How Would Curbs on Immigration Affect U.S. Tech Firms?

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In the tech realm, the scenario would have been unimaginable just a few months ago. Suddenly, and for the first time, some tech startups are hedging their bets on whether the U.S. is a hospitable place to be based, and major tech firms are adding their voices to lawsuits against the county’s president. The Trump administration’s proposed immigration restrictions are being challenged in court, but no matter the outcome, the tech sector has been seriously shaken by the executive action, experts say.

“A lot of damage has been done already,” says Vivek Wadhwa, tech entrepreneur, academic and co-author with Alex Salkever of Wharton Digital Press’ The Immigrant Exodus: Why America is Losing the Global Race to Capture Entrepreneurial Talent. “I am getting emails about this many times a day, and the general mood is that people who don’t have to be here are now doubting whether they need to be here. The skilled can do well anywhere they can go. And now we are scaring everyone away. This is going to be devastating to American innovation in the long term. The worst part is that the damage has been done — it doesn’t matter if the order is reversed.”

At the moment, the changes being pursued by the Trump administration are a 90-day suspension of entry into the U.S. of people from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen, a suspension of admissions of any refugees for 120 days and of Syrian refugees indefinitely. The status of the order was in flux after a federal judge in Seattle last week temporarily blocked enforcement. The Trump administration says it will continue to fight for the ban, and oral arguments in favor of the ban are set to be heard today in a U.S. Court of Appeals.

But the administration has also reportedly set its sights on changes to H-1B visas, as well as to other temporary work permits for professionals in specialized areas. Reducing or eliminating them would have a great effect on the tech sector and the way it has traditionally structured its business.

“This is going to be devastating to American innovation in the long term. The worst part is that the damage has been done — it doesn’t matter if the order is reversed.” –Vivek Wadhwa

“It certainly is a big deal for these companies and the way they operate, and I think it reflects this big divide in this country that overlaid the election – that is, one person’s job-taking immigrant or H-1B is another’s valued employee,” says Peter Cappelli, Wharton management professor and director of the school’s Center for Human Resources. “So it is a pretty stark — and maybe the starkest — divide that was an underlying issue in this election that a lot of people in the tech industry maybe weren’t paying attention to, or [they were] thinking the whole issue was low-skilled illegal immigration and that it wasn’t going to affect them. And it does affect them, and to some extent many employers in the business community.”

Not a Zero-sum Game

Would reducing or eliminating H-1B visas change the dynamics of the job market and spur tech companies to give these jobs to Americans instead? Hardly, says Wadhwa. “We are talking about entire companies moving, startups moving or not being here in the first place,” he says. “The jobs will move to India or China, and America won’t be doing as well as it could be doing. The majority of our tech companies make more money abroad than they do in America. Everyone is now talking about where the opportunities are better for them.”

The tech sector has made good use of the H-1B visa, though the numbers have remained fairly steady since 2000. H-1B petitions increased 6% from 299,467 in FY 2013 to 318,824 in FY 2014, according to a U.S. Citizenship and Immigration Services report to Congress, and 65% of H-1B petitions approved in FY 2014 were for workers in computer-related occupations. These jobs were relatively well paying, with a median salary of $75,000 in FY2014 — well above what many of these workers could have earned in their home countries.

However, ultimately the argument is not about what America can do for immigrants, but what immigrants can do for America. Workers arriving with an H-1B visa do so with an assurance that they work for a particular firm, and they cannot leave that job without re-applying for immigration, giving companies a kind of de facto employee loyalty that might be hard to match. The dynamic is, of course, highly attractive to firms. “No matter what else, that makes a huge difference to employers,” says Cappelli. “You are able to hire people at wages much greater than in their home country, so they are delighted to be here.”

But more significantly, immigrants often become captains of innovation. About 24% of U.S. engineering and technology startup companies and 44% of those based in Silicon Valley were founded by immigrants, according to “America’s New Immigrant Entrepreneurs: Then and Now,” a paper co-authored by Wadhwa. Immigrants contributed to more than 60% of the patent filings at innovative companies such as Qualcomm, Merck, General Electric and Cisco Systems.

“The protectionist argument has usually been that only a fraction of H-1Bs founded companies, and that we can tell which ones will and which won’t,” says Ravi Aron, associate professor of information systems at Johns Hopkins University. “They are partly correct in that only a fraction of H-1Bs start companies. However, they are wrong in their assumption that it is possible to tell which immigrants will and will not start companies. It is not possible to say ahead of time, ‘Welcome, Andy, we know you will start a company, please stay,’ and ‘Out, Vinod, you will only take an American job.’ The fact is that Andy Bechtolsheim and Vinod Khosla joined hands with American Scott McNealy to create Sun Microsystems.”

Already, the number of “unicorns” — billion-dollar startups — located outside of the U.S. has been increasing dramatically, wrote Wadhwa in a recent piece for The Washington Post. “Fifteen years ago, almost all were in the United States, while today 86 of the 191 unicorns are in countries such as China and India. We can expect this trend to accelerate because the Trump administration has just added fuel to the fire of innovation abroad and handicapped our own technology industry.”

“Apple would not exist without immigration, let alone thrive and innovate the way we do.” –Tim Cook

If the concern is about the presence of H-1B visas depressing wages — wage arbitrage — there are solutions, and the current prevailing wage system could be adjusted. An auction system could make provisions for special categories such as startups, small businesses and non-profits, and then create auctions within categories, says Aron. It would set a minimum wage for each category aimed at preventing wage arbitrage. “Setting a threshold as high as $130,000 could be too high.” he says. “Someone with a master’s in computer science from Stanford or a master’s in mathematics from Penn does not start at a company at $130,000. It takes them four to five years at the least to get to that salary level. And very often salary is tied to company performance and a significant chunk of compensation comes from product, market and company goals and the extent to which these targets are achieved. In addition to this, it is important to make it an easy transition for F-1 student visas in STEM to move into H-1Bs. Optional Practical Training is one way. It is key to remember we may want to stop only one of the reasons for H-1B visas — wage arbitrage. We do not want to make H-1Bs difficult to get.”

Some tech CEOs and their employees are becoming increasingly vocal on the issue. “Trump’s actions are hurting Netflix employees around the world, and are so un-American it pains us all,” said Netflix co-founder Reed Hastings. Uber CEO Travis Kalanick dropped out of Trump’s business advisory council after the company became enmeshed in the immigration-policy controversy and lost users following a “#DeleteUber” campaign that spread across social media. “Joining the group was not meant to be an endorsement of the president or his agenda but unfortunately it has been misinterpreted to be exactly that,” he said. Apple chief executive Tim Cook told employees in a memo: “In my conversations with officials here in Washington this week, I’ve made it clear that Apple believes deeply in the importance of immigration — both to our company and to our nation’s future. Apple would not exist without immigration, let alone thrive and innovate the way we do.”

Tech and the Art of the Deal

Can the tech sector change the course of events? Can it help steer the Trump administration in a different direction on immigration? Cappelli says that tech industry players are in a tough spot. “There is a belief, which probably is right, that they will get into trouble with this administration if they come out against things. I think they believe that this administration more than any other might find ways to punish them.”

But there is safety in numbers. Nearly 100 tech and other companies have filed a friend-of-the-court brief in the suit against Trump’s executive order on immigration.

Where they might be able to exert some influence is with the legislative branch, according to Cappelli. “I think it can work on Congress very well. There is only so much the president can do with executive orders, and my sense is that he probably has a million of these up his sleeve, and after that the big things are going to be legislation, and Congress is very sensitive to political pressure, and particularly from Republicans in the business community. They have been, historically, and especially during the Obama administration, very reluctant not to follow the lead on what they believe the business interests are, and that can be extraordinarily effective on the Congress, and I think they will figure that out very quickly.”

If the Trump administration is going to come after the tech sector with a stick, technology firms might consider offering up a carrot. John Chipman, director-general and chief executive of the International Institute for Strategic Studies in London, says tech has something important to offer in the fight against terrorism. “I already see a number of tech companies accepting that they are not just tech companies, but also providers of content, and they have to be emotionally intelligent about how they also have certain content on their platform. Google and Facebook are being much more responsive about taking down hate speech or incitements to violence, and in the U.K. the relationship between the intelligence agencies and tech providers is much more cooperative on the matter. I am sensing the U.S. is going that way, too – that the tech industry is becoming more alert to these security issues and taking a little less of a fundamentalist position.”

That might assist it in making the economic argument for a more generous immigration policy that will make America more economically great again, Chipman says. “These are things the tech industry might want to keep in mind in campaigning to keep more people in the country. [Tech companies can say,] ‘We are in favor of a free immigration policy. [If] you give us real satisfaction that there will be judicial due process, we are willing to work with you to ensure that terrorism is not given a free reign on the information highway any more than on the physical highway.”

If the Trump administration is going to come after the tech sector with a stick, technology firms might consider offering up a carrot.

What the tech sector should not do is walk away from Trump, says Wadhwa. “The right thing isn’t to leave the advisory council,” he says. “The right thing is to stay closer to Trump and advise him. He is getting very bad advice. Donald Trump … is a businessman, and has said many times that we need to keep the world’s best and brightest, stapling green cards to people’s diplomas. Right now he is pandering to the people who elected him and to his senior advisers. He needs to get beyond this.”

Trump must be convinced of the wisdom of certain policies — of increasing the number of green cards, and creating a new visa for startup entrepreneurs. “That is the low-hanging fruit,” says Wadhwa. “On H-1B, yes, fix this visa, because it does allow abuse. There is no denying that these visas suppress wages, because they are underpaid, and that is true because people who apply for green cards are stuck in limbo for 10 or 15 years and the employers are not worried about them leaving those jobs. So let’s fix that.”

Establishing a startup visa would bring “another generation of great innovators,” he says. “It’s never too late for America. Damage has been done, but we can now have more sensible policies; we can survive it if we come up with sensible policies. Trump respects the businessman. That is why it is important to be explaining things to him rather than [dismissing] him.”

Regardless of any immediate and long-term changes in immigration policy, the tech sector has in some ways been permanently changed. “[Tech companies] have been largely protected from political consequences,” notes Cappelli. “They haven’t been on anyone’s radar screen and everyone liked them, and they haven’t had to fight for very much. It’s remarkable how much they’ve been able to get on H-1B visas, and now that is not so true. Now they are caught up in this bigger dilemma, and they’ve got to be more active in politics, and their interests are not so neatly aligned with the public’s as a whole. So it will be interesting to see. Whether that is a good thing or a bad thing, that is not so clear.”

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