Press outlets are abuzz with stories signaling that H-1B visa numbers are down and, therefore, no longer held in favor by employers. Is that the case?

The key article, which has led to other press articles, was a May 6 Wall Street Journal piece entitled “Long-Prized Tech Visas for U.S. Entry Lose Cachet.” The story began, “A visa program designed to supply skilled foreign workers to companies in the U.S. has slowed sharply, attracting about 50% fewer petitions so far this year than last year, and 80% fewer than in 2009.” The article cites three possible factors: a mediocre U.S. economic recovery, increased opportunities for workers to stay or return to their home countries and higher visa fees against primarily Indian companies.

Because of the great demand for H-1B visas, in recent years, U.S. Citizenship and Immigration Services (USCIS) has accepted H-1B applications for the next fiscal year on April 1, 6 months before new workers would be allowed to start work. That means current petitions filed by employers are for new H-1B visa holders to start work on October 1, 2011, which is the start of fiscal year 2012. (Fiscal year 2012 runs from October 1, 2011 to September 30, 2012.)

The argument that a major slowdown in hiring H-1Bs is taking place rests on the observation that in April 2010 over 16,000 petitions were filed and in April 2009 employers filed 45,000, according to USCIS. Moreover, back in 2008, employers filed enough petitions early on that the quota was reached in the first week filing petitions was permitted. Therefore, when compared to those earlier years, current numbers are down.

A Short History of the H-1B Quota

Congress did not “create” an H-1B visa program in 1990. Individuals had long been permitted to come into the United States on H-1 temporary visas to work in high skill jobs. Prior to 1990, going back to the 1950s, H-1s generally could not enter the United States if they intended to stay permanently.

Congress changed the law in 1990 to allow (explicitly) “dual intent,” which allowed H-1B visa holders to intend to become permanent residents (green card recipients), while also placing an annual limit of 65,000. Much of the debate over H-1Bs has centered on this annual cap.

By 1997, the 65,000 annual limit established by Congress in 1990 proved to be insufficient. Since 1997, employers have exhausted the supply of H-1B visas every year except during FY 2001 to FY 2003, when the ceiling was increased. In the past 9 years employers used up all the visas before or during the fiscal year. In 1998 and 2000 Congress passed short-term H-1B numerical increases that eventually expired.

In late 2004 Congress approved an exemption of 20,000 from the cap for recipients of an advanced degree from a U.S. university. In earlier legislation, Congress had approved an exemption from the numerical limit for those hired by universities and non-profit or government research institutes. With time Congress has revised the law it has come with greater regulation and, beginning in 1998, higher fees for hiring H-1B professionals.

Market Forces: Why the H-1B Quota is Still Likely to be Fully Utilized

 
If history is a guide, then it is likely the H-1B quota for FY 2012 will be exhausted before the end of the fiscal year. If we examine previous years it is easy to see how labor market conditions have determined the number of H-1B visas used in a year. As noted earlier, for FY 2002 and 2003, Congress temporarily increased the H-1B limit to 195,000. But as Table 1 shows, during those years employers used fewer than 80,000 visas that counted against the cap. That meant about 230,000 H-1B visas went unused in those two years.

In other words, companies did not decide to hire more individuals on H-1B visas during those years simply because the visas were available. And the same is happening today. Employers are analyzing how many people are needed in the United States to accomplish their objectives. In general, smart employers only hire as many people as necessary, since laying off people is costly, inefficient and bad for morale.

What does this mean for H-1B visas? It means that we are still early in the hiring cycle for the 2012 fiscal year, which does not start until October 1, several months from now. Two factors are necessary to keep in mind in projecting H-1B use. First, an H-1B is generally the only practical way to hire a skilled foreign national, including an international student, to work long-term in the United States. Second, the annual quota on H-1B – 65,000 plus the 20,000 exemption for those receiving a masters or higher from a U.S. university – remains low as a proportion of the U.S. labor force, less than one-tenth of one percent.

The fluctuations in H-1B use help demonstrate that employers hire individuals on H-1B visas when it is considered important for the business, not to replace Americans.