H1-B Visa Quotas Greatly Restrain Small Business Expansion

U.S. Citizenship and Immigration Services (CIS) announced this week that it had filled its annual H-1B visa quota for foreign high-skilled workers. The announcement comes about five months earlier than last year, signaling that U.S. businesses are expanding again. But many companies must now wait until next year to attempt to hire needed talent. This constraint is slowing their renewed growth, while unfairly disadvantaging small businesses that lack the resources necessary to navigate America’s complex immigration code.

As America’s technology and service-based economy has expanded over the last decade, its demand for high-skilled labor has increased greatly. Global competition requires access to the world’s best talent. Yet during this same period, Congress has allowed the H-1B quota for high-skilled workers to drop in half—from 195,000 in 2001 to 85,000 today. In 2006, the quota was tapped in less than two months. In 2008, it vanished in less than a day—nearly 125,000 applications were received in just two days.

Market-driven demand grew while government-controlled supply shrank. “In most years,” the Government Accountability Office found last year, “demand for new H-1B workers exceeded the cap.” This mismatch is further exacerbated by fees and regulations that prevent businesses, particularly small firms, from even applying. One company estimated the cost of the H-1B and green card process at $16,000. More than sixty percent of small businesses surveyed by the GAO “incurred significant business costs resulting from petitions denied due to the cap, delays in processing H-1B petitions, and other costs.”

H-1B regulations advantage large companies because they can absorb application costs and afford more qualified consultants. Complicated forms and regulations—and the imperative of speed and accuracy—force most businesses to hire experts for $3,000 for a single applicant. Multinational companies surveyed by the GAO “were generally able to hire their preferred candidates because the firms were skilled at navigating the immigration system.” This legal inequity places start-ups and small firms at a disadvantage.

“Some companies would not want to be bothered with foreign students because it would require a lawyer to do all the paperwork,” Elias Shiu, a professor at the University of Iowa’s department of statistics and actuarial science, told The Des Moines Register earlier this year. International students constitute more than sixty percent of Shiu’s department, like many science, engineering, and technology departments at other universities. Yet finding jobs for these highly-qualified workers in the U.S. is almost impossible due to H-1B regulations.

Not only can big players navigate the system better than small firms, they often manage to avoid it completely. Large firms like Principal can afford to have actuary offices in China and Brazil. Similarly, Microsoft recently opened offices in Vancouver to make use of Canada’s more expeditious immigration system for foreign software designers. Not only is stimulating off-shoring bad policy, it is unfair to small U.S. competitors who cannot afford offices overseas to avoid visa constraints.

Multinational firms do not always need to leave the U.S. to hire the workers they want—they can also use an L-1 visa to bring workers from their foreign offices to a U.S. site for up to seven years, or they can use a B-1 visa to conduct short-term activities like holding business conferences. While these options are unavailable to most small firms and start-ups, the best response to such inequality isn’t to restrain multinationals, but to open competition for all American businesses by eliminating H-1B restrictions.

Highly-skilled foreign workers do not “take jobs”—they make jobs. H-1B applications fell dramatically during the recession because companies use H-1B visas not to replace Americans during downtimes, but to recruit workers during expansion. A 2009 National Foundation for American Policy study found that every H-1B request is correlated with five new jobs at major firms and more than seven jobs at firms with less than 5,000 employees. H-1B restrictions slow this expansion and hurt economic growth.

Immigration quotas and restrictions are fundamentally unfair and stand in the way of America’s future prosperity. Increasing the H-1B quota would constitute progress. But better yet, abolishing the quota system and H-1B constraints entirely would not only allow more highly-skilled workers to come, but also make America’s immigration system fair for small competitors. Fairer competition would increase innovation, entrepreneurship, and job creation, benefiting all Americans.