Companies and workers have been scrambling since the Trump administration’s announcement that H-1B visa applications will now carry a $100,000 fee for new visa holders.
Even if the current policy eventually gets watered down, “the signaling fallout from this is really dangerous, not just the substance,” says Exequiel Hernandez, a professor at the University of Pennsylvania’s Wharton School and author of The Truth About Immigration: Why Successful Societies Welcome Newcomers. “A company might not want to hire foreign talent or foreign talent might not want to come because there’s no assurance that there’s not going to be another crazy announcement like this.”
To understand the further impacts of the new policy, we spoke with Hernandez this week. Here is an excerpt from our conversation, edited for length and clarity:
How will the new changes to H-1B visas affect US businesses and workers?
Not to be too alarmist, but if this is implemented even close to what is intended, it will be a disaster in both the short and the long term for US firms, US innovation, for employment, for US workers.
Let’s start by debunking the core assumption and goal of the administration. They believe that this is a huge favor to American workers who are somehow being damaged or short-changed by firms hiring foreign workers. That assumption doesn’t hold water because there’s quite a bit of research showing that firms are hiring H-1B workers to begin with because there’s a huge shortage of US workers with the skills that they need.
For example, one paper published just a couple of years ago by Britta Glennon shows that when firms were unable to hire the H-1B workers they wanted because of government policy, they did not hire additional workers in the US. Instead, they offshored those workers and hired more overseas, either by hiring more people in their foreign subsidiaries or opening entirely new foreign subsidiaries to hire those people. Those jobs went primarily to three countries: to India, to China, and to Canada, which is very strong evidence that firms aren’t just replacing these foreign workers with native workers because those native workers don’t exist to begin with.
In a more recent paper, Britta Glennon and I show that, similarly, when firms miss out on hiring H-1B workers, instead of hiring more US workers, they actually buy another firm. If you can’t hire the talent you need, you go and buy another firm that has that talent. An acquisition is a really risky thing to do, and it’s a big expense. It shows how desperate firms are for this talent. They wouldn’t be buying another firm if they didn’t really really need these skills that these people bring.
Then there are other papers showing that when firms hire H-1B workers, for every worker they hire, they hire more than one additional worker. So these H-1B workers are multipliers. That is, the more you hire them, the more you create jobs for others. When you reverse that, not only are you not filling the job positions you need, you are creating job losses for other workers who depend on the hiring of the H-1B worker.
Imagine that a company needs to build an AI chatbot. A lot of the people who have the skills to do that are foreign born. The firm would often hire two or three people like that through the H-1B program. Well, to build that AI chatbot, you not only need a few engineers, you need a project manager, the people who will sell the products that come out of that AI chatbot, administrative assistants, and other workers with complementary skills who are more available in the US labor market.
So what happens when you aren’t able to hire those key engineers on an H-1B visa? You have to shut down the project. That means you also can’t hire the administrative assistants and project managers and other complementary workers that you can only hire if you have the workers with the core skills to build the AI bot. That’s why these workers are helpful to US workers. They create opportunities for them. When you can’t hire them, you shut down the project or you take it overseas and hire other people overseas, or you buy another firm that might already build an AI chatbot. You can see that the assumption that this is creating jobs or increasing wages for US workers falls apart—you’re doing precisely the opposite of that.
What other benefits do immigrant workers bring to employers?
This is not just about jobs or the labor market. Innovation is a huge aspect of this. In the United States, skilled immigrants are responsible for 36% of all patents. That is a whopping number. It’s even more impressive when you know that they’re only 16% of the inventive workforce, meaning people who patent. So they’re punching way above their weight when it comes to innovation. While not all of those immigrants who invent are on H-1B visas, the majority of them enter the US labor force on an H-1B visa. Imagine now that you’ve imposed a tax of $100,000 a head. You’ve essentially taxed one of America’s most productive and innovative inputs. You’re literally hurting the engine that produces innovation for the United States.
Non-profit entities like universities, research foundations, hospitals, and healthcare organizations are also able to hire H-1B workers, and they’re not subject to the same annual 85,000-worker cap that for-profit companies are subject to. Why does that matter? Because this $100,000 per person tax that the administration wants to impose applies to all H-1B workers, not just the 85,000 that are cap-subject, and these organizations, because they’re nonprofits, are the least able to afford a $100,000 tax per hire.
That is a catastrophe to the US’s innovation engine because a lot of basic research is done in universities and in hospitals. A good example of this is the Covid vaccine, which is based on mRNA technology that was developed at the University of Pennsylvania, where I work, by Katalin Karikó, who recently won the Nobel Prize. She was an immigrant. She was on a visa. Universities, nonprofit organizations, and hospitals employ a huge number of people like this. Those basic innovations and basic technologies done by these workers eventually make their way into products that you and I use, but they start at these organizations that hire H-1B workers.
What should organizational leaders be doing now in response?
They should be doing a lot more of what they were doing between Friday night and Saturday night, which is speak up and really make their voices heard about how damaging this would be, not just for their profits, but also for US workers. The administration’s stated goal is to help US workers. If companies can help the administration understand that this is actually hurting US workers, that they might have to shut down projects, or invest less, or take jobs overseas, then I think they will be more likely to listen. If all they’re saying is, ‘Well you’re going to hurt our profits,’ I don’t think that’s a message the administration will be sympathetic to, even though it will hurt firm profits and firm innovation.
If the administration is really hell-bent on implementing this, then unfortunately, firms will have to totally change their talent strategy. That means taking jobs overseas and outsourcing more. Their need for talent isn’t going to go away, so they’re just going to have to diversify away from the United States, which is disruptive for firms, but eventually there’s going to be US firms that adjust. It’s the US economy and US workers that will suffer the most. For more from our conversation with Hernandez, including research on the fee’s likely effect on the talent pipeline, how the change impacts trust, and what it says about the administration’s stance on immigration, read the full transcript.