model already relies heavily on university partnerships and training programs.  If, as ISG has suggested, visa restrictions end up incenting the India heritage firms to invest more aggressively in a domestic presence, then it’s conceivable that the WITCH firms will ultimately emerge as a significant force in training the U.S. workforce—not a bad outcome for anyone.

And don’t forget NAFTA. NAFTA residents are not subject to H-1Bs for temporary work assignments, expanding the pool of labor resources beyond the United States alone. Cynics could therefore argue that immigration reform will benefit skilled Mexican and Canadian workers more than American ones.

Then again, if we’re really talking “long term,” we need to consider how – as my colleague Thomas Young describes – the traditional outsourcing model of labor arbitrage is rapidly giving way to a new paradigm where repetitive tasks are performed by software tools.  And according to Erik Brynjolfsson, a professor at the MIT Sloan School of Management, we’re entering a new era of human/machine collaboration characterized by fundamentally redefined work roles for humans working in concert with smart machines.

If these trends play out, discussions of visa quotas for low-cost resources may become increasingly moot. In fact, by trying to regulate the movement of an increasingly global workforce, governments may in fact (perhaps deliberately) be promoting the development of new technologies that replace more and more human tasks.

We’ll be discussing all of these issues in greater depth at the upcoming ISG Sourcing Industry Conference in Dallas. I’ll be facilitating a panel discussion on the H-1B issue and will be joined by Brad Peterson of Mayer Brown.

Erik Brynjolfsson, meanwhile, will be the conference’s keynote speaker and Tom Young will join a panel discussion on evolving contracting models.