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Study suggests US companies use overseas workers to cut wages

Skills shortage? What skills shortage?

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An extensive study of the US labor market has shown that the skills shortage which technology firms are constantly complaining about is overstated and firms may instead be using overseas workers to drive down wage costs.

In a paper for the Economic Policy Institute by Hal Salzman of Rutgers University, Daniel Kuehn of American University and B. Lindsay Lowell of Georgetown University, the team studied the market for science, technology, engineering and math (STEM) careers.

If there was a shortage of IT jobs then you'd expect wages to rise, but in fact the team found wages in the field (on average) peaked in 2001 and have remained flat ever since, and in some cases have fallen over the last 14 years. The reason, according to the research, is that overseas workers are being recruited to keep wages low.

The researchers found that the US produces a surfeit of STEM graduates, but only half of them are hired. The rest of the jobs in the IT industry, primarily entry-level positions for the under 30s, are filled using foreign workers and may account for up to 50 per cent of new hires.

"Even our high-end estimate, of 50 percent, is a conservative estimate of the proportion of guestworkers hired," Professor Salzman told The Register. Salzman has spent the last 13 years researching this area of the market and has amassed a large body of evidence to support his claims.

Around half of students who graduate with a degree in STEM topics don’t go into the field not because they can't find a STEM job in the field, but because the wages, career progression and long-term prospects aren't as good as other careers.

It's not as though an IT degree is essential for a career in the field anyway. Only a third of the IT workforce has a degree in the area (with many companies preferring to hire people who do computing for a living rather than study it in the classroom) and 36 per cent of workers don’t hold a college degree at all.

Microsoft has long led the charge to get more visas for foreign STEM workers to come to the US, and earlier this month some of the largest technology firms formed Fwd.us, a political lobbying group pushing for more visas for overseas STEM workers. They argue that the US isn’t producing enough skilled workers and this will harm growth.

But the study, which involved not only looking at official labor market data but also extensive interviews within the technology industry, found that where companies had cases of exceptionally talented individuals then the visa process, while unwieldy and in need of reform, did allow those that wanted to stay to do so.

"The rate of researchers and students who stay on in the US hasn’t changed that much in years – about two thirds of those that want to stay do so," Salzman explained. "Of the rest they are pulled back to their home countries by good jobs, rather than being pushed out. The data pokes a hole in that argument large enough to drive a Mack truck through."

One of the biggest users of the visa system used to be companies involved in offshoring. Professor Salzman cited industry data showing that to run an offshore computing operation you need 30 per cent of staff in the home country and 70 per cent offshore, and these can be recruited and trained using the visa system.

But mainstream companies embraced the visa system for staffing from 2002 onwards and in 2011 the study finds that by 2011 the H1-B, L and OPT visa programs brought 372,000 foreign workers, typically at lower wages than their US counterparts, according to other research by Professor Norman Matloff.

In the industry we've already seen cases of recruitment consultants hiring staff solely via the visa program – not even considering domestic staffing – and emails sent to Silicon Valley historian Bob Cringely shows IBM, in apparent defiance of US law, gives preference to applicants for jobs from overseas.

More research into the area is ongoing but the initial data from the study suggests that the situation may not be as clear as some in the technology industry would like to portray it. Salzman said he was happy to work with companies to go over their figures to see if the study is making mistakes, but has found little willingness among employers. ®

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