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Dr. Norm Matloff Vs. Stuart Anderson: Whose Thumb Is On The Scale Of “Prevailing Wages”?
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March 28, 2013, 03:50 PM
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Dr. Norm Matloff writes to his email list:

(I consider this posting to be one of the most important ones I`ve written, so please bear with me.)

I`ve long supported the H-1B reform bills authored by Senator Chuck Grassley. They were coauthored in past Congresses by Sen. Dick Durbin, and the current version, S600, is cosponsored by Sen. Sherrod Brown. Thus I was very pleased a few days ago to find that the IEEE-USA, of which I`ve been critical, has now endorsed the Grassley bill.

Though I wish IEEE-USA would be more proactive with its membership on this issue, I must say the organization`s endorsement of the Grassley bill seems to have hit home. A longtime advocate of expansion of H-1B and similar programs, Stuart Anderson, has a piece slamming the bill in Forbes:

Requiring Foreigners to Be Paid More Than Americans, March 27, 2013

(To see the varied roles Anderson has played in H-1B over the years, plug "stuart anderson site:heather.cs.ucdavis.edu" into Google.) [VDARE.COM NOTE: Anderson is a  notorious open borders fanatic, see his review of Alien Nation—and he was actually appointed Executive Associate Commissioner for Policy and Planning   Immigration and Naturalization Service,  in the George W. Bush administration. ]

Here is the core issue Anderson is so worked up about: Currently, the prevailing wage, a term referring to the legally required wage paid to H-1Bs and green card sponsorees, is broken down into four experience levels, I through IV. This system was enacted in the 2004 legislation, which in my opinion was one of the most harmful bills in the history of H-1B, because it is the prime enabler of H-1B-related age discrimination in the industry.

A brief review: Employers accrue wage savings by hiring H-1Bs in two forms. What I call Type I wage savings involves hiring H-1Bs more cheaply than Americans of the same age, education, skills and so on, while Type II involves hiring young H-1Bs instead of older (age 35+) Americans. Both types bring large savings, but Type II savings are even large than those of Type I.

I`ll make my usual disclaimer: I do NOT advocate forcing employers to hire poorly-qualified workers. But I would again point out what Vivek Wadhwa accurately said—if two workers are well-qualified, employers will hire the younger/cheaper one, and in many cases, the latter is an H-1B.

Type II wage savings are closely tied to the four-level prevailing scale. For instance, if an employer wishes to hire a YOUNG foreign worker, at Level I or II, the wage is compared only to other YOUNG workers. That makes it legal; the employer can claim he is not underpaying the H-1B, when in fact he is using H-1B to save on labor costs, getting major savings by avoiding the older Americans.

The Grassley bill would solve the Type II problem quite cleanly, by removing the experience levels from the calculation of prevailing wage. The prevailing wage would be defined at the median salary OVERALL for the given occupation and region, WITHOUT breaking down by experience levels. This would indirectly address Type I savings as well, simply by raising the prevailing wage.

This is why I have supported Grassley from the beginning, in fact even pre-Grassley. I made the no-experience-levels proposal back in 2003, in my University of Michigan law journal article, [PDF] and in turn I had gotten the idea from WashTech, a Seattle-based IT worker organization. (Also in the law journal article, I made a proposal addressing the de facto indentured servitude issue, which was quite similar to the one proposed now by Sen. Moran.)

Anderson charges that the Grassley bill would amount to the government "putting its thumb on the scale." I disagree, for the reasons I gave above, but I`d also point out that currently, the Stuart Andersons of the world are the ones with their thumbs on the scale. (I`ll also issue a challenge to Anderson`s crowd later in this posting.) Here`s why:

A few weeks ago a journalist asked me and a couple of other researchers some technical questions about the experience levels. He had asked a major, household name tech company, which I`ll refer to here as ILoveLoopholes.com, about the fact that the vast majority of the firm`s H-1Bs were hired at Levels I or II. Didn`t that mean that the firm is paying the H-1Bs below-average wages?

ILoveLoopholes.com replied that experience levels are just that—descriptions of the degree of experience. The firm gave a hypothetical example of an engineer with a master`s degree from MIT with two years of work experience, who in spite of those superstar qualifications would still be in Level II. This is quite true—but of course it is exactly the problem!

On the open market, that hypothetical worker with an MIT master`s and two years experience, would command far, far more than the average salary in Level II. Even for bachelor`s graduates of MIT with no work experience (other than internships), the going rate is well above $100K in Silicon Valley, the region Anderson analyzes; for the hypothetical worker, it would be much more than that. Yet Anderson says the worker should be paid only $93K. The firm`s hypothetical example is a great illustration of Type I salary savings accruing from hiring an H-1B.

(Note that this hypothetical worker would, due to his steller qualifications, probably be able to get an initial salary higher than prevailing wage but lower than his true market value. Negotiation can only take one so far, especially if one places a high value on being able to work in the U.S.)

In other words, the one with his thumb on the scale is Stuart Anderson. The Grassley bill would get Anderson`s thumb away from the scale, by removing the experience levels.

Now, if Anderson really does think experience levels are important, I have supported an alternative: Keep the experience levels, but set the legally-required wage to the 75th percentile within the given experience level for the given occupation and region. This would address Type I savings.

As Paul Almeida of DPE has pointed out, the employers claim to hire H-1Bs because those workers have SOMETHING SPECIAL—maybe a rare, "hot" skill like Android programming, maybe a degree from a top school, etc. If so, on the open market, the employers would have to pay a major premium for this, as the MIT example illustrates. Currently, the law sets the prevailing wage level at only the AVERAGE wage. In other words, the employers are getting (what they claim to be) ABOVE-AVERAGE workers for only AVERAGE prices. Talk about having a thumb on the scale!

Accordingly, setting the prevailing wage at the 75th percentile within the given experience level would be eminently reasonable. Ostensibly, this would be a variation on the Grassley bill that Anderson ought to agree with. What do you say, Stuart?

Norm