US govt ups minimum H-1B tech salaries to $208,000 a year, more than startups can hope to afford, say VCs

Rule change to encourage American orgs to hire American workers over foreign talent


The decision by the Trump administration to raise the minimum wage that H-1B visa holders must earn in America before they are eligible to work stateside is going to destroy startup culture, business leaders have warned.

Last week, in the latest of a series of immigration crackdowns, the H-1B visa program’s lottery process was abandoned in favor of a high-wage cut-off, meaning applicants will have to earn above market rates in many cases before being allowed into the country. To guarantee an H-1B visa, you'll need to be paid at least $208,000 for some professions, and considerably more than the current rate for less skilled workers.

“Modifying the H-1B cap selection process by replacing the random selection process with a wage-level-based selection process is a better way to allocate H-1Bs when demand exceeds supply,” said the Department of Homeland Security (DHS) in an announcement.

The Trump administration claims this approach will prevent companies from hiring cheap foreign labor, and encourage the recruitment of Americans, yet the decision has sparked anger and frustration, particularly from startups that can’t afford to pay high wages and rely instead on things like equity, bonuses, and various perks to get the best candidates. None of those alternative forms of economic reward are accepted under the new rules.

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An analysis [PDF] of the new rules by non-partisan National Foundation for American Policy noted that the H-1B wage minimums will require foreigners to be paid much more than American citizens on market rates. That's not a problem for the likes of Facebook and Apple, though it will be disastrous for organizations like Infosys, that import immigrant workers, as well as small and medium-sized businesses.

Computer research scientists would “need to be paid from 42 per cent to 49 per cent more under the new Dept of Labor wage system,” and employers would need to increase annual salaries by nearly 50 per cent for computer hardware engineers, over 40 per cent for computer programmers and chemical engineers at all wage levels, and more than 35 per cent for electrical engineers, computer network architects, computer systems analysts, mechanical engineers and database administrators at all wage levels, the foundation concluded.

Priced out

The reality is that some H-1B workers such as an IT analyst would need a starting salary of $208,000 to be eligible – a massive jump over the previous requirement.

An entry-level programmer would need to make $111,946 instead of the previous $78,125. “It’s already expensive, it was already a high bar, and we are making it prohibitive,” the co-founder of VC firm Scale, Kate Mitchell, told the Wall Street Journal

There is a long history of immigrants acting as both founders and early start-up team members in the United States; Silicon Valley in particular. A third of all new VC-backed startups are founded by immigrants and over half of current “unicorns,” those valued at over $1bn, have at least one immigrant founder.

For decades, the visa program has acted as a way for America to pull in overseas talent, with those immigrants drawn to the unique combination of capital and risk-taking that can make a pipedream a reality and turns out companies that become mega-corporations. VCs and startups are worried that the new changes will drive those people to other countries that have been trying for a long time to create their own version of Silicon Valley.

The other reality is that in many cases there aren’t enough Americans with the necessary skills for the jobs. There are solutions to that – greater investment in education programs, or companies that hire underskilled workers and train them up – but those solutions come with a significant cost and time delay.

Ideology

Imposing a blunt economic solution without first ensuring there is the necessary supply of domestic workers is going to have an obvious negative impact on American businesses. But the new rules are largely the result of ideological beliefs rather than business pragmatics.

“The H-1B program is often exploited and abused by US employers, and their US clients, primarily seeking to hire foreign workers and pay lower wages,” said the acting DHS deputy Secretary Ken Cuccinelli last week.

“The current use of random selection to allocate H-1B visas …. fails to leverage the H-1B program to truly compete for the world’s best and brightest, and hurts American workers by bringing in relatively lower-paid foreign labor at the expense of the American workforce.”

Highlighting the fact that the Trump administration isn’t interested in industry feedback, it has also pushed the changes without going through the normal process of asking for and considering public comment.

However, many companies that will be negatively impacted are simply watching and waiting. This week, national elections may eventually see a new president elected and a Biden administration take over in January. If so, it is a virtual certainty that the new rules will be thrown out. ®


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