Ron Hira, Ph.D., P.E. Assistant Professor of Public Policy Research Associate

1. High Skill Immigration & InnovationCapturing The Best & Brightestor Offshoring America’s KnowledgeOctober 25, 2006Technology, Innovation & America’s PrimacyCouncil on Foreign Relations Ron Hira, Ph.D., P.E. Assistant Professor of Public Policy Research Associate Rochester Institute of Technology Economic Policy Institute rhira@mail.rit.edu 757-564-0215

2. Three Uses of High Skill Guest-worker Visas • Brain Capture • Skilled workers use non-immigrant guest-worker programs as a bridge to immigration • Temporary Labor Mobility – Driven by Offshoring • Knowledge transfer programs shift tasks to offshore locations • Lower cost foreign labor for service delivery on-site to US clients rhira@mail.rit.edu

3. H-1B Visa • “Specialty” Occupations • Requires Bachelors degree or equivalent experience • Visa stay up to 6 years • ~400,000 H-1B holders in US • Protections for US Workers • Annual quota for new petitions – • 65k + 20k (MS or PhD from US Univs) + exemptions • Wage parity – Largely ineffective rhira@mail.rit.edu

4. H-1B Visa • Misreporting by Press • Getting an H-1B “requires an employer to attest that it can't find a U.S. worker “ • A1 story by June Kronholz, Wall Street Journal, June 27, 2006 • Bills in Congress to Increase Quotas • Major lobbying by tech industry • Bill Gates, Scott McNealy, etc. • Support from President Bush • Feb 06 speech to 3M rhira@mail.rit.edu

5. L-1 Visa • Intra-company Transfer • L-1A - managers and executives 7 years • L-1B - “specialized” skills - 5 years • 65,000 L-1s issued in FY 05 • 9 of Top 10 Petitioning Companies Specialize in Computer & IT Offshore Outsourcing from India • Tata Consultancy, Cognizant Technology Solutions, Wipro Technologies, Hewlett Packard, I-Flex Solutions, IBM Global Services, Information Systems Technology, Syntel Incorporated, and Satyam Computer Services rhira@mail.rit.edu

6. L-1 Visa • Share of L-1B Petitions for Workers from India Up Significantly • 2002: India 10% • 2005: India 48% • Since 2004 L-1B > L-1A • No Protections for US Workers • Recent law limits use by “body shoppers” rhira@mail.rit.edu

7. Brain Capture Scenario:Bridge to Immigration • Foreign Student Comes to US for Graduate Studies • Foreign Student Wants to Stay in US • Company applies for H-1B work visa • Company applies for Green Card • 3-5 year wait time traditionally • Quota inadequate so much longer backlog rhira@mail.rit.edu

8. Knowledge Transfer Scenario • Company Wants to Transfer Specific Tasks from US to Overseas Operations • Brings foreign workers into US (generally on L-1visa) • US worker trains foreign worker • Foreign worker returns to country of origin and task migrates with him • US worker laid off or re-assigned rhira@mail.rit.edu

9. On-site Offshore Outsourcing Scenario • Company Brings in Lower-Cost High-Skill Worker to Deliver Services On-Site in US • H-1B or L-1 visa used • Advantages • Lower labor cost • Better management of offshore team • Training • Business model for most major IT offshore outsourcing firms • Cognizant, Infosys, Tata Consultancy, Wipro, etc. rhira@mail.rit.edu

10. Visas Vital for On-site OO Firms • Firms Report in SEC Filings • Changes in US visa laws are a significant risk • Vast majority of workers in US are on H-1B or L-1 visas • Infosys, Cognizant, Wipro, Satyam • Visa Application Fees Large Enough to Affect P&L Reporting to Investors • E.g., Patni, Infosys rhira@mail.rit.edu

11. On-site OO Business Model Tata has about 8,000 employees in North America, primarily in the U.S., and about 7,200 of them are here on some kind of visa. Among its U.S. workers, about 65% have H-1Bs, and the remainder hold L-1 visas, said spokesman Victor Chayet. He added that many of Tata's U.S.-based employees are graduates of universities in India and thatonly a handful ever seek permanent residency here. The company doesn't discourage workers from applying for green cards, but its service delivery model is based on the ability to move people from country to country as needed. "Keeping that fluid workforce is to our benefit," Chayet said. - Patrick Thibodeau, “H-1B backers want bigger increase in cap,” ComputerWorld, November 29, 2004

12. On-site OO Business Model “Our wage per employee is 20-25% lesser than US wage for a similar employee. Typically, for a TCS employee with five years experience, the annual cost to the company is $60,000-70,000, while a local American employee might cost $80,000-100,000. This (labour arbitrage) is a fact of doing work onsite. It's a fact that Indian IT companies have an advantage here and there's nothing wrong in that.” - Phiroz Vandrevala, Executive VP, Tata Consultancy Services, quoted in, Shelley Singh, “US Visas are not a TCS-specific issue,“ Business World, June 30, 2003.

13. H-1B Prevailing Wages Says Sanyogita Mukerjee (name changed on request), who works at a top-five Indian software company with a contract to develop complex software systems at International Monetary Fund in Washington, "I get an annual cost-to-company salary of $46,800 and a net salary of $36,300, despite being in the software industry for more than five years. An American with a similar experience gets around $80,000 a year." Mukerjee is not alone. Her company has H1-B and L1 employees in New York, Chicago, Atlanta, Boston and San Francisco working with some of the best brands in the world, and almost everyone has a similar grouse. She said her company told her she is being paid at prevailing wages. - Sachin Kalbag, “H-1B visa holders get paid less than Americans: Report,” DNA India, Sept. 8, 2006 rhira@mail.rit.edu

14. Brain Capture Squeeze:FY05 Approved H-1B Applications Source: R. Hira Analysis: US Dept of Labor LCA Database: www.flcdatacenter.com

15. Emerging Global IT Services Business Model Dollar figures in millions; Retrieved from Reuters.com on November 13, 2005 rhira@mail.rit.edu

16. Infosys: Still Dependent on On-Site Revenues Source: R. Hira Analysis: US Dept of Labor LCA Database: www.flcdatacenter.com rhira@mail.rit.edu

17. WTO GATS (Mode 4) & Guest-worker Visa Programs • Developing Countries Pushing Hard • View quotas and prevailing wages as non-tariff barriers to trade • ~70% of revenues for On-site OO firms derived from H-1B and L-1 use (Hira 2004) • Congress • Singapore & Chile FTA new H-1B visas • Australia FTA did not include H-1B • Instead new E-3 visa created – 10k cap • USTR • Encouraging US industry to lobby for liberalization rhira@mail.rit.edu

18. Innovation Implications • Knowledge Transfer a Body Contact Sport • Learning on most advanced equipment and most sophisticated customer market • Indian H-1Bs with US experience are sought after in Indian job market • Accelerate offshore transfer speed • Brain Capture Squeezed Out • Increasing share of H-1B cap being used by On-site OO • Better job opportunities back home rhira@mail.rit.edu

19. Innovation Implications • Impact on US Workers and Potential US Workers • Direct competition for jobs that must be done in US • Shift into non-H-1B occupations • US National Innovation System • Accumulation of knowledge goes to foreign workers • National capacity to innovate • Loss of spillovers – • e.g., next generation of entrepreneurs • Creating competitors rhira@mail.rit.edu