Low Supply of High Tech Workers
Subject Comparative statics, immigration
Topic Labor markets
Key Words Visas, job growth, productivity, work, shortage, workers, training, salary, labor, prevailing wage, employer
News Story

There is a debate about whether Congress should increase the number of temporary H-1B visas from 115,000 to 200,000 so that more workers from overseas can work in the U.S.

One side argues that, although the economy is cruising along with high job growth and productivity increases, it is endangered by a shortage of high-tech workers that will make it harder for the U.S. to compete internationally. The year's cap on H-1B visas was reached as early as March 21. Many workers are nearing the end of the six years allowed by the visas and will have to leave the U.S. unless they can obtain green cards. Foreign workers have been instrumental in founding high-tech companies such as Sun Microsystems and developing software like Java, and have thereby generated large numbers of jobs for Americans. Educating and training Americans will only remedy the problem in the long run. In the short run, it is argued that high-tech businesses need more H-1B visas or else some work will go overseas.

The counterargument is that there is no shortage of high-tech workers. If there was, salary levels would be rising faster, and applicants would find jobs more quickly. It is alleged that high-tech firms simply want to hire cheaper labor from abroad. While the prevailing wage has to be paid, it is up to the employer to decide what that is. Thus, American International Group (AIG) replaced its programming staff with lower-paid foreign workers.

(Updated November 1, 2000)


Draw a labor demand and supply diagram of the market for high-tech workers. Mark the initial equilibrium wage rate and employment level.
a) Show the actual wage assuming that there is a shortage.
b) What could high-tech companies do (other than lobby to increase the number of H-1B visas) to remedy the shortage? Illustrate on your diagram.
c) Training more domestic high-tech workers is only a long-term solution. What does that imply about the elasticity of the labor supply curve in the short run?
d) Why might high tech companies not wish to follow the strategies identified in (b) above?
e) Why is it in the high tech companies' interest to increase the number of H-1B visas? Illustrate.

2. Draw another labor supply and demand diagram of the market for high tech workers. Show a shortage at the current wage rate.
a) Draw the effect of a significant increase in H-1B visas. Mark the new equilibrium wage and employment level.
b) At the new wage level, along the employment axis, show the workers who are new H-1B workers. Also show the workers who were already working in high-tech firms.
c) Those who argue against increasing the number of visas say that Americans are being displaced by lower-paid foreign workers. Is your diagram consistent with this? Explain.
Source Scott McNealy and John Miano, "Do high-tech firms really need imported workers?" USA Today, September 21, 2000.

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