H-1Bs and the Recession—A Declining Demand for Skilled Immigrants

April 27, 2009 8:15 AM

One of the bigger questions in this recession, which has been marked by the steepest increase in unemployment of any downturn since World War II,1 has to do with the impact on immigration. Theoretically, we would expect an influx from south of the border as the recession hits Mexico and other Latin American countries, but also declines in immigration as US job creation falls and immigrants return home. Because these trends might cancel each other out, the outcome is likely to be an empirical matter.

As much of the lower-skilled labor migration to the United States is illegal immigration, timely and up-to-date empirical data on this part of the puzzle are inherently hard to come by. Yet the difficulty of documenting the trend is less true of high-skilled immigration, which is almost exclusively legal.2 A few, reasonably timely US government data points therefore do exist.

Recently the Department of Homeland Security announced one important such data point by revealing the number of petitions filed for the FY 2010 (i.e., for temporary workers starting work from October 1, 2009) quota of 65,000 H-1B visas and for the additional quota of 20,000 H-1B visas for foreign graduates with a US masters degree or higher. On the first day of receiving petitions, DHS received approximately 42,000 petitions for the general H-1B quota of 65,000 and about 20,000 for the H-1B visas earmarked for foreign graduates of US universities.3

For the first time in several years, this means that the general FY2010 quota of 65,000 was not oversubscribed on the first day, a very significant decline from previous years in the number of petitions toward the general quota. In 2008, DHS received nearly three times as many petitions, 132,000 toward the general quota and 31,000 toward US advanced degree holders,4 while in 2007 the numbers were 106,000 and 13,000, respectively.5 It is pretty clear that there has been a drastic decline in the general demand for foreign high-skilled labor in the United States since the current recession deteriorated in late 2008.

It is useful to distinguish between two types of H-1B petitions, those that bring a new, foreign, high-skilled worker into the US labor market from abroad and those that keep foreign high-skilled workers employed in the United States through a shift in visa class into H-1B status for foreign high-skilled workers already working in the United States. Foreign students, upon graduation from a US university, are more or less automatically granted at least a one-year period of optional practical training (OPT),6 during which they are free to take up employment in the United States.

Because an application for OPT status costs just $180 while an H-1B visa petition costs at least $5,000 to file, it is reasonably safe to assume that all of the 20,000 H-1B visas given to foreign advanced degree holders who are already employed in the United States were granted through their OPT status. In other words, the H-1B visa extends the period in which they can remain employed in the United States, rather than bringing in a new, foreign, high-skilled worker from outside the United States.

The relative stability of the number of petitions for the 20,000 H-1Bs for advanced degree holders correspondingly suggests that the demand among US employers for foreign high-skilled graduates of US universities is quite insulated from the broader downturn in the US labor market. This is similar to the trend among H-1B petitions seen in the previous recession in 2001, when more detailed available data showed that the total number of H-1B visas given to foreign high-skilled workers already inside the United States declined by only 20 percent from FY2001 to FY2002.7

Instead, the big decline, about 90,000 (from 132,000 to 42,000) or almost 70 percent, in H-1B petitions toward the general 65,000 quota suggests a very large reduction in the demand from US businesses for bringing new, foreign, high-skilled workers into the US work force. Again, this is consistent with the more detailed available data from the 2001 recession, when the total number of H-1B visas issued to foreign high-skilled workers outside the United States (i.e., allowing them to come to the United States and work) declined by about 70 percent from approximately 115,000 to 36,000 from FY2001 to FY2002.8

Demand for foreign high-skilled workers in the present recession therefore seems to exhibit the same characteristics as in earlier economic downturns. A relatively stable demand from US businesses for keeping foreign graduates of US universities employed in the United States, and a very large decline in the demand from US businesses for bringing in new, foreign, high-skilled workers.

In summary, the number of additional high-skilled workers the H-1B program brings into the United States remains highly sensitive to economic conditions. The H-1B program is a key component of the US "train and retain" strategy, aimed at allowing the United States to continue to benefit from the world's premier universities and their foreign students.

Notes

1. At 8.5 percent, US unemployment has already risen by more than 4 percentage points and will almost certainly rise quite a bit more in coming months. See Michael Mussa's economic outlook .

2. Since it is overwhelmingly legal in nature, high-skilled immigration is, unlike illegal immigration, wholly dependent on the regulations stipulated in US immigration law. This means that high-skilled immigration is affected by supply factors (i.e., an increase in the number of foreigners wanting to come to the United States) only to a very limited degree.

3. USCIS Press Release, April 9th 2009 USCIS Updates Count of FY2010 H-1B Petition Filings.

4. USCIS Press Release, April 10th 2008, USCIS Releases Preliminary Number Of FY 2009 H-1B Cap Filings.

5. USCIS Press Release, April 10th 2007, USCIS Updates Count of FY 2008 H-1B Cap Filings .

6. Foreign graduates with science, technology, engineering, and mathematics degrees have, since 2008, had an OPT period of 29 months, rather than the generally available 12 months, if they are employed at businesses enrolled in the E-verify program. This change in the OPT rules was par of an evident attempt in 2008 to tweak the rules at the margin, so that sought-after graduates might continue working in the United States despite the unwillingness of the US Congress to change US visa laws. See USCIS website.

7. See table 2.2 in Kirkegaard 2007, The Accelerating Decline in America's High-Skilled Workforce, chapter 2 (2007).

8. Ibid.