Dear All,
Two terms we throw around here a lot when discussing H-1B visas are outsourcing and offshoring. While it’s easy to conflate the two, they are not the same, even though both describe tactics used to displace American workers.
Outsourcing occurs when a company contracts a job to a third-party. For example, in 2015, Disney outsourced their IT operations to Cognizant and HCL. Like many other Fortune 500 companies, Disney concluded that their American W-2 employees were expensive, undeserving, and expendable. So, they laid them off and outsourced the jobs to third-party IT staffing firms operating in the U.S.
What’s more, these firms earn huge profits through labor arbitrage. They hire workers at lower salaries and then lease them to clients, like Disney, at a premium. The H-1B visa program provides a pipeline of cheap labor that fuels the labor arbitrage game and oddly, this is all very legal. Firms get away with not paying H-1B workers market rates because the U.S. Department of Labor (USDOL) has set two of the four prevailing H-1B wage levels in the labor condition application (LCA) far below the median wage. Hence, it should come as no surprise that 60% of H-1B positions certified by the USDOL were below the median wage levels.
A recent article in the Jacobin titled “Take Me to Your Leader: The Rot of the American Ruling Class,” by Doug Henwood describes how prior to the mid-1970s, America’s top executives were largely preoccupied with sales growth and prestige, and that much of their compensation was derived from a paycheck as opposed to stock options. Today, executives are largely compensated in stock and in their ongoing quest to increase “shareholder value” they’re preoccupied with maximizing profit and finding any efficiency that allows them to goose the bottom line. Wall Street loves this behavior and richly rewards executives who follow it. Those who don’t are punished by the “markets.”
While Wall Street may abhor red, they do love seeing blood. Specifically, companies that divest themselves of employees and their associated costs. Dr. David Weil, a professor at Brandeis University, and a recent Biden administration nominee to serve as the next Administrator of the Wage and Hour Division of the USDOL coined the term the “fissured workplace” to help explain this phenomenon. From hotel workers to office custodians, many companies use the fissuring model to circumvent paying market wages and benefits. They simply hire workers through third-party staffing firms. Albertsons, the nation’s second-largest supermarket chain decided to outsource its delivery service jobs to DoorDash, a company known for its exploitation of gig workers, and 50% of Google’s employees are contract workers —hired through third-party firms. In IT, we have the examples of Disney, Southern Edison, AT&T, Vanguard, etc., all outsourcing jobs to third-party firms that are heavily dependent on the H-1B visa program to in-source cheaper, indentured labor. Given that the H-1B visa program is the pipeline through which a lot of cheap and easy to exploit labor enters the country, expanding it will only exacerbate the fissured workplace and accelerate the pace of outsourcing.
Offshoring occurs when companies send in-house jobs overseas to low-cost countries like India. Just like outsourcing, offshoring provides companies an opportunity to reduce labor costs. Proponents of the H-1B visa program like to argue that if access to the H-1B is restricted in any manner, companies will, as Britta Glennon argues “just offshore the jobs” because it is an issue of “accessing talent”. However, these useful idiots will never admit this has nothing to do with finding the talent capable of doing the work. Rather, it is about finding cheaper and more compliant workers. If there is indeed a talent shortage, then why are American IT workers required to train their contractor replacements in order to collect their severance?
But, here’s how outsourcing and offshoring intersect with one another in the IT industry: once a U.S. company like Disney decides to outsource its in-house IT operations to a third-party H-1B dependent IT firm like Cognizant, the next phase is to offshore these jobs overseas, to India! Firms like Cognizant greatly increase their margins if they can eventually shift jobs abroad, as the labor costs and wages are significantly cheaper than even what H-1B workers are paid. Tony Morosini, a former IT consultant said it so eloquently in a Medium post:
“Here’s what everyone is missing in the media. When the consultant on the H-1B visa comes to America to work for a large US client, the goal of his or her employer is NOT to just staff this person at the client. That is only the tip of the iceberg. The real goal is to employ a lot of people back in India, who will report to and interact with the person here in the US on the H-1B.
For every person here on an H-1B visa (or an L-1 Visa as well if memory serves me correctly), the goal is to have five more working for this person back home in India. This is referred to as the “Onsite/Offshore” model and the desired ratio is usually 1:5.”
What Morosini’s saying is that for every one H-1B visa worker who comes to the U.S., five US jobs are offshored. In essence, the H-1B visa program is the stalking horse of offshoring. Taking over America’s white-collar jobs is big business, too. It’s estimated that business process outsourcing operations brought India $7.9 billion in revenue in 2020 despite numbers being down due to Covid-19 .
It is a straw man argument to claim it will lead to more offshoring if the U.S. government restricts H-1B visas. Jobs are already being offshored and it is the H-1B that facilitates this!
Dozens of examples that refute the myth that restricting H-1Bs will lead to more offshoring, abound. In 2015, the University of California San Francisco laid off 49 American IT workers and outsourced their jobs to HCL, a H-1B dependent IT outsourcing firm. Eventually, the plan was for HCL to offshore these jobs to their offices in India. The LA Times reported on this and the headline read: How the University of California exploited a visa loophole to move tech jobs to India
One of our activists recently sent us a JP Morgan Bank internal document from last year expressing grave concerns about the Trump Administration’s H-1B reform rule changes (already gutted by the Biden administration). You can see a screenshot of the document here, and what’s quite telling is this line:
“Overall, we expect slight adverse financial impact, but the news suggests an increasingly stringent visa environment for offshore ITS firms that could hurt stock sentiment.”
“Stringent visa environment for offshore ITS firms”! As I said, Wall Street rewards offshoring American jobs, and this is what the executives at JP Morgan Bank really fear. How will they explain the situation to the analysts when they can no longer wring anymore blood from the stone?
I long for the day when shareholders realize that the quest to maximize profits and efficiency hurts companies in the long run. What’s gained in efficiency is eventually lost in innovation. Moreover, despite the rosy picture painted by the business process outsourcing literature, offshoring does not equate to savings. In a white paper by Planetmagpie.com problems with offshoring include:
- Communication issues
- Lower productivity
- Managerial problems
- Minimal or no real cost savings
- Higher risk of data loss and IP/identify theft
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In Solidarity.
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