Protectionist sentiment is on the rise in the United States.  Although my main focus on this site involves the financial markets and individual securities, at times like this it is difficult to ignore the massive structural changes that are taking place in the economy due to political action in Washington.  Yesterday, I discussed protectionist moves related to restrictions on Mexican trucking.  Today, I will cover another  example of protectionism related to restrictions imposed on TARP recipients related to hiring workers holding H1B Visas.

TARP Comes With Strings Attached

The Troubled Asset Relief Program (TARP) was put in place last year under the Bush Administration in a series of ad-hoc moves to bring stability to the banking system.  As anyone familiar with the executive compensation debates in recent months knows very well, the Federal Government is not shy about providing guidance and restrictions to firms that have accepted public aid. 

In some ways, this can be justified because the government now either owns or has extended significant credit to these institutions and the taxpayer has an interest in how these companies are run.  It is impossible for the government to partially or fully nationalize a company and not introduce political considerations into how the company is run.  One would hope that such strings at least protect taxpayer interests.  In the case of the H1B restrictions, government action has done the opposite.

H1B Workers Targeted

Immigrants in the United States with H1B Visas typically have specialty skills that are in short supply.  In many cases, individuals holding these Visas were educated in the United States at our finest universities.  Many benefited from excellent public universities partially funded by taxpayers. 

There are already many restrictions in place related to hiring H1B workers including protections designed to make sure that prevailing wages are being paid to such workers to ensure that they are not undercutting the wages that would be paid to an American.  There are significant paperwork requirements and time restrictions that impose high costs on employers hiring such workers.  Indeed, the paperwork and legal costs that must be paid in addition to the worker’s market wage normally makes it more expensive to employ a worker on H1B status than it would to hire an American to do the same job.   There is really no incentive to hire workers on H1B status other than the fact that these workers are in fields where a shortage of qualified workers exist.

“Employ American Workers Act”

On February 17, President Obama signed the “Employ American Workers Act” into law.  This law specifically targets TARP recipients that have employed H1B workers or seek to employ such workers in the future.  The U.S. Citizens and Immigration Service provided this press release announcing the specific implementation of the law. 

The initial goal of the proponents of the legislation was to prohibit TARP recipients from employing H1B workers entirely.  However, the final legislation allows such employment subject to a number of conditions that are not imposed on most companies that did not receive TARP funds.  Certain non TARP recipients are considered to be “H1B Dependent Employers” if more than 15% of their workforce is comprised of H1B workers.  TARP recipients are now subjected to the same rules as “H1B Dependent Employers”  regardless of the percentage of their employees are H1B workers.  Essentially, the move does not ban TARP recipients from hiring H1B workers but does impose many restrictions that do not exist for financial firms that have not obtained TARP funding and are not classified as “H1B Dependent Employers”.

Good For Taxpayers?

To the extent that taxpayers want to maximize the return of TARP funds from companies that received aid, does it make sense to impose restrictions on TARP recipients that do not exist for firms that did not take TARP funds?  It would appear that these restrictions would only place TARP recipients at a competitive disadvantage and make it more difficult for these firms to recover and pay back taxpayer money. 

I understand the political motives behind such restrictions and the popular impression that H1B workers are displacing American workers.  However, this logic suffers from two main flaws:

First, it fails to recognize that there is still a shortage of qualified labor in many specialized fields today and that employers only have an incentive to hire H1B workers if Americans cannot be found to do the same job since legal fees plus market wages for H1B workers make it more expensive to employ H1B workers than Americans. 

Second, there seems to be a total lack of recognition of the fact that this legislation puts in place an incentive for TARP recipients (and others facing such restrictions) to simply off-shore jobs entirely.  There is nothing to stop a company from employing foreign workers in their own countries and indeed this has been happening on a widespread basis in recent years.

It appears that protectionist sentiment is rising in America today and unfortunately this will only deepen the economic crisis and prolong the pain facing millions of Americans.  The unintended consequence may be that many jobs are sent overseas in the coming months to escape the onerous restrictions imposed by the government on H1B workers.

TARP Recipients and H1B Workers
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