the H-1B program and the growth of the Indian IT sector

The H-1B skilled worker temporary visa program started in 1952, Today’s version was launched in 1990 with a cap of 65,000 visas (for up to six years). The visa was established for workers in a “specialty occupation”. The Immigration Act defined a specialty occupation as “an occupation that requires theoretical and practical application of a body of highly specialized knowledge, and attainment of a bachelor’s or higher degree in the specific specialty (or its equivalent) as a minimum for entry into the occupation in the United States”. The cap was raised in 2001 to 195,000, soon returned to 65,000, with some exemptions to the cap. For a description, go here and here.

From a study of the impact of H-1B visas on the Indian and U.S. workforces:

Not only did the H-1B program play a significant role in spreading the IT boom from the U.S. to India but it also affected workers’ choice of occupations in each country, and on average made workers in each country better off.

In 1994, the fraction of foreigners in U.S. computer science occupations was 9% but rose to 24% by 2012, almost entirely driven by Indians. By 2014, 70% of all H-1B visas were acquired by Indians. [Lack of English proficiency explains why only 5% of H-1B visas have gone to Chinese.] Computer science wages are at least 4-10 times higher in the US than in India.

The H-1B visas also expired after six years, and many workers return, bringing with them newly acquired skills, connections and technical knowhow. Over time, this has facilitated a shift in production from the US to India, and eroded the US’s advantage in IT exports. Every good valued by consumers can either be produced in the US, India or somewhere else in the world and consumers will buy from the most efficient producer. India and the US are therefore competing to sell their goods to a larger share of the world market.

We find that the H-1B programme played a rather significant role in spreading the IT boom from the US to India. The possibility of moving to the US encouraged Indian workers and students to acquire skills valued abroad, and along with those that returned from abroad, they contributed to growing the CS workforce in India. This facilitated a movement in tech production from the US to India: Indian IT output is higher by 5 percent in 2010, even as US IT output shrinks.

This hurts some US workers, especially US-born computer scientists who now switch into non-CS occupations, lowering the size of the native CS workforce by 9 percent in 2010. Overall, however, world IT output is larger by 0.45 percent and the combined income of both countries is higher by 0.35 percent (or about US$17.6 billion) because of the H-1B programme. We find that the average worker in both the US and India is better off with immigration.

From an interview with Arvind Subramanian, former Chief Economic Advisor to the Government of India:

“The IT-services revolution owes to an accidental sequence of events, including the relaxation of US immigration restrictions in the 1960s and expansion of the H-1B visas subsequently, the early investment in India’s educational centers of excellence (the famous technology and management schools, IITs and IIMs, respectively) and English language proficiency (the colonial inheritance). When the IT revolution occurred, Indian talent had acquired not just a foothold but also a reputation in the US which then gave comfort to US firms to tap the English-language speaking talent pool back in India. “

Leave a Reply

Your email address will not be published.