President Biden’s Trump-Like Approach to H-1B Reform

March 4, 2021

On February 24, President Biden issued a proclamation revoking President Trump’s pause on the entry of many legal immigrants to the United States, but the proclamation did not end the parallel suspension on the entry of temporary foreign workers, including those on H-1B visas. While President Biden acknowledged that the immigrant suspension “harms the United States” and “also harms industries in the United States that utilize talent from around the world,” the decision not to revoke the temporary worker entry ban indicates the new administration shares the Trump administration’s concern regarding the H-1B program’s impact on the U.S. workforce. To reform the H-1B program, the Biden administration must navigate competing interests of business groups, immigration advocates, and organized labor.

In pursuing reform, the administration should keep the benefits of immigration in mind. Foreign nationals account for a majority of students in most graduate STEM programs, including approximately 80 percent of full-time graduate students in electrical engineering and computer science departments. Roughly half of Fortune 500 companies were founded by immigrants or the children of immigrants. Policies that discourage highly-skilled foreign workers from arriving to or staying in the United States undermine the competitiveness of the United States’ workforce.

Q1: What is the purpose and impact of the H-1B visa?

A1: Temporary worker immigration schemes in the United States date back to the World War I era. These various programs aim to provide a legal path for foreign workers to fill labor demand unmet by the U.S. population. Studies show that immigrants—including temporary visa holders and undocumented immigrants—have little adverse effect on the wages and employment of native-born workers and that immigration even has a positive effect on labor force participation of native-born citizens. Studies find that H-1B visas, in particular, generally complement rather than replace native employment and contribute an overall positive effect to the U.S. economy.

Every year the United States issues hundreds of thousands of temporary visas to H-1B workers and their families. In addition to filling labor shortages, H-1B visas support U.S. global competitiveness by securing the world’s top talents in the United States. Temporary visas are an avenue for skilled and entrepreneurial immigrants to come to the United States in the hopes of eventually acquiring permanent legal residency.

Q2: What are the most criticized elements of the H-1B program?

A2: The most common criticism of the H-1B program is that below-market wages for foreign workers displace U.S. jobs and depress domestic wages (although this assertion is disputed). There is also concern that dependence on employer sponsorship leaves H-1B holders vulnerable to exploitation. H-1B workers who can become subject to deportation if they are laid off may be fearful of retaliation for reporting abuses. The H-1B process does not have a requirement to recruit U.S. workers before hiring foreign workers like the H-2B program.

H-1B-dependent companies—those in which H-1B workers make up more than 15 percent of the workforce—face additional obligations to safeguard domestic employment. Those obligations are relieved if H-1B workers meet either of two exemptions: receiving wages above $60,000 annually or holding a graduate degree related to their specialty occupation. The exemptions create a loophole for U.S. companies to hire H-1B holders for jobs that critics say would otherwise be employing U.S. citizens. Many of the largest H-1B employers provide staffing or contracted business services such as IT work to other companies, which may have previously employed in-house IT workers. In this way, the H-1B visa facilitates outsourcing U.S. jobs to multinational companies, most commonly in the IT sector, which eventually offshore the jobs altogether. This subverts the intention of the program by ultimately exporting talent rather than attracting it to the United States. In 2014, one-third of the H-1B visas subject to the annual cap were awarded to companies that use an outsourcing business model.

The annual cap for H-1B visas is 65,000, with an additional 20,000 for foreign workers with master’s level or higher degrees. H-1B renewals and new visas for foreign workers at higher education institutions, in government, or in nonprofit research are exempt from the limits. As far more cap-subject registrations for H-1B visas are received than can be issued, selection is determined by annual lotteries to meet the master’s level quota and regular quota.

This system gives equal chance to each registration regardless of wage or occupation. The biggest users of the H-1B program have the capacity, experience, and demand to submit thousands of petitions annually. A small number of companies flood the lottery with H-1B registrations, increasing their chances of success at the expense of small businesses and startups that register for one or two specialized foreign workers. Data for the 2019 fiscal year shows that the top 30 firms, half of which are identified by the Economic Policy Institute as having an outsourcing business model, accounted for nearly 20 percent of approved new petitions in FY 2019.

Q3: How did the Trump administration approach H-1B reform?

A3: The Trump administration implemented or proposed several rule changes and enforcement practices to curb abuses of the immigration system that negatively affect labor market outcomes for U.S. workers. Denial rates for H-1B employer petitions skyrocketed in the first three years of the administration until the enforcement changes were struck down in a series of court cases in 2020.

In April, President Trump ordered the pause on allowing the entry of immigrants seeking permanent legal residency in the country, with a few exceptions. The Trump administration’s rationale for this policy was “to protect already disadvantaged and unemployed Americans from the threat of competition for scarce jobs” during the economic downturn caused by Covid-19.

Notably, President Trump’s initial proclamation did not affect nonimmigrant visa holders or applicants. Nonimmigrant visas are for vacationers, international students, guest workers, businesspeople, diplomats, and other temporary travelers to the United States. A second proclamation in June extended the suspension to cover several types of nonimmigrant temporary work visas, including the H-1B program. Before the bans expired on December 31, President Trump extended the pause for another 90 days—continuing into President Biden’s term. Immigration advocates and businesses have decried the harmful effects of both bans, including keeping families separated and furthering labor shortages. Five industry associations, led by the National Association of Manufacturers, successfully challenged the temporary worker ban, blocking its enforcement against the associations’ members.

President Trump’s Covid-19 ban on temporary workers harmed the country’s economy, especially small businesses struggling to replace the lost seasonal labor supply normally filled by J-1 and H-2B foreign workers. Despite the hike in national unemployment, seasonal and high-skilled labor demands are not being met because out of work Americans are either unwilling to relocate for seasonal jobs or unqualified for skilled tech jobs. In addition to exacerbating labor market inefficiencies, the immigration bans have harmed the country’s international competitiveness and investment profile. A Brookings analysis estimated that the immediate stock market reaction to the suspension of temporary foreign workers resulted in a $100 billion loss to the economy. The ban risks diverting talent and investment to China or other competitors.

On October 8, the Department of Labor (DOL) and the Department of Homeland Security (DHS) issued rules that would make H-1B approval more challenging. The DOL interim final rule drastically raised “prevailing wages,” the minimum wage requirements for H-1B occupations by skill level. Some critics of the H-1B program claim low prevailing wages facilitate the outsourcing of U.S. jobs by IT companies, while others argue that raising prevailing wages would price out entry-level foreign workers—including U.S.-educated international graduates—and incentivize companies to offshore jobs. The DHS interim final rule would more stringently define what qualifies as a valid “specialty occupation” and “employer-employee relationship” for H-1B petitions. Then-acting deputy secretary for DHS Ken Cuccinelli estimated that these two rules would lead to the denial of about one-third of H-1B petitions.

On January 8, 2021, DHS published a final rule that would replace the lottery with a wage-based system. This would give priority to the highest paid workers in each occupation. Such a system would divert visas from IT companies that outsource and offshore entry-level jobs. However, it would also disadvantage entry-level foreign workers across all high-skill occupations, including many international students and STEM graduates.

Q4: How has the Biden administration approached H-1B reform?

A4: Many of President Biden’s campaign promises and early actions have sought to reverse his predecessor’s immigration legacy. The White House-backed comprehensive immigration bill focuses on ending inhumane border policies, supporting family unification, and offering a path to citizenship to millions of undocumented immigrants. While the February 24 proclamation will allow immigrants to resume entering the United States, temporary workers will have to wait another month until their suspension expires on March 31. The economic fallout from the last 10 months as a result of both bans will persist for affected employers and workers facing administrative backlogs.

When it comes to the H-1B program, the new administration’s plans and early actions show more alignment with the Trump administration’s approach. In maintaining the pause on the entry of temporary workers, the administration implicitly agrees with the Trump administration’s rationale for the suspension. Additionally, the Biden administration has delayed rather than rescinded the implementation of the prevailing wage rule and, like the Trump administration, supports replacing the H-1B lottery with a wage-prioritized selection system.

The U.S. Chamber of Commerce led a successful legal challenge to vacate the October 2020 DOL prevailing wage rule and the DHS specialty occupation rule, but they were both reissued in slightly modified forms as final rules in January. Curiously, the final DHS rule was not published in the Federal Register before Inauguration Day. Thus, it was killed by the Trump administration. The Biden administration reopened the DOL rule for public comment and delayed its effective date from March 15, 2021 to May 14, 2021. If the DOL rule comes into effect without further changes, it will meet similar opposition to the interim rule and likely face legal challenges from industry groups.

On February 8, DHS published a notice that the Trump-era lottery wage-based selection system rule would be delayed until December 31, 2021 in order to give time for further evaluation and for stakeholders to adjust to the new procedure. President Biden’s campaign immigration plan promised his administration would work with Congress “to establish a wage-based allocation process.” The only part of his proposed immigration bill that directly references H-1B visas is a provision that authorizes DHS to establish the procedures for prioritizing wages in the selection of H-1B visas. This retroactive authorization may be necessary for the DHS rule to survive procedural legal challenges because the Biden administration rescinded the previously cited authority, President Trump’s Buy American, Hire American executive order.

Q5: What other reforms to H-1B are on the table?

A5: Supporters of the H-1B program argue that the program’s annual 85,000 cap on visa issuances prevents U.S. businesses from meeting their labor demands and securing the world’s top talent. The Biden campaign supported expanding high-skilled visas after first reforming the program to ensure it is not used to undermine wages.

The president’s immigration reform bill avoids directly addressing the H-1B annual quota, but instead proposes raising total caps and removing per-country ceilings for employment-based permanent immigration. This would reduce the extreme backlogs for foreign workers to acquire legal permanent residency and prevent some temporary workers from having to leave the United States unwillingly when their H-1B visas expire. The proposal tracks with recommendations from the CSIS Trade Commission on Affirming American Leadership. However, the bill also includes a provision titled Flexible Adjustments to Employment-Based Immigrant Visa Program, which would give DHS and DOL authority “to ban the entry of immigrants in geographic areas or labor market sectors that are experiencing high levels of unemployment.” This authority could be abused to institute immigration suspensions similar to the Covid-19 bans in the name of protecting U.S. workers.

Unlike the current political discourse surrounding many immigration issues, there is no clear partisan line on guest worker programs. There is widespread agreement across parties that the current H-1B system is flawed and badly in need of reform. As President Biden’s proposed immigration overhaul faces expected Republican opposition, overdue H-1B reform could offer a starting point for bipartisan agreement.

Seán Arrieta-Kenna is an intern with the Scholl Chair at the Center for Strategic and International Studies in Washington, D.C. Jack Caporal is a fellow with the CSIS Scholl Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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