Are foreign IT workers cheaper? U.S. visa policies and compensation of information technology professionals

The use of H-1B and other work visas to hire foreign information technology (IT) professionals in the United States has attracted significant controversy and policy debates. On one hand, hiring high-skill foreign IT professionals on work visas can be advantageous for U.S. firms and the overall economy. On the other hand, high-skill immigration can adversely impact the wages of foreign and American IT professionals. This study uses data on skills and compensation of more than 50,000 IT professionals in the United States over the period 2000–2005 to study patterns in compensation of foreign and American IT professionals to inform these debates. Contrary to the popular belief that foreign workers are a cheap source of labor for U.S. firms, we find that after controlling for their human capital attributes, foreign IT professionals (those without U.S. citizenship and those with H-1B or other work visas) earn a salary premium when compared with IT professionals with U.S. citizenship. The salary premiums for non-U.S. citizens and for those on work visas fluctuate in response to supply shocks created by the annual caps on new H-1B visas. Setting lower and fully utilized annual caps results in higher salary premiums for non-U.S. citizens and those with work visas. We discuss implications of this study for crafting informed visa- and immigration-related policies by the U.S. government, for staffing practices of firms, and for human capital investments by IT professionals.