Main image of article H-1B Restrictions Driving Companies' Outsourcing, Offshoring

As the Trump Administration tightens up its restrictions on the H-1B visa (as well as the H-4 EAD, which it wants to eliminate completely), it’s worth examining how companies are reacting to the restrictions. Fortunately, one professor at the Wharton School of Business has taken a stab at that kind of analysis (big hat tip to Forbes for surfacing the research paper).

That professor, Britta Glennon, wrote in the May 2019 paper that she used a dataset that combined “firm level data on H-1B visas and multinational firm activity” to examine some key questions about company usage of H-1Bs, including:

“First, do restrictions on H-1B visas result in increased high-skilled foreign affiliate employment? Second, how does any impact differ across firms, industries, and countries? Finally, do these restrictions also affect the location of innovative activity?”

Based on her analysis, Glennon concludes that H-1B restrictions lead to more outsourcing (she also supports the theory, voiced by other researchers, that H-1B immigrants have little impact on local employment rates). Companies that spend most heavily on research and development—such as technology firms—are most likely to engage in this sort of practice. From her paper:

“Firms were more likely to open new foreign affiliates abroad in response [to H-1B restrictions], and employment increased at existing foreign affiliates. The effect is strongest among R&D-intensive firms in industries where services could more easily be offshored. The effect was somewhat geographically concentrated: foreign affiliate employment increased both in countries like India and China with large quantities of high-skilled human capital and in countries like Canada with more relaxed high-skilled immigration policies and closer geographic proximity.”

Glennon’s conclusion seems supported by reports earlier this year that firms were looking to open Canadian offices rather than deal with unpredictability related to the U.S. government’s H-1B policies. “Talented international professionals choose destinations other than the United States to avoid the uncertain working environment that has resulted directly from the agency’s processing delays and inconsistent adjudications,” Marketa Lindt, president of the American Immigration Lawyers Association, told a U.S. House of Representatives hearing during July testimony about delays at U.S. Citizenship and Immigration Services (USCIS), which processes H-1Bs.

Meanwhile, the U.S. government has continued its tightening policies. For example, USCIS wants to institute a $10 registration fee for each H-1B visa application. The agency claims that the added money will allow it to better “adjudicate” applications. The agency recently began asking companies about the type of work that H-1B visa recipients will be doing, such as vendor agreements, subcontractors, and lists of projects. These requests for evidence (RFEs) may have driven a declining rate of visa approvals, and helped spark dozens of corporate lawsuits against the federal government. But is that activity also driving outsourcing (and offshoring)? Give the paper a read for yourself.