The H-1B Outsourcing Business Model: A Target for Policy Reforms

• In Event: Rethinking Guestworker Migration Policy: Empirical Analyses of the H-1B Visa Origins and Labor Market Impacts

Abstract

The H-1B Outsourcing Business Model is a set of business practices developed to gain a competitive advantage by leveraging specific features of the H-1B visa program. Outsourcing firms play an outsized role in the program and the policy debate, warranting deeper examination. They receive a large share of visas even as their visa practices draw considerable criticism. The firms, clustered in information technology services, have become the largest beneficiaries of H-1B visas, collectively receiving between 30 and 50 percent of new visas annually. Their business proposition is to offer U.S.-based clients a blend of workers, some on-site in the U.S. and others offshore in low-cost countries, with the H-1B visa serving as the linchpin of the model. Rather than hiring American workers, firms fill most U.S.-based positions with H-1B workers, and they rotate offshore workers into and out of the U.S. on visas. One leading firm filled as many as 80 percent of its 30,000 U.S.-based positions with visa workers, and it had 8,000 eligible visa holders offshore awaiting on-site rotation.

The H-1B visa program, created in 1990, authorizes employers to temporarily hire skilled foreign workers for up to six years. It is the country’s largest and most visible skilled work visa program. There are at least 600,000 workers in the U.S., with 130,000 new workers entering annually. The program’s purpose is two-fold. First, it is intended to fill labor shortages, or as the Department of Labor states, “to help employers who cannot otherwise obtain needed business skills and abilities from the U.S. workforce.” Second, it allows employers to sponsor their H-1B workers for lawful permanent residence. Yet outsourcing firms seek neither of these goals; they don’t use the program to fill shortages or obtain permanent residence for their visa workers.

Instead, they subvert the visa’s purpose by exploiting it for labor arbitrage. They seek visas because workers can be paid below-market wages and have less bargaining power. Over the past two decades, media reports have highlighted a clear gap between outsourcing firms' practices and the program’s goals, drawing political scrutiny and action. Policymakers have specifically targeted outsourcing firms by levying special fees on them and proposing to limit their access to visas.

Drawing from extensive public data and internal corporate documents released through a federal lawsuit, the paper provides a detailed picture of the business model's origins, expansion, and strategic responses to policy threats. Those strategies include stockpiling thousands of visa-ready workers overseas while they await billable projects and maximizing the number of awarded visas by exploiting administrative weaknesses. The sector’s visa use sheds light on the critical H-1B policy debates affecting all employers who use the program.

Author

• Ron Hira, Howard University
  Presenting Author