American employers cannot find enough highly skilled workers to
fill essential positions. There are not enough American workers
with advanced skills in computer, engineering, and mathematical
occupations to perform the work that many high-tech companies need.
This shortage of skilled labor has forced many companies to
outsource operations abroad.
Raising the cap on H-1B visas for skilled workers would allow
American businesses to expand operations here in the United States,
creating more jobs and higher wages for American workers.
Increasing the H-1B cap would also raise significant tax revenue
from highly skilled and highly paid workers.
Heritage Foundation calculations show that raising the cap to
195,000 visas would increase revenues by a total of nearly $69
billion over eight years. Unlike tax increases, this would be an
economically beneficial source of revenue for PAYGO offsets. (The
pay-as-you-go rule mandates that any new congressional spending or
tax changes must not add to the federal deficit; any new costs must
be offset with money from existing funds.)
Congress should therefore act now to raise the cap on visas for
highly skilled workers.
H-1B Visas for Skilled Workers
Congress created temporary H-1B visas for non-immigrant workers
to prevent a shortage of skilled workers from hurting the economy.
This visa allows foreigners with advanced skills to work in the
United States for three years, and it can be renewed for another
three years. After that, these workers must leave the country.
Congress permits U.S. Citizenship and Immigration Services
(USCIS), an agency within the U.S. Department of Homeland Security,
to issue 65,000 H-1B visas a year to workers with at least a
bachelor's degree and an additional 20,000 to workers with at least
a master's degree. This represents far fewer people than
American high-tech employers need. USCIS received 163,000
applications for these limited visas within a week of accepting
applications for FY 2009 and reached the cap within hours of
accepting applications for FY 2008.
The job market remains tight in highly skilled occupations
despite the weakening economy. There are simply not enough
Americans with the advanced mathematical, computer, and engineering
skills that employers in these fields need. Table 1 shows the
occupations of employees sponsored for H-1B visas and the national
unemployment rate for those occupations.
Over half of all companies seeking H-1B workers need them for
computer and mathematical occupations, a job sector with
unemployment just above 2 percent--less than half the national
average. The next-largest occupations for which employers need
skilled H-1B workers are architecture and engineering, which have
an unemployment rate of 1.8 percent.
Economists estimate that the structural rate of unemployment in
the United States is between 4 percent and 6 percent. The
unemployment that exists at this rate is the natural unemployment
that occurs as workers move between jobs and industries. In
occupations with only 2 percent unemployment, there is virtually no
one who is unemployed involuntarily-- which means that raising the
H-1B cap will not cost Americans any jobs. Virtually every American
who wants a job in the high-tech sector has one.
Skill Shortage Causes Companies to
Without enough skilled workers at home, many American companies
must either expand outside the U.S. or not expand at all.
Microsoft, for example, recently opened an office in Vancouver,
British Columbia, so that it could employ 150 foreign engineers
that the United States would not admit. The shortage of skilled
workers here at home prevented those jobs from even being created
in the U.S.-- along with the additional jobs that accompany those
of the skilled workers.
A recent survey of high-tech companies found that 65 percent had
expanded their hiring outside the United States because of the
shortage of H-1B workers. Restricting H-1B visas reduces economic
Lifting the Cap Creates American
Welcoming more foreigners with advanced skills into the U.S.
would create more jobs for Americans. H-1B visa holders are often
key employees whose skills are necessary for companies to grow.
Consider a software firm that needs an additional software
engineer in order to expand its product line. If the company cannot
hire a software engineer, not only will it be unable to use that
person's highly specialized skills to expand its product line, but
the shortage of skilled workers will prevent the company from
hiring the computer programmers, sales associates, and technical
support staff that also would have been needed in that
This is not just a theoretical problem. Research shows that
technology companies hire five new workers for each H-1B visa for
which they apply. On average, the skills of each highly
skilled H-1B worker support the jobs four Americans. Keeping the
H-1B cap at 65,000 comes at the expense of hundreds of thousands of
Higher Wages and Greater Equality
Many American high-tech workers oppose raising the H-1B cap,
fearing that increasing the supply of skilled workers could reduce
their wages. When companies cannot hire as many highly skilled
workers as they need, competition drives wages up, so raising the
visa cap may indeed cause the wages of some Americans to fall or
Why, then, should Americans favor higher numbers of H-1B
employees? Because raising the visa cap would increase wages
for many more Americans than would see their wages fall.
Since each H-1B worker creates four new American jobs, the demand
for such somewhat less-skilled but necessary workers would raise
their wages. The number of workers in the economy whose skills
complement the advanced skills of H-1B workers is far greater than
the number of those who compete with them for jobs. Raising the
H-1B cap would increase the demand for the labor of, and thus raise
wages for, hundreds of thousands of Americans who are less readily
identifiable but no less real than the software engineers who
compete with H-1B workers.
Some policymakers are concerned about income inequality. The
major cause of growing inequality over the past generation has been
the market response to the shortage of skilled workers. Skill
levels have not increased as quickly as new technologies have
increased the demand for workers with advanced skills. Businesses
competing for the limited supply of these skilled workers have
driven their wages up sharply. Consequently, the wages of highly
skilled workers have risen much faster than wages overall,
resulting in greater inequality.
Policymakers should be aware that increasing the H-1B cap would
increase the supply of highly skilled workers as well as the demand
for less-skilled workers--thereby reducing the wage differential.
The greater supply of highly skilled workers would mean that fewer
business resources would go toward bidding up wages, slowing wage
growth at the top. The greater demand for workers with
complementary skills would raise wages for employees whose
skills are less advanced than those of H-1B workers.
More Tax Revenues
Raising the H-1B cap would also increase tax revenues
significantly. H-1B visa holders earn high wages--the average H-1B
worker earned $71,000 in 2007--and pay substantial taxes on those
Chart 1 shows estimates from The Heritage Foundation's tax model
of the total tax revenue the government would receive if Congress
increased the H-1B cap to 195,000 workers. This is a
conservative estimate of potential new revenue, considering that it
does not account for increased taxes from the higher wages of
workers whose skills complement those of the H-1B workers.
It should be noted that increasing the cap to 195,000 visas does
not guarantee 130,000 new workers. In some years, all of the visas
will be used; in others, the cap will never be reached.
For our estimates, we used a conservative assumption of an
additional 100,000 workers each year. Our in-house tax model
projects revenue from these new workers.
In the first year, the government would collect nearly $2
billion in added tax revenue. For the next several years, the
annual revenue raised would continue to increase as many current
workers remain and new additional workers take advantage of the
program. Annual tax revenues would rise by nearly $10 billion in
2013. Between 2008 and 2016, the government would collect $36
billion in income taxes and $33 billion in payroll taxes--a total
of $69 billion over eight years.
This additional revenue could be used to offset the costs of an
economic stimulus package, or any other new program, or to reduce
Revenue Without Harm
Congress must now comply with PAYGO rules, so finding sources of
revenue to cover any program expansion is critical. New taxes from
H-1B workers provide a better source of revenue for PAYGO purposes
or for reducing the deficit than is provided by tax hikes. Raising
taxes in a time of economic weakness would be counterproductive
because higher taxes harm the economy.
All taxes, by definition, cause economic inefficiencies,
but bringing in taxpayers from other countries avoids the economic
costs of raising tax rates. The $69 billion in additional revenue
essentially comes from the home countries of these workers, as they
now pay American taxes instead of paying taxes to their own
New workers are a boon to the economy, not a cost. Their skills
are desired by American companies, and these companies cannot grow
without workers to fill these positions. These workers increase the
productivity of the company, allowing it to expand, and they
pay taxes on the income they earn. Unlike revenues from tax hikes,
this additional tax revenue comes at no cost to American workers.
Rather than depress productivity and economic growth by keeping the
H-1B cap low, Congress should accept these willing workers and the
taxes they pay.
The current restrictions on employing highly skilled foreign
workers are hurting America's economy. Many occupations requiring
workers with advanced skills are at full employment. There are not
enough domestic workers with advanced skills available to fill the
positions that businesses need to have filled. Many companies have
been forced to expand operations overseas instead of in the United
States because of the shortage of highly skilled workers for key
Congress should raise the H-1B cap to let businesses expand
operations in America and to create jobs for Americans. Each highly
skilled H-1B employee at a high-tech company supports the jobs of
four Americans. The increased demand for workers with complementary
skills both raises wages and reduces inequality.
Raising the H-1B cap will also increase tax revenue
substantially. Congress should be extremely reluctant to raise
taxes, especially during a time of economic weakness. Increasing
the H-1B cap would provide revenue needed to comply with PAYGO
requirements that will not hinder economic growth. Conservative
estimates show that raising the annual cap to 195,000 visas would
increase tax revenues by $69 billion between 2008 and 2016.
Congress should therefore act now to lift the cap on H-1B
James Sherk is Bradley
Fellow in Labor Policy and Guinevere Nell is Research Programmer in
the Center for Data Analysis at The Heritage Foundation.
Appendix A Occupational Unemployment
The unemployment rates for Table 1 were obtained from the
Department of Labor, Bureau of Labor Statistics, Household Data
Annual Averages, Table 25, "Unemployment Rate by Occupation and
Sex," at ftp://ftp.bls.gov/pub/special.requests/lf/aat25.txt.
Unemployment rates by detailed occupation are available as annual
averages, and the figures refer to the average unemployment rate by
occupation in 2007.
Data on the occupations for which employers sponsored H-1B
applicants came from analysis of Labor Condition Applications (LCA)
that employers must file with the Department of Labor in order to
apply for an H-1B worker. Information on LCA forms includes the
expected length of employment, wages that the employer will pay,
and the employees' occupations. These data were obtained from the
Department of Labor, Office of Foreign Labor Certification, Foreign
Labor Certification Data Center Online Wage Library, 2007 H-1B
Efile Data, at http://www.flcdatacenter.com/CaseH1B.aspx.
LCA occupational data were aggregated up to the level provided
by the Bureau of Labor Statistics in order to facilitate comparison
with occupational unemployment rates. Workers in architecture and
engineering occupations are those with LCA occupation codes 001-017
and 019. Workers in computer and mathematical occupations have LCA
codes 020 and 030-039. Workers in life, physical, and social
science occupations have LCA codes 021-025 and 040-059. Health care
practitioners and technical occupations have LCA codes 070- 074 and
078. Business and financial operations occupations have LCA codes
160-169. Management occupations have LCA codes 180-189.
Appendix B Heritage Tax
The Heritage Foundation's tax microsimulation model was used to
estimate the revenue that additional workers under the expanded
H-1B visa program would generate. The microsimulation model was run
to estimate taxes paid by workers, adjusting the model to disallow
certain kinds of filing not available to H-1B visa recipients, such
as Schedule C business filing. Effective tax rates and revenue from
different income sources were then determined for the expected
number of workers in different income classes according to the
known current distribution of H-1B worker salaries.
The Heritage Foundation's microsimulation model of individual
income tax returns is calibrated to Congressional Budget Office
(CBO) baseline projections.
The microsimulation model consists of three primary components:
the core base-year data; a federal income tax and payroll tax
calculator; and an optimizing routine that ages (extrapolates) the
core base-year data. The first component consists of individual tax
return data and demographic data in the base year. The second
component reads a data file and replicates the process of
calculating individual income and payroll taxes in the base year
and future years. The third component ages the base-year data to
reflect projected changes not only in key demographic and economic
aggregates, but also in the distribution of income.
The estimated taxes paid by visa workers were calculated by
adjusting the model to disallow certain kinds of filing not
available to H-1B visa recipients, such as Schedule C business
filing. Revenue from regular income tax and from
payroll taxes was then determined for the expected number of
workers in different income classes according to the known
distribution of H1B worker salaries. Payroll tax revenue was
doubled to reflect the employer as well as the employee
For more information on our microsimulation model, please
contact the Center for Data Analysis at The Heritage
Appendix C Income Distribution of H-1B
Data on the distribution of income for H-1B workers come from
the same 2007 Labor Condition Applications filed with the
Department of Labor that were used to generate Table 1 and are
discussed in Appendix A. Employers wishing to hire H-1B workers
must file LCAs that report how much they intend to pay H-1B
employees. The wages of college and university employees (LCA
occupation code 090) were not included in this estimated
distribution because workers in these fields are not subject to the
Appendix Table A compares the distribution of wages from the
2007 LCA data used in the tax model calculations to data from the
most recent Department of Homeland Security report examining the
wages of H-1B workers. Allowing for the effects of inflation and
changing labor-market conditions, the two are broadly similar,
indicating that LCAs provide a reliable guide to the wages of
workers who ultimately receive H-1B visas.
Increasing the cap to 195,000 visas does not mean that 130,000
new workers would necessarily enter the country each year. The
number admitted will vary based on economic conditions and business
needs. In 2002 and 2003, when the cap was at 195,000, businesses
used only 80,000 visas because of the downturn in the high-tech
industry following the collapse of the dot-com bubble.
Congress lowered the cap to 65,000 visas after this occurred. If
Congress raises the cap to 195,000 visas again, employers are sure
to use all available visas in some years. In other years, the cap
will not be reached.
To account for this, we assume that if Congress raises the cap
to 195,000, an average of 165,000 H-1B workers will start working
in the U.S. each year. These estimates are based on the
conservative assumption that raising the cap by 130,000 visas
results in an average of 100,000 workers starting work each year.
Our model will understate projected tax revenues to the extent that
businesses use more visas than this estimate projects.
To determine how long H-1B workers remain in the United States
after being admitted, we used data on duration of employment
provided in LCA forms. We assume that workers do not stay in the
United States after their contract expires unless they are brought
on for the full three years permissible under law, in which case
they are likely to apply for extensions of their visas for an
additional three years. If they are brought on for three years, we
assume that they have the same probability of remaining with their
employer in each subsequent year that they had of remaining with
their employer from year two to year three. This is a conservative
estimate of the number of taxpaying H-1B workers, as many of these
contracts are probably extended, and many workers who leave their
jobs probably find new jobs instead of leaving the country. We
assume that all H-1B immigrants either leave the country after six
years or make the transition to legal permanent resident status,
displacing other immigrants who would have paid taxes. Thus, we
estimate income-tax payments only for the first six years that an
H-1B immigrant is in the country.
LCA data indicate that 92.5 percent of first-time H-1B employees
are hired for more than one year. Of those who remain in the U.S.
past one year, 92.1 percent remain with their employers for a full
second year. Of those working here for two years, 91.1 percent have
contracts lasting for three full years. After three years,
employees must reapply for H-1B visas; we do not have data
differentiating their behavior after they first enter the country
from their behavior after they renew their visas.
To determine how many H-1B workers remain in the country and pay
taxes in the year following their admittance, we multiplied 100,000
by the year-one retention rate of 92.5 percent. For the third year,
we multiplied these 92,500 remaining workers by the year-two
retention rate of 92.1 percent. For their fourth year in the
country and the two subsequent years, we multiplied the number of
workers remaining in the previous year by the retention rate of
Employees of universities are also exempt from
the annual cap; H-1B visa renewal does not count against the
Peter Whoriskey, "Skilled-Worker Visa Demand
Expected To Far Exceed Supply," The Washington Post, April
1, 2008, p. D3.
David Autor, Lawrence Katz, and Melissa Kearney, "Trends in U.S.
Wage Inequality: Revising the Revisionists," Review of
Economics and Statistics, forthcoming in 2008, at /static/reportimages/CDB14A5CC1851C9BCD88946CD8B3825A.pdf;
Claudia Goldin and Lawrence Katz, "Long-Run Changes in the Wage
Structure: Narrowing, Widening, Polarizing," Brookings Institution,
Brookings Papers on Economic Activity, September 2007, at
Claudia Goldin and Lawrence Katz, "The Race between Education and
Technology: The Evolution of U.S. Educational Wage Differentials,
1890 to 2005," National Bureau of Economic Research Working
Paper No. 12984, March 2007, at http://www.nber.org/papers/w12984.
Based on data from 2007 Labor Condition
Applications filed with the Department of Labor. For details, see
See Appendix B for details. This includes
income taxes and both the employee and employer share of the
Raising the cap to 195,000 workers does not
necessarily mean that 195,000 workers will enter the country every
year under the program. For details of the modeling, see Appendix
For more information on saturation of visa
quotas, see Appendix C.
Joel Slemrod, "Optimal Taxation and Optimal
Tax Systems," The Journal of Economic Perspectives, Vol. 4, No. 1
(Winter 1990), pp. 157-178, at /static/reportimages/99D8D78263DBAC3013207DF017F239BF.pdf.
For a review of the evidence regarding inefficiency of
public-sector spending, see Dennis Mueller, Public Choice
III (Cambridge: Cambridge University Press, 2003).
H-1B visa holders are not permitted to be
self-employed. An H-1B worker may own a business and receive
business income but may not work at the business himself. Given the
rarity of an H-1B worker's owning a business for which he does not
work while working full-time for another employer, we exclude
Schedule C filings in our model.