STATEMENT OF JOHN R. FRASER

DEPUTY WAGE AND HOUR ADMINISTRATOR

EMPLOYMENT STANDARDS ADMINISTRATION

U.S. DEPARTMENT OF LABOR

BEFORE THE

SUBCOMMITTEE ON IMMIGRATION AND CLAIMS

OF THE HOUSE JUDICIARY COMMITTEE

April 21, 1998

Mr. Chairman and Members of the Subcommittee:

We appreciate this opportunity to share the views of the Administration on whether this country's important high-technology industry should be afforded increased access to temporary foreign workers to meet its growing demand for highly skilled workers. In doing so, I want to again call your attention to the need to train U.S. workers first in order to provide them with the opportunity to acquire the skills needed to compete in our rapidly changing economy, and to the pressing need for reform of the H-1B nonimmigrant visa program.

Our information technology (IT) industry is essential to our continuing strong economic growth and wider prosperity. Our interest in the industry's strength is evidenced by our participation in a recent convocation in Berkeley that assessed IT work force needs. Further, as you know from Administration proposals advanced since 1993, we believe that the H-1B program needs fundamental reform. I would like to commend the Subcommittee for its interest in these issues.

We believe the issue of whether to increase the IT industry's access to temporary foreign workers should be evaluated within the framework of the following three questions:

(1) Is there a shortage of skilled U.S. workers to fill jobs in the IT industry and meet future workforce needs?

(2) What would be the consequences of raising the annual H-1B cap?

(3) Does the current H-1B program need to be reformed in order to provide industry appropriate access to temporary foreign workers while protecting the job opportunities, wages and working conditions of U.S. workers?

I will address each of these in turn.

Tight Labor Markets and IT Skills Shortages

Proponents of increasing the annual cap on H-1B visas argue that this increase is necessary for the IT industry to be able to overcome an acute shortage of skilled U.S. workers. While there is no dispute that there is strong growth in demand for workers in the IT industry, it is much less clear what may be the magnitude of any shortage of skilled U.S. workers to meet this demand, or whether the domestic labor market will be able - as it has over the last decade - to satisfy projected job growth.

U.S. employment has been growing rapidly, labor markets are increasingly tight, and they are likely to remain so. Though this is true for the nation as a whole, IT labor markets appear to be particularly affected. Employment opportunities for computer systems analysts, engineers, and scientists have been growing by 10 percent a year -- well above the growth of comparable occupations -- and are expected to continue growing at a comparable rate through 2006. The Bureau of Labor Statistics (BLS) predicts that the U.S. will require more than 1.3 million new workers in IT core occupations between 1996 and 2006 to fill job openings projected to occur due to growth and the need to replace workers who leave the labor force or transfer to other occupations.

The IT skills shortage issue is somewhat controversial. Some industry advocates assert that there exist more than three hundred thousand unfilled jobs within the IT industry, and that these vacancies are raising business costs and hurting U.S. competitiveness. Industry points to a number of other factors to substantiate their assertion of an IT skills shortage - large numbers of want ads, hiring bonuses, aggressive recruiting, and high turnover of IT specialists within the industry.

On the other hand, critics argue that the IT industry: (1) overstates the problem by producing inflated job vacancy data and equating it to skills shortages; (2) continues to lay off tens of thousands of workers (e.g., Intel, Netscape, Cypress Semiconductor and Silicon Graphics recently announced large lay-offs); and (3) fails to tap reservoirs of available talent by insisting on unnecessarily specific job requirements and not providing more training to develop incumbent workers' skills.

One point of contention is the confusion between equating job vacancies and actual skills shortages. While an industry association-sponsored survey indicates that there may be as many as 350,000 job vacancies in the IT industry, as you will hear, the General Accounting Office (GAO) has concluded that this does not necessarily signal an acute shortage of skilled workers. In fact, most industries and firms (particularly those with rapid employment growth and high worker turnover) will have large numbers of job openings that may not indicate skills shortages.

While higher than average wage growth can be a reliable indicator of skill shortages, the wage growth record for the IT industry is mixed. Though BLS wage trends for broad computer-related categories show only average wage growth between 1988 and 1997 for all categories, it only shows above-average wage growth in 1996 and 1997 and only in the lower-skill computer-related categories, such as programmers. At the same time, a variety of industry wage surveys show larger wage increases in 1996 and 1997 in specialized, high-skill occupations.

The Subcommittee should also take into consideration other factors that bear on the question of the scope and duration of any labor shortage in the IT industry:

· The current "Year 2000" problem is now occupying thousands of IT workers but only for the short-term;

· New technologies are being introduced that are creating more efficient ways to produce software, store and retrieve data, speed up computations, and generally improve the productivity of the IT work force;

· The number of computer science enrollments has risen significantly in the last two years (and nearly three-quarters of all IT workers got their education in other disciplines).

Consequences of Raising the H-1B Visa Cap

We strongly urge that any decision to raise the H-1B visa cap carefully consider the possible adverse impact of such a move on the normal process by which labor markets adjust to a growing demand for workers. The labor market should be permitted to adjust to this increased demand without introducing unnecessary factors which could delay, if not prevent, these normal market adjustments. Indeed, the IT labor market has already begun to respond to the signals of increased demand. A survey of U.S. Ph.D. departments of computer science and computer engineering showed bachelor-level enrollments were up 46 percent in 1996, and another 39 percent in 1997 -- nearly doubling over the two year period.

It is also important to remember that tight labor markets are good for U.S. workers. A tight labor market causes employers to raise wages, improve working conditions, and provide increased training to enable currently employed workers to keep pace with technology. An increased demand for trained workers induces educational and job training institutions to teach new skills. With more opportunities for training, workers acquire skills needed to obtain better, higher-paying and more secure jobs, thereby creating open jobs and career ladders for those just entering or reentering the labor market (e.g., young people, minorities, displaced workers, welfare recipients and other disadvantaged groups). Therefore, tight labor markets create incentives for employers and workers to react in ways needed to achieve many of the Nation's top priorities: raising wages; providing greater opportunities for lifelong learning; and moving welfare recipients, out-of-school youth, and dislocated workers into jobs.

However, while tight labor markets are good for U.S. workers, labor markets can sometimes be slow to respond to skills shortages. In these circumstances, it is often argued that temporary foreign workers are needed in the short-term to provide necessary skills while the labor market adjusts to provide U.S. workers with the requisite training. Without needed foreign temporary workers, industries experiencing skill shortages may adjust in ways that do not serve the short-term or long-term priorities of the country, either by reducing job creation or by moving jobs overseas. Further, because the IT sector is so critical to our global competitive edge, the U.S. economy could suffer disproportionate harm if skill shortages do become acute.

Because the expanded use of foreign temporary workers may interfere with labor market adjustments and may make achieving our other priorities more difficult, we must make sure that any increase in the annual number of foreign temporary workers is done with care to ensure that the use of these foreign temporary workers does not interfere with healthy adjustments in the labor market.

We must also be cognizant that raising the H-1B cap may subvert the protection of U.S. workers that is one of the key principles underlying this Administration's strong support of legal immigration. Raising the H-1B cap will almost certainly increase permanent employment-based legal immigration and, perhaps, illegal immigration. Nearly half of those who become permanent employment-based immigrants convert from H-visa nonimmigrant status. Rather than filling a temporary labor shortage, conversion fills permanent jobs that will then not be available to U.S. workers and students who we want to be able and prepared to fill high-tech jobs in our economy.

The Department of Labor has heard from many concerned individuals and groups on the issue of the adverse impact on U.S. workers of raising the annual cap on H-1B visas. I would like to request that copies of the many letters we have received from these people be included in the record of today's hearing.

The Administration believes that our first response to meeting the workforce needs of the IT industry should be to provide the needed skills to U.S. workers to qualify them for IT jobs. The Administration already has taken significant steps to increase our capacity to enhance workforce skills. The President continues to pursue comprehensive reform of the Nation's employment and training system by working with Congress to enact the principles embodied in his GI Bill proposal. Moreover, in the historic balanced budget agreement of last summer, the President insisted on and achieved the largest increase in 30 years in the Federal investment to expand the skills of American workers, including:

· the largest Pell Grant increase in two decades;

· Hope Scholarships to make the first two years of post-secondary education universally available;

· the Lifelong Learning Tax Credit for the last 2 years of college and continuing adult education and training to upgrade worker skills;

· a major increase in employment and training resources, including increases for dislocated workers and disadvantaged adults and youth; and

· a $3 billion program to help long-term welfare recipients secure lasting, unsubsidized employment.

Further, the Administration announced several new initiatives at the recent Berkeley Convocation to help address the growing demand for IT workers:

· A Labor Department Technology Demonstration project to test innovative ways of establishing partnerships between local workforce development systems, employers, training providers and others to train dislocated workers in needed high tech skills;

· The expansion and integration of America's Job Bank and America's Talent Bank to allow employers and workers to list and access job openings and worker resumes in one integrated system; and

· The convening of four town hall meetings by the Commerce Department to discuss IT workforce needs, identify innovative practices, and showcase successful models.

In addition, last week President Clinton and Secretary Herman announced that grants totaling $1.6 million are being provided to projects in four states to continue highly successful programs to train dislocated workers for high paying jobs in information technology.

Finally, with the Technology Literacy Challenge and related educational programs, the Administration has put strong emphasis on effective use of educational technology to strengthen our nation's schools and school-to-work transition. Linking elementary/secondary schools, institutions of higher education, and business can produce the knowledge, know-how, and skills our nation's businesses and young people need in IT. This creates opportunities for business and America's students alike.

We believe that there is more that can be done to move U.S. workers into high technology jobs, and we welcome the discussions that may be sparked by this hearing. We are committed to continuing a dialogue with the major stakeholders on this critical workforce issue -- government, industry, workers, and education and training institutions -- to better define the workforce needs of the IT industry and develop appropriate solutions to meet these needs domestically through commitments from each of the stakeholders.

In sum, Mr. Chairman, our assessment of the likely effects of raising the H-1B cap reconfirms our strong conviction that our primary public policy response to skills mismatches due to changing technologies and economic restructuring must be to prepare the U.S. workforce to meet new demands. Yet we recognize that short-term demands for skills may require that we develop a balanced, short-term response to meet urgent needs while we actively adjust to rapidly changing circumstances. However, increased numbers of temporary foreign workers should be the last -- not the first -- public policy response to skills shortages. Given this broader context, let me now turn to the third of the issues I listed -- the pressing need for reform of the H-1B nonimmigrant program.

H-1B Nonimmigrant Program Must be Reformed

The H-1B visa program allows the admission of up to 65,000 workers each year (to stay for as long as six years), to meet short-term, high-skills employment needs in the domestic labor market. Temporary visa programs, like H-1B, are intended to allow employers who are faced with a domestic skills shortage to have access to temporary foreign workers with the requisite skills while the domestic labor market makes appropriate adjustments.

However, there exist serious structural flaws in the current H-1B program. These flaws are documented in a May 1996 report by the Department's Inspector General (IG). I would ask the Subcommittee to accept the IG's full report in the record of today's hearing.

The IG found that, despite the legislative intent:

". . . the [H-1B] program does not always meet urgent, short-term demand for highly-skilled, unique individuals who are not available in the domestic work force. Instead, it serves as a probationary try-out employment program for illegal aliens, foreign students, and foreign visitors to determine if they will be sponsored for permanent status."

The IG also found that "some [H-1B] employers use alien labor to reduce payroll costs either by paying less than the prevailing wage to their own alien employees or treating these aliens as independent contractors, thereby avoiding related payroll and administrative costs." It found, in addition, that "other [H-1B] employers are 'job shops' whose business is to provide H-1B alien contract labor to other employers." The IG concluded that the H-1B program does little to protect the jobs or wages of U.S. workers and it recommended eliminating the current program and establishing a new program to fulfill Congress' intent.

Employers obtain H-1B workers by simply filing a labor condition application (LCA) with the Department affirming that they have complied with four requirements:

· that the higher of the local prevailing rate or the wage paid to the employer's similarly-employed workers will be paid to the foreign workers;

· that no strike or lockout exists involving the occupation;

· that notification has been provided to U.S. workers or their union; and

· that the employment of H-1B nonimmigrants will not adversely affect the working conditions of U.S. workers similarly employed.

By law, the Labor Department can do no more than review these attestations for completeness and obvious inaccuracies -- to determine whether an employer checked all of the boxes, made no flagrant errors, and signed the attestation -- and must do so within 7 days of receipt.

Because current law does not require any test for the availability of qualified U.S. workers in the domestic labor market, many of the visas under the current cap of 65,000 can be used by employers to hire foreign workers for purposes other than meeting a skills shortage. In addition, current law does not require a U.S. employer to promise not to lay off U.S. workers and replace them with H-1B workers as a condition for gaining access to these foreign temporary workers, and it allows employers to retain H-1B workers for up to 6 years to fill a "temporary" need. We simply do not believe this is right.

In 1993 the Administration asked the Congress to amend the H-1B nonimmigrant program to address these structural problems. Unfortunately for many U.S. businesses and workers, these amendments have not been enacted. The amendments requested in 1993 were carefully designed to ensure continued business access to needed high-skill workers in the international labor market while decreasing the H-1B program's susceptibility to misuse to the detriment of U.S. workers and the businesses that employ them. Briefly stated, the amendments would require employers which seek access to temporary foreign "professional" workers to also attest that:

· they have taken timely and significant steps to recruit and retain U.S. workers in these occupations; and

· they have not laid off or otherwise displaced U.S. workers in the occupations for which they seek nonimmigrant workers in the periods immediately preceding and following their seeking such workers.

Enactment of these reforms will help employers actually facing skills shortages, including those in the IT industry, obtain needed workers through the H-1B program. Under existing law, employers facing skills shortages must compete for available visas (up to the cap of 65,000) on a first-come, first-served basis with other employers that do not face such shortages. Thus, enactment of the proposed amendments would reduce pressure on the visa cap by screening out employers that are not faced with skills shortages and have no interest in recruiting U.S. workers.

If the Administration's reforms are not implemented, as the Inspector General has pointed out, the Labor Department will not be able to ensure that the intended purposes of the program are actually served. The H-1B program exists to ensure that U.S. employers can meet short-term labor needs by limited access to the international labor market. Under current law, the government cannot ensure that employers use the H-1B program for its intended purpose, and that purpose only.

Conclusion

Mr. Chairman, let me conclude by restating that the growing workforce needs of the IT industry can only be met -- and the strength and growth of the industry secured in the long run -- if we take the steps needed to fully develop and utilize the skills of U.S. workers. Increased reliance on temporary foreign workers should, at most, only be a small part of the solution and must be viewed as a minor complement to the development of the U.S. workforce. Further, let me repeat that reform of the H-1B program is essential to eliminating abuses under the program and providing appropriate protections for U.S. workers. Enactment of these reforms would effectively allocate a greater share of H-1B visas to employers facing actual skills shortages.

I appreciate the interest shown by the Subcommittee and staff in our views, and your thoughtful consideration of them. The Department looks forward to continuing to work closely and cooperatively with you and your staff on these issues.

Mr. Chairman, that concludes my prepared statement. I would be happy to respond to any questions.