With approximately 600,000 workers, the H-1B is the largest temporary work visa program in the United States—an important program that allows U.S. employers to hire college-educated migrant workers. However, the H-1B program is not operating as intended and needs to be fixed. Instead of being used to fill genuine labor shortages in skilled occupations without negatively impacting U.S. labor standards, the latest data show that the H-1B’s biggest users are companies that have an outsourcing business model that exploit the program by underpaying skilled migrant workers. President Biden can and should implement regulations that would prevent such exploitation.

How outsourcing firms offshore U.S. jobs and exploit the H-1B program

First, some background. Offshore outsourcing companies, like Cognizant, do not make a product. They are staffing firms that resell labor. They offer customers, like Disney, the opportunity to lower costs by transferring Disney’s in-house technology operations to the outsourcer. Since wages account for the vast majority of technology operation costs, the outsourcing firm business model is only viable if it cuts labor costs substantially. After all, the outsourcing firm must offer the customer a sizable discount, since the customer is taking on risk by ceding some managerial control, and at the same time the outsourcer needs to earn profits for its shareholders.

The outsourcer realizes these cost savings by shipping as many of the U.S. jobs and tasks to its overseas operations where wages are substantially lower and by hiring H-1B workers at wages much lower than the U.S. market rate. Once it wins the contract, the outsourcer places H-1B workers at the worksites of client firms where they serve three key roles: to facilitate the transfer of jobs and tasks offshore; to coordinate offshore teams; and to act as a lower cost alternative to hiring or keeping U.S. workers for the jobs that must stay, due to the nature of the job’s tasks, in the United States.

Outsourcing companies are the biggest beneficiaries of the H-1B visa

For at least 15 years, Senators Durbin (D-IL) and Grassley (R-IA) have worked in a bipartisan way to expose the failings of the H-1B visa and introduce legislation to fix the program. Their most recent version of the legislation, the H-1B and L-1 Visa Reform Act, was reintroduced earlier this month. This time, the legislation includes three other members who caucus with the Democrats: Senators Richard Blumenthal (D-CT), Sherrod Brown (D-OH), and Bernie Sanders (I-VT), as well as two other Republicans: Senators Bill Hagerty (R-TN) and Tommy Tuberville (R-AL).

In 2006, Senators Durbin and Grassley released the first public list of the employers receiving the largest number of H-1B visas. The list was a startling revelation, dominated by firms that pioneered the outsourcing and offshoring business model rather than tech firms that are household names. At the same time, The New York Times quoted India’s then-Commerce Minister, Kamal Nath, that the H-1B “has become the outsourcing visa” since it had become critical to the country’s emerging business model of offshore outsourcing.

The public was rightly shocked by the senators’ revelation. Using the H-1B program to facilitate the offshoring of U.S. jobs and replace U.S. workers is the exact opposite of the program’s purpose of helping employers fill labor shortages with workers possessing skills that are in short supply. If it were operating as intended, the program should bring in skilled workers to complement the U.S. labor force. While it’s true that in many cases H-1B workers are highly skilled and benefit the U.S. economy, the data were clear already in 2006 that a large share of visas were being used to undercut and replace U.S. workers in order to pad corporate profits.

Over the following years, we have used government data to show how outsourcing companies are the biggest beneficiaries of the H-1B visa, time and time and time again. The most recent data for 2021 show that outsourcing firms continue to dominate the H-1B visa program. Absent policy changes from the U.S. Department of Labor (DOL) or United States Citizenship and Immigration Services (USCIS), we expect the same outsourcing firms to exploit the program for the foreseeable future.

Table 1 at the end of this post shows the top 30 H-1B employers by number of approved petitions for initial employment (i.e., for new H-1B visas, not visa extensions) for 2021. More than 30,000 employers hire H-1Bs each year, but its use is highly concentrated among a small number of employers. The top 30 H-1B employers received over 37,000 new H-1Bs in 2021, accounting for nearly half (44%) of all new H-1Bs that are subject to the annual limit of 85,000 for cap-subject companies. (Certain employers like universities and nonprofit research organizations are exempt from the cap.) Of those top 30 H-1B employers, half were outsourcing firms. Those 15 outsourcing firms alone were issued 21,550 visas, 25% of the annual limit.

In the 15 years since Senators Durbin and Grassley published that first H-1B dataset and introduced H-1B reform legislation, there have been countless shocking revelations in the press about how the H-1B program has been subverted by companies to lay off hundreds of their well-paid employees. These companies do this by contracting with major outsourcing firms like Infosys (#2 on the top 30), Tata (#3), Cognizant (#5), and HCL (#8)—and replacing those employees with H-1B workers who were paid salaries that were tens of thousands of dollars less. Some of the documented cases were with clients like Disney, Southern California Edison, and even the University of California.

To add insult to injury, in order to qualify for their severance packages, the laid-off workers were forced to train their H-1B replacements to do their former jobs. In many cases, this involved the H-1B worker shadowing the U.S. worker to be trained in every aspect of the job. Multiple cases were investigated by federal agencies, litigated in the federal courts, and put in the spotlight in Congressional hearings, yet the practice is still lawful and persists today. The harm extends to H-1B workers, too. We recently published evidence that one of the firms, India-based HCL, had stolen nearly $100 million from its H-1B workers.

The Biden administration can fix the H-1B program and end outsourcing abuses

Members of Congress and presidents from both parties have been well-informed that the H-1B program has morphed into a corporate scam to offshore U.S. tech jobs and underpay hundreds of thousands of migrant workers, yet they have turned a blind eye to fixing it.

Former President Trump promised to fix abuses in visa programs in the first 100 days of his administration, and signaled his administration would take particular aim at outsourcing firms. But the fixes never materialized. As a result, the H-1B remained “the outsourcing visa” throughout the entire Trump administration and into the first year of the Biden administration. Such fixes are vigorously opposed by those who profit from the H-1B exploitation, including by tech and outsourcing firms, clients like Disney that hire outsourcing firms, and even universities. This coalition hires corporate-funded think tanks and analysts to make their case.

As a candidate, President Biden explicitly supported reforms to U.S. work visa programs. And just last week, the Congressional Progressive Caucus called on him to fix the H-1B by using his executive powers. If President Biden is committed to repairing the U.S.’s largest work visa program—and ensuring that the program is used to fill genuine labor shortages at fair wages instead of offshore jobs—there are a number of actions his administration can take without Congress:

• Fixing the outsourcing loophole through DOL issuing policy guidance requiring secondary employers of H-1B workers (the companies that hire firms like HCL to provide contract workers) to file labor condition applications. This would stop DOL from creating huge financial incentives to firms to fissure the technology labor market (i.e., replacing employees with contract workers who have lower wages and fewer protections). Such guidance, which was recently considered but never enacted, would prevent firms like Disney from replacing their U.S. employees with contracted H-1B workers. Client firms like Disney would acknowledge their existing employment relationship with the H-1B contract workers by filing a labor condition application and attesting they are not adversely impacting their U.S. employees through the H-1B program.

• Implementing DOL’s delayed H-1B prevailing wage methodology rule, so that H-1B workers are paid a fair wage and employers are prevented from undercutting U.S. wage standards. Outsourcing firms legally pay wages that are far below the local median wage, but they’re not the only ones; two years ago we published an analysis showing how a number of major U.S. tech firms, including Amazon (#1 of H-1B employers in 2021), Google (#6), and Microsoft (#9) also pay their H-1B workers less than the local median wage. The rule would require all H-1B employers to begin paying fair wages.

• Issue an updated version of USCIS’s H-1B visa allocation rule, which would distribute H-1Bs by wage level rather than random lottery. This rule ensures that the highest skilled H-1B workers are awarded visas and it also has bipartisan support. Under the current H-1B random lottery, outsourcing companies game the system to receive a large share of visas every year, and the results are clear: USCIS data show that in 2019 and 2020, 85% of visas were awarded to entry-level and junior workers who are paid 20-40% below market wage rates.

• Enforce the requirement in the H-1B labor condition application for employers to pay the “actual wage” rate paid by the employer to other employees with similar experience and qualifications. At present, DOL is not actively enforcing this rule. We recently presented detailed evidence showing how HCL (#8) appears to be systematically robbing its migrant workers to the tune of $95 million per year by violating the “actual wage” rule. The government should intervene in the HCL whistleblower lawsuit to uncover and prosecute such fraud.

• Prosecuting H-1B visa fraud under the False Claims Act by the Department of Justice’s (DOJ) Civil Division, in conjunction with USCIS and DOL. The government can piggyback on one of the many False Claims Act whistleblower lawsuits that have been filed. Such action would be consistent with a recent federal court decision applying the False Claims Act to H-1B visa fraud, as well as other visas used for skilled occupations, like the L-1 and B-1.

President Biden has described himself as pro-worker, voicing support for unions and immigrants, and has framed his multi-trillion dollar recovery plans as a critical path to “providing really good jobs for people.” Fixing the H-1B program through these measures would help achieve these goals—by preserving and creating good middle-class jobs, increasing productivity by attracting skilled migrant workers who complement the U.S. labor force, and ensuring they’re paid fairly according to U.S. standards.