Last week two researchers, Prasanna Tambe of the NYU Stern School of Business and Lorin Hitt of Penn's Wharton School, released a working paper that found that the presence of H-1Bs lowered wages for Americans by as much as 6%. But then things were suddenly shut down. According to a CNN broadcast transcript, the paper was suddenly withdrawn from public access at the Social Science Research network, and the authors are no longer giving interviews.

I will give my analysis of the paper below and it will be the bulk of this message, but first, what about the question raised by the Dobbs show? Was the paper suppressed due to pressure from the vested interests (industry, the American Immigration Lawyers Assocation) on the authors and/or their institutions?

Subjecting the paper to academic peer review is of course the proper thing to do, as review will uncover flaws, produce improvements, and so on. But this can take a year or more (I once had one languish for three years), so it is customary to share the work informally in the meantime. In the social sciences, this is done through "working papers," informal drafts.

The authors apparently placed their work on SSRN as a working paper for just that purpose. It is indeed quite odd that they suddenly withdrew it from the site, leaving only the abstract.

The Dobbs show was correct to ask about the funding of the research, but pernicious influences can be more subtle than that. Universities, especially schools of engineering and business, want to keep good relations with industry and the business world. It's no accident that at Stanford the computer science building is named Bill Gates Hall (I noticed one at MIT last week too), with Hewlett Hall and Packard Hall across the street. I'm proud of the support my own university has given me for my rabblerousing on the H-1B issue, even profiling me (and five other faculty) in a magazine article, cleverly titled "Informed Dissent".

But other universities, especially private ones, may not be so tolerant. And Dr. Tambe, as an untenured assistant professor, could be especially vulnerable. So the sudden withdrawal of the paper--and its authors--from public access is troubling. There could be innocent explanations, such as the authors realizing that some aspects of the paper need major reworking, but it does seem odd.

Now, what about the content of the paper itself? I was given a copy by someone who had the foresight to download it immediately upon its release, and do have some comments.

You might ask why the authors would even study the topic in the first place. Isn't it a simple matter of supply and demand, with a larger supply causing lower price? As a general principle, yes. The 2000/2001 congressionally-commissioned National Research Council report, whose authors included several labor economists, stated

...economic theory implies that an increase in the supply of IT workers, including temporary nonimmigrant workers, will cause the corresponding IT wage rates to be lower than they otherwise would have been. Theory alone does not imply any particular numerical magnitude of this effect. It is the committee's judgment that the current size of the H-1B workforce relative to the overall Category 1 IT workforce is large enough to exert a nonnegligible moderating force that keeps wages from rising as fast as might be expected in a tight labor market.

Former Fed chair Alan Greenspan told Bloomberg News on March 14, 2007 that he was worried that IT workers' high salaries (which aren't that high) would be resented by the rest of the populace, creating social unrest, and recommended raising the H-1B cap:

Our skilled wages are higher than anywhere in the world. If we open up a significant window for skilled workers, that would suppress the skilled-wage level and end the concentration of income.

The Fed has over the years consistently called for expansion of the H-1B program.

And as I often mention, the National Science Foundation advocated bringing in a lot of foreign students to U.S. university PhD programs, for the express purpose of holding down PhD salaries, as the students flood the market when they graduate (and become H-1Bs). So government experts do believe that H-1B brings down overall wages in the fields in which the foreign workers are numerous. But it would be nice to quantify the effect, which the Tambe/Hitt paper attempts to do.

(Note carefully, and keep in mind, that the 5-6% gap they found, in addition to meaning something different from what showed up in the press, to be explained later, does not mean that that is the amount by which H-1Bs are underpaid, which is a different kind of number. My analyses have shown a 15-20% underpayment for H-1Bs having the same age and experience level as Americans, more when various ages are considered, and other studies have found similar, and in some cases larger, gaps.)

Furthermore, an NFAP study claimed that H-1Bs have a job-creation effect, which might actually raise overall wages by increasing demand. As I explained at the time, the NFAP study was statistical nonsense, and recently a Wall Street Journal analysis essentially agreed. But still, the authors here do have to allow for the possibility that there is such a job-creation effect in spite of the NFAP study's flaws, so the goal of the Tambe/Hitt study makes sense.

One major issue I have with Tambe and Hitt's paper doesn't directly involve their analysis, but instead has to do with a related point they make a couple of times. In asking the question as to whether American tech workers are harmed by the H-1B program, they pair this with a presumed benefit to the program, in the form of supposedly increased innovation and entrepreneurship. On page 3 they write

Recent work has demonstrated that guest workers and skilled immigration have positive effects on both innovation levels (Kerr & Lincoln, 2008; Hunt & Gauthier-Loiselle, 2009) and entrepreneurship (Saxenian, 2002; Wadhwa et al, 2008)...

They make this presumed loss/gain pairing even more explicit (though with a somewhat milder word, "suggest" rather instead of "demonstrated") in their Conclusions section, on page 21:

Although our findings suggest that the negative effects of globalization may be substantial for some workers, it is critical that policy makers weigh these effects carefully against the macro-level economic effects. Offshoring will most likely remain a necessary and important part of the global economy, and there is substantial evidence that H-1B admissions appear to directly improve levels of innovation and entrepreneurship, which in the long term should create new jobs and raise demand for technology workers in other areas.

I've used the word "presumed" above twice because the authors' presumption is false. None of the four papers they cite claims that H-1B or immigration has produced a net gain in innovation or entrepreneurship. Indeed, they could not have made such a conclusion, as they did not have the type of data needed to address that kind of question.

The H-1B program has squeezed many U.S. citizens and permanent residents out of this field, and has discouraged many of our top young people from even entering the field. Thus one cannot tell, without analyzing this aspect, whether H-1B/immigration has produced a net loss or a net gain in innovation and entrepreneurship. So, I must say I found Tambe and Hitt's statements above to be disturbing.

Concerning the main analysis of the paper, in many respects the authors are more careful than most. For example, they break their analysis down to the firm level, allowing them to correlate wages paid by a firm with the percentage of H-1Bs at the firm; this turns out to be very important. In the end, they run regressions of wages against H-1B share, offshoring share, education, experience, job title, industry, specific firm, etc.

Accordingly, the interpretation given to their pay-impact figures in the press, and indeed in the paper's abstract, is incorrect. Instead, the figures correspond to a 10% increase in the share of H-1Bs in a firm (or in an occupation). For example, their statement on page 5,

...the introduction of firm-effects into our models indicates that H-1B employment decreases wages by about 5-6%, primarily for computer programmers and systems analysts...

is intended to refer to what would happen if percentage of H-1Bs among IT workers of this type at a firm were go to from, say, 20% to 30%, i.e. this would produce a 5-6% reduction in wages at the firm.

Imagine, then, the scale of the impact of the doubling, then tripling, of the H-1B cap that Congress enacted in 1998 and 2000, sunsetting in 2004. For lots of reasons, one cannot apply the Tambe/Hitt figures directly, but it should be very clear that THOSE TWO PIECES OF LEGISLATION CAUSED A MAJOR SUPPRESSION OF IT WAGES.

The authors make one error common to many previous works, a potentially very serious flaw related to job titles. This is a key point, most computer-related H-1Bs are programmers, with job titles typically being Programmer or Software Engineer, occasionally System Analyst. Failure to understand this has led to badly flawed research analyses.

All in all, it's a very interesting paper.

Norm Matloff is a Professor of Computer Science at the University of California at Davis. He writes an e-newsletter on the H-1B work visa, offshoring and related issues. We repost his writings here with his permission. To directly subscribe to his e-newsletter, contact him at matloff@cs.ucdavis.edu.