H-1B Visa Program: Multifaceted Challenges Warrant Re-examination of Key Provisions
Published: 2011-03-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony comments on the H-1B program. Congress created the current H-1B program in 1990 to enable U.S. employers to hire temporary, foreign workers in specialty occupations. The law capped the number of H-1B visas issued per fiscal year at 65,000, although the cap has fluctuated over time with legislative changes. The H-1B cap and the program itself have been a subject of continued controversy. Proponents of the program argue that it allows companies to fill important and growing gaps in the supply of U.S. workers, especially in the science and technology fields. Opponents of the program argue that there is no skill shortage and that the H-1B program displaces U.S. workers and undercuts their pay. Others argue that the eligibility criteria for the H-1B visa should be revised to better target foreign nationals whose skills are undersupplied in the domestic workforce. Our comments in this statement for the record are based on the results of our recent examination of the H-1B program, highlighting the key challenges it presents for H-1B employers, H-1B and U.S. workers, and federal agencies. Specifically, this statement presents information on (1) employer demand for H-1B workers; (2) how the H-1B cap impacts employers' costs and whether they move operations overseas; (3) the government's ability to track the cap and H-1B workers over time; and (4) how well the provisions of the H-1B program protect U.S. workers.
section_title: What GAO Found
paragraphs: From 2000 to 2009, the demand for new H-1B workers tended to exceed the cap, as measured by the numbers of initial petitions submitted by employers who are subject to the cap. While the majority (68 percent) of employers was approved for one H-1B worker, demand was driven to a great extent by a small number (fewer than 1 percent) of H-1B employers garnering over one quarter of all H-1B approvals. Cap-exempt employers, such as universities and research institutions, submitted over 14 percent of the initial petitions filed during this period. Most of the 34 H-1B employers GAO interviewed reported that the H-1B program and cap created additional costs for them, such as delays in hiring and projects, but said the global marketplace and access to skilled labor--not the cap--drive their decisions on whether to move activities overseas. Limitations in agency data and systems hinder tracking the cap and H-1B workers over time. For example, data systems among the various agencies that process these individuals are not linked so it is difficult to track H-1B workers as they move through the immigration system. System limitations also prevent the Department of Homeland Security from knowing precisely when and whether the annual cap has been reached each year. Provisions of the H-1B program that could serve to protect U.S. workers--such as the requirement to pay prevailing wages, the visa's temporary status, and the cap itself--are weakened by several factors. First, program oversight is fragmented between four agencies and restricted by law. Second, the H-1B program lacks a legal provision for holding employers accountable to program requirements when they obtain H-1B workers through a staffing company--a company that contracts out H-1B workers to other companies. Third, statutory changes made to the H-1B program over time--i.e. that broadened job and skill categories for H-1B eligibility, increased exceptions to the cap, and allowed unlimited H-1B visa extensions while holders applied for permanent residency--have in effect increased the pool of H-1B workers beyond the cap and lowered the bar for eligibility.

section_title: Letter
paragraphs: We are pleased to have the opportunity to comment on the H-1B program.
Congress created the current H-1B program in 1990 to enable U.S.  employers to hire temporary, foreign workers in specialty occupations.  The law capped the number of H-1B visas issued per fiscal year at 65,000,  although the cap has fluctuated over time with legislative changes. The H- 1B cap and the program itself have been a subject of continued  controversy. Proponents of the program argue that it allows companies to  fill important and growing gaps in the supply of U.S. workers, especially in  the science and technology fields. Opponents of the program argue that  there is no skill shortage and that the H-1B program displaces U.S.  workers and undercuts their pay. Others argue that the eligibility criteria  for the H-1B visa should be revised to better target foreign nationals whose  skills are undersupplied in the domestic workforce.
Our comments in this statement for the record are based on the results of  our recent examination of the H-1B program, highlighting the key  challenges it presents for H-1B employers, H-1B and U.S. workers, and  federal agencies. Specifically, this statement presents information on (1)  employer demand for H-1B workers; (2) how the H-1B cap impacts  employers’ costs and whether they move operations overseas; (3) the  government’s ability to track the cap and H-1B workers over time; and (4)  how well the provisions of the H-1B program protect U.S. workers. A  detailed explanation of our methodology can be found in our report. Our  work was conducted from May 2009 through January 2011 in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provided a reasonable basis for our findings and conclusions based on our  audit objectives.
subsections: section_title: Background
paragraphs: The H-1B program enables companies in the United States to hire foreign  workers for work in specialty occupations on a temporary basis. A  specialty occupation is defined as one requiring theoretical and practical  application of a body of highly specialized knowledge and the attainment  of a bachelor’s degree or higher (or its equivalent) in the field of specialty.
The law originally capped the number of H-1B visas at 65,000 per year; the  cap was raised twice pursuant to legislation, but in fiscal year 2004, the  cap reverted to its original level of 65,000. Statutory changes also allowed  for certain categories of individuals and companies to be exempt from or  to receive special treatment under the cap. The American Competitiveness  in the Twenty-First Century Act of 2000 exempted from the cap all  individuals being hired by institutions of higher education and also  nonprofit and government-research organizations. More recently, the H-1B  Visa Reform Act of 2004 allowed for an additional 20,000 visas each year  for foreign workers holding a master’s degree or higher from an American  institution of higher education to be exempted from the numerical cap  limitation. In 2004, consistent with free trade agreements, up to 6,800 of  the 65,000 H-1B visas may be set aside for workers from Chile and  Singapore.
While the H-1B visa is not considered a permanent visa, H-1B workers can  apply for extensions and pursue permanent residence in the United States.  Initial petitions are those filed for a foreign national’s first-time  employment as an H-1B worker and are valid for a period of up to 3 years.  Generally, initial petitions are counted against the annual cap.  Extensions—technically referred to as continuing employment petitions— may be filed to extend the initial petitions for up to an additional 3 years.  Extensions do not count against the cap. While working under an H-1B  visa, a worker may apply for legal permanent residence in the United  States. After filing an application for permanent residence, H-1B workers  are generally eligible to obtain additional 1-year visa extensions until their  U.S. Permanent Resident Cards, commonly referred to as “green cards,”  are issued.
The Departments of Labor (Labor), Homeland Security (Homeland  Security), and State (State) each play a role in administering the  application process for an H-1B visa. Labor’s Employment and Training  Administration (Employment and Training) receives and approves an  initial application, known as the Labor Condition Application (LCA), from  employers. The LCA, which Labor reviews as part of the application  process, requires employers to make various attestations designed to  protect the jobs of domestic workers and the rights and working  conditions of temporary workers. Homeland Security’s U.S. Citizenship  and Immigration Services (USCIS) reviews an additional employer  application, known as the I-129 petition, and ultimately approves H-1B visa  petitions. For prospective H-1B workers residing outside the United  States, State interviews approved applicants and compares information  obtained during the interview against each individual’s visa application  and supporting documents, and ultimately issues the visa. For prospective  H-1B workers already residing in the United States, USCIS updates the  workers’ visa status without involvement from State.
USCIS has primary responsibility for administering the H-1B cap.  Generally, it accepts H-1B petitions in the order in which they are  received. However, for those years in which USCIS anticipates that the  number of I-129 petitions filed will exceed the cap, USCIS holds a “lottery”  to determine which of the petitions will be accepted for review. For the  lottery, USCIS uses a computer-generated random selection process to  select the number of petitions necessary to reach the cap.
With regard to enforcement, Labor, the Department of Justice (Justice),  and Homeland Security each have specific responsibilities. Labor’s Wage  and Hour Division (Wage and Hour) is responsible for enforcing program  rules by investigating complaints made against employers by H-1B  workers or their representatives and assessing penalties when employers  are not in compliance with the requirements of the program. Justice is  responsible for investigating complaints made by U.S. workers who allege  that they have been displaced or otherwise harmed by the H-1B visa  program. Finally, USCIS’s Directorate of Fraud Detection and National  Security (FDNS) collaborates with its Immigration and Customs  Enforcement Office to investigate fraud and abuse in the program.
section_title: Demand for H-1B Workers Exceeded the Cap in Most Years and Was Driven by a Small Number of Employers
paragraphs: Over the past decade, demand for H-1B workers tended to exceed the cap,  as measured by the number of initial petitions submitted by employers,  one of several proxies used to measure demand since a precise measure  does not exist. As shown in figure 1, from 2000 to 2009, initial petitions for  new H-1B workers submitted by employers who are subject to the cap  exceeded the cap in all but 3 fiscal years. However, the number of initial  petitions subject to the cap is likely to be an underestimate of demand  since, once the cap has been reached, employers subject to the cap may  stop submitting petitions and Homeland Security stops accepting  petitions.
If initial petitions submitted by employers exempt from the cap are also  included in this measure (also shown in figure 1), the demand for new H- 1B workers is even higher, since over 14 percent of all initial petitions  across the decade were submitted by employers who are not subject to the  cap. In addition to initial requests for H-1B workers, employers requested  an average of 148,000 visa extensions per year, for an average of over  280,000 annual requests for H-1B workers.
Over the decade, the majority (over 68 percent) of employers were  approved to hire only one H-1B worker, while fewer than 1 percent of  employers were approved to hire almost 30 percent of all H-1B workers.  Among these latter employers are those that function as “staffing  companies” that contract out H-1B workers to other companies. The  prevalence of such companies participating in the H-1B visa program is  difficult to determine. There are no disclosure requirements and  Homeland Security does not track such information. However, using  publicly available data, we learned that at least 10 of the top 85 H-1B-hiring  employers in fiscal year 2009 participated in staffing arrangements, of  which at least 6 have headquarters or operations located in India.  Together, in fiscal year 2009, these 10 employers garnered nearly 11,456  approvals, or about 6 percent of all H-1B approvals. Further, 3 of these  employers were among the top 5 H-1B-hiring companies, receiving 8,431  approvals among them.
section_title: Most Interviewed Companies Said the H-1B Cap Was Not a Key Factor in Their Decisions to Move Operations Overseas but Cited Other Program Burdens
paragraphs: To better understand the impact of the H-1B program and cap on H-1B  employers, GAO spoke with 34 companies across a range of industries  about how the H-1B program affects their research and development  (R&D) activities, their decisions about whether to locate work overseas,  and their costs of doing business. Although several firms reported that  their H-1B workers were essential to conducting R&D within the U.S.,  most companies we interviewed said that the H-1B cap had little effect on  their R&D or decisions to locate work offshore. Instead, they cited other  reasons to expand overseas including access to pools of skilled labor  abroad, the pursuit of new markets, the cost of labor, access to a  workforce in a variety of time zones, language and culture, and tax law.  The exception to this came from executives at some information  technology services companies, two of which rely heavily on the H-1B  program. Some of these executives reported that they had either opened  an offshore location to access labor from overseas or were considering  doing so as result of the H-1B cap or changes in the administration of the  H-1B program.
Many employers we interviewed cited costs and burdens associated with  the H-1B cap and program. The majority of the firms we spoke with had H- 1B petitions denied due to the cap in years when the cap was reached  early in the filing season. In these years, the firms did not know which, if  any, of their H-1B candidates would obtain a visa, and several firms said  that this created uncertainty that interfered with both project planning and  candidate recruitment. In these instances, most large firms we interviewed  reported finding other (sometimes more costly) ways to hire their  preferred job candidates. For example, several large firms we spoke with  were able to hire their preferred candidates in an overseas office  temporarily, later bringing the candidate into the United States, sometimes  on a different type of visa. On the other hand, small firms were sometimes  unable to afford these options, and were more likely to fill their positions  with different candidates, which they said resulted in delays and  sometimes economic losses, particularly for firms in rapidly changing  technology fields.
Interviewed employers also cited costs with the adjudication and lottery  process and suggested a variety of reforms:    The majority of the 34 firms we spoke with maintained that the review and  adjudication process had become increasingly burdensome in recent  years, citing large amounts of paperwork required as part of the  adjudication process. Some experts we interviewed suggested that to  minimize paperwork and costs, USCIS should create a risk-based  adjudication process that would permit employers with a strong track- record of regulatory compliance in the H-1B program to access a  streamlined process for petition approval.
In addition, several industry representatives told us that because the  lottery process does not allow employers to rank their top choices, firms  do not necessarily receive approval for the most desired H-1B candidates.  Some experts suggested revising the system to permit employers to rank  their applications so that they are able to hire the best qualified worker for  the job in highest need.
Finally, entrepreneurs and venture capital firms we interviewed said that  program rules can inhibit many emerging technology companies and other  small firms from using the H-1B program to bring in the talent they need,  constraining the ability of these companies to grow and innovate in the  United States. Some suggested that, to promote the ability of  entrepreneurs to start businesses in the United States, Congress should  consider creating a visa category for entrepreneurs, available to persons  with U.S. venture backing.
In our report, we recommended that USCIS should, to the extent  permitted by its existing statutory authority, explore options for increasing  the flexibility of the application process for H-1B employers. In  commenting on our report, Homeland Security and Labor officials  expressed reservations about the feasibility of our suggested options, but  Homeland Security officials also noted efforts under way to streamline the  application process for prospective H-1B employers. For example,  Homeland Security is currently testing a system to obtain and update some  company data directly from a private data vendor, which could reduce the  filing burden on H-1B petitioners in the future. In addition, Homeland  Security recently proposed a rule that would provide for employers to  register and learn whether they will be eligible to file petitions with USCIS  prior to filing an LCA, which could reduce workloads for Labor and reduce  some filing burden for companies.
section_title: Limitations in Agency Data and Systems Hinder Tracking the Cap and H-1B Workers Over Time
paragraphs: The total number of H-1B workers in the United States at any one point in  time—and information about the length of their stay—is unknown due to  data and system limitations. First, data systems among the various  agencies that process H-1B applications are not easily linked, which makes  it impossible to track individuals as they move through the application and  entry process. Second, H-1B workers are not assigned a unique identifier  that would allow agencies to track them over time or across agency  databases—particularly if and when their visa status changes.  Consequently, USCIS is not able to track the H-1B population with regard  to: (1) how many approved H-1B workers living abroad have actually  received an H-1B visa and/or ultimately entered the country; (2) whether  and when H-1B workers have applied for or were granted legal permanent  residency, leave the country, or remain in the country on an expired visa;  and (3) the number of H-1B workers currently in the country or who have  converted to legal permanent residency.
Limitations in USCIS’s ability to track H-1B applications also hinder it  from knowing precisely when and whether the annual cap has been  reached each year—although the Immigration and Nationality Act requires  the department to do so. According to USCIS officials, its current  processes do not allow them to determine precisely when the cap on  initial petitions is reached. To deal with this problem, USCIS estimates  when the number of approvals has reached the statutory limit and stops  accepting new petitions.
Although USCIS is taking steps to improve its tracking of approved  petitions and of the H-1B workforce, progress has been slow to date.
Through its “Transformation Program,” USCIS is developing an electronic  I-129 application system and is working with other agencies to create a  cross-reference table of agency identifiers for individuals applying for  visas that would serve as a unique person-centric identifier. When this  occurs, it will be possible to identify who is in the United States at any one  point in time under any and all visa programs. However, the agency faces  challenges with finalizing and implementing the Transformation  Program. We recommended that Homeland Security, through its  Transformation Program, take steps to (1) ensure that linkages to State’s  tracking system will provide Homeland Security with timely access  to data  on visa issuances, and (2) that mechanisms for tracking petitions and visas  against the cap be incorporated into business rules to be developed for  USCIS’s new electronic petition system.
While a complete picture of the H-1B workforce is lacking, data on  approved H-1B workers provides some information about the H-1B  workforce. Between fiscal year 2000 and fiscal year 2009, the top four  countries of birth for approved H-1B workers (i.e., approved initial and  extension petitions from employers both subject to the cap and cap- exempt) were India, China, Canada, and the Philippines. Over 40 percent  of all such workers were for positions in system analysis and  programming. As compared to fiscal year 2000, in fiscal year 2009,  approved H-1B workers were more likely to be living in the United States  than abroad at the time of their initial application, to have an advanced  degree, and to have obtained their graduate degrees in the United States.  Finally, data on a cohort of approved H-1B workers whose petitions were  submitted between January 2004 and September 2007, indicate that at  least 18 percent of these workers subsequently applied for permanent  residence in the United States—for which about half were approved, 45  percent were pending, and 3 percent were denied by 2010.
section_title: Restricted Agency Oversight and Statutory Changes Weaken Protections for U.S. Workers
paragraphs: The provisions of the H-1B program designed to protect U.S. workers— such as the requirement to pay prevailing wages, the visa’s temporary  status, and the cap on the number of visas issued—are weakened by  several factors.
First, H-1B program oversight is shared by four federal agencies and their  roles and abilities to coordinate are restricted by law. As a result, there is  only nominal sharing of the kind of information that would allow for better  employer screening or more active and targeted pursuit of program  abuses. For example, the review of employer applications for H-1B  workers is divided between Labor and USCIS, and the thoroughness of  both these reviews is constrained by law. In reviewing the employer’s LCA,  Labor is restricted to looking for missing information and obvious  inaccuracies, such as an employer’s failure to checkmark all required  boxes on a form denoting compliance. USCIS’s review of the visa petition,  the I-129, is not informed by any information that Labor’s Employment and  Training Administration may possess on suspicious or problematic  employers. With regard to enforcement of the H-1B worker protections,  Wage and Hour investigations are constrained, first, by the fact that its  investigators do not receive from USCIS any information regarding  suspicious or problematic employers. They also do not have access to the  Employment and Training’s database of employer LCAs. Second, in  contrast to its authority with respect to other labor protection programs,  Wage and Hour lacks subpoena authority to obtain employer records for  H-1B cases. According to investigators, it can take months, therefore, to  pursue time-sensitive investigations when an employer is not cooperative.
To improve Labor’s oversight over the H-1B program, we recommended  that its Employment and Training Administration grant Wage and Hour  searchable access to the LCA database. Further, we asked Congress to  consider granting Labor subpoena power to obtain employer records  during investigations under the H-1B program. To reduce duplication and  fragmentation in the administration and oversight of the application  process, consistent with past GAO matters for Congressional  consideration, we asked Congress to consider streamlining the H-1B  approval process by eliminating the separate requirement that employers  first submit an LCA to Labor for review and certification, since another  agency (USCIS) subsequently conducts a similar review of the LCA.
Another factor that weakens protection for U.S. workers is the fact that  the H-1B program lacks a legal provision to hold employers accountable to  program requirements when they obtain H-1B workers through staffing  companies. As previously noted, staffing companies contract H-1B  workers out to other employers. At times, those employers may contract  the H-1B worker out again, creating multiple middlemen, according to  Wage and Hour officials (see fig. 2).  They explained that the contractual  relationship, however, does not transfer the obligations of the contractor  for worker protection to subsequent employers. Wage and Hour  investigators reported that a large number of the complaints they receive  about H-1B employers were related to the activities of staffing companies.  Investigators from the Northeast region—the region that receives the  highest number of H-1B complaints—said that nearly all of the complaints  they receive involve staffing companies and that the number of complaints  are growing. H-1B worker complaints about these companies frequently  pertained to unpaid “benching”—when a staffing company does not have a  job placement for the H-1B worker and does not pay them. In January  2010, Homeland Security issued a memo—commonly referred to as the  “Neufeld Memo”—on determining when there is a valid employer- employee relationship between a staffing company and an H-1B worker  for whom it has obtained a visa; however officials indicated that it is too  early to know if the memo has improved program compliance. To help  ensure the full protection of H-1B workers employed through staffing  companies, in our report we asked that Congress consider holding the  employer where an H-1B visa holder performs work accountable for  meeting program requirements to the same extent as the employer that  submitted the LCA form.
Finally, changes to program legislation have diluted program provisions  for protecting U.S. workers by allowing visa holders to seek permanent  residency, broadening the job and skill categories for H-1B eligibility, and  establishing exemptions to the cap. The Immigration Act of 1990 removed  the requirement that H-1B visa applicants have a residence in a foreign  country that they have no intention of abandoning. Consequently, H-1B  workers are able to pursue permanent residency in the United States and  remain in the country for an unlimited period of time while their residency  application is pending. The same law also broadened the job and skill  categories for which employers could seek H-1B visas. Labor’s LCA data  show that between June 2009 and July 2010, over 50 percent of the wage  levels reported on approved LCAs were categorized as entry-level (i.e. paid  the lowest prevailing wage levels). However, such data do not, by  themselves, indicate whether these H-1B workers were generally less  skilled than their U.S. counterparts, or whether they were younger or more  likely to accept lower wages. Finally, exemptions to the H-1B cap have  increased the number of H-1B workers beyond the cap. For example,  87,519 workers in 2009 were approved for visas (including both initial and  extensions) to work for 6,034 cap-exempt companies.
section_title: Conclusions
paragraphs: Taken together, the multifaceted challenges identified in our work show  that the H-1B program, as currently structured, may not be used to its full  potential and may be detrimental in some cases. Although we have  recommended steps that executive agencies overseeing the program may  take to improve tracking, administration, and enforcement, the data we  present raise difficult policy questions about key program provisions that  are beyond the jurisdiction of these agencies.
The H-1B program presents a difficult challenge in balancing the need for  high-skilled foreign labor with sufficient protections for U.S. workers. As  Congress considers immigration reform in consultation with diverse  stakeholders and experts—and while Homeland Security moves forward  with its modernization efforts—this is an opportune time to re-examine  the merits and shortcomings of key program provisions and make  appropriate changes as needed. Such a review may include, but would not  necessarily be limited to  the qualifications required for workers eligible under the H-1B program,    exemptions from the cap,  the appropriateness of H-1B hiring by staffing companies,  the level of the cap, and  the role the program should play in the U.S. immigration system in  relationship to permanent residency.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staffs have any questions about this statement, please  contact Andrew Sherrill at (202) 512-7215 or sherrilla@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this statement.
In addition to Andrew Sherrill (Director), Michele Grgich (Assistant  Director) and Erin Godtland (Economist-in-Charge) led this engagement  with writing and technical assistance from Nisha Hazra, Melissa Jaynes,  Jennifer McDonald, Susan Bernstein (Education, Workforce and Income  Security); and Rhiannon Patterson (Applied Research and Methods).  Stakeholders included: Barbara Bovbjerg (Education, Workforce, and  Income Security); Tom McCool (Applied Research and Methods); Ronald  Fecso (Chief Statistician); Sheila McCoy and Craig Winslow (General  Counsel); Hiwotte Amare and Shana Wallace (Applied Research and  Methods); Richard Stana and Mike Dino (Homeland Security and Justice);  Jess Ford (International Affairs and Trade). Barbara Steel-Lowney  referenced the report.
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