My experience in the Silicon Valley; only a dream for today’s H1B recipients

I run a software engineering company providing services to Silicon Valley based startups and corporations. Does that mean I’m following the drama around new legislation for H1B visas with baited breath? Not really. Why? My engineers are hardly ever stationed on-site at my client’s offices. Also our charge out rates means that clients spend almost as much to hire one of my engineers, as they would to hire someone on a H1B visa in the US, at the lowest legal pay. So we are definitely not in the cost arbitrage business.

So why am I writing about H1B visas? For starters I was once a H1B visa holder. I went to Fresno State as a foreign student. After university I worked for some  .COMs,  and finally for Nortel Networks during the heady days of the dot com bubble. After the dot com bubble burst I moved back to Sri Lanka and started my company – Calcey. Quite a few other founders in Sri Lanka share the same roots. WSO2, Cake Labs and Emojot all have Sri Lankan founders with some Silicon Valley US experience. They brought the entrepreneurial, can-do American spirit back with them and used it to build multi-million-dollar innovative companies that employ people in both Sri Lanka and the US today. To me this represents the best outcome for a H1B visa holder, the US and the rest of the world. But, I seriously doubt how many current H1B holders will end up the same way. Today it has been hijacked by commoditized human resources businesses.

In recent years Tata Consultancy, Cognizant and other big outsourcing firms have won a vast majority of the visas on offer. They gamed the system by flooding it with applications, triggering the lottery and won thousands of visas. These were used to bring cheap, predominantly Indian labor into the US. Between 2012 and 2015 —TCS, Wipro and Infosys—submitted over 150,000 visa applications for positions that paid a median salary of $69,500. During the same period, the big 5 tech firms —Apple, Amazon, Facebook, Google and Microsoft—submitted just 31,000 applications, and proposed to pay their workers a median salary of $117,000.

The current legal minimum annual salary for an H1B worker of $ 60,000 isn’t even subsistence income in San Francisco or the Silicon Valley. H1B workers are also bound to their employers. Which means they can’t move jobs without losing their visas. (update – as Sanjiv pointed out below H1B visas are “transferable”. Technically, the new employer files for a new H1B visa. Such transfers are do not come under the cap and hence do not need to go through the lottery). This is modern day slavery, not the shiny “American Dream” that these unfortunate workers are surely sold. Big outsourcing firms have been caught actively using H1B workers to replace US workers and pay below prevailing wages – both clear legal violations. If fooling the system is as simple as “we hired them at the prevailing wage in Flint, Michigan and now they just happen to work in San Francisco” the law is an ass indeed.

I’m no fan of the “buy American and hire American” slogan in this globalized economy. But I agree with tightening of controls on H1B visas. Some of the proposals currently being touted such as doubling the minimum wage for H1B visa workers to $ 130,000, removing the per country caps, giving preference to students coming out of college in the US instead of the lottery system are all steps in the right direction. I’m particularly thrilled about earmarking 20% of H1B visas for small companies and think it’s a great idea. Regardless of the agendas of the politicians driving these proposals I would support them as badly needed fixes to a broken system.

These amendments are expected to put a stop to visa abuses by large outsourcing and off-shoring companies. The US government is treading a fine line here. If they make it too hard for these companies to get visas the work they currently do on-shore will simply end up being routed to off-shore centers. Keep things as they are and they will continue to crowd out the high skilled labor that US needs to stay competitive and undercut wages of Americans.

At the end of the day US companies need high skilled labor to remain competitive. Schemes such as H1B allows them to hire some of these workers within US shores. However, a sizable amount of top talent will always remain outside the US. They can only be tapped via direct or indirect outsourcing (i.e. setting up off-shore delivery/production centers). Shutting the door on either one of these avenues would place serious limitations on the talent pool available for US companies. For example a Silicon Valley startup hired us to build a software product. Last year their revenue from one export market- Germany, alone was several times our annual retainer contract. This bootstrapped startup did not have a war chest to hire engineers with Facebook or Google like offers, so they would not have been able to build it in Silicon Valley. But, they needed skilled, experienced engineers because that was the market they were competing in. US labor may have lost out in the short term when they came to us build their product, but in the long term this company will produce many more jobs and have a bigger impact on the American economy due to their ability to access the global talent pool.

Looking at the software industry, I feel that there is unwarranted paranoia about outsourcing and foreign workers pouring into the US. Even without sourcing companies bringing in low cost talent by the planeload – the demand for engineers in the Silicon Valley is at an all-time high. Unemployment among US undergraduates is at 2.5% and far lower among graduates with science and technology related disciplines.  The cost arbitrage based, race-to-the-bottom outsourcing industry is also dying a natural death. Average pay in Asia doubled between years 2000 – 2011. The increase was far higher in urban centers and high growth industries like software. Sure, a sizable cost arbitrage still exists, but cost isn’t the only factor that drives off-shoring anymore.

Today the world accepts that talent is global. This means that Sri Lanka may very well have some of the world’s best engineers, who may not want to move to Silicon Valley. Not because of visa regulations – now this is a mere speed bump rather than a show stopper for top talent – but because they simply prefer to live in their home country. This is good news for me because it means that I’ll be in business, as long as Silicon Valley wants access to the best talent. The right work flowing to the best people is undeniably part of the natural order in a connected world. Call it outsourcing, off-shoring or whatever else you will, the invisible hand of the market will always reach this pareto-efficient outcome. If it’s a genuine skills gap that is making employers look for alternatives meddling with H1B visa regulations can at best only deliver a half-baked solution.