What “60 Minutes” Got Wrong About Outsourcing
On Sunday night, 60 Minutes aired a segment that blamed the layoffs of a number of white collar workers on major corporations using H-1B visa holders. A little probing and context would have revealed this conclusion to be highly suspect.
I sympathize with the workers who lost their jobs through no fault of their own. Everyone should be pulling for them. Despite the sympathy these workers deserve, that does not mean Congress or the White House making radical changes to immigration laws or regulations is the right policy solution, or that this would have made any difference in these particular cases.
60 Minutes should have explained that the workers interviewed lost their jobs not due to immigration, but because for the past 25 years, for competitive reasons, U.S. companies have increasingly focused on “core competencies” – contracting out elements of the company not central to its main product line or service. (There are many books on this.) Notice that the cases in the news typically feature a medical, publishing, entertainment or power company that decides to put out for bid information technology (IT) rather than keep in-house something that is not a core part of its business, thereby hoping to gain access to new technology, solutions and specialization, and at a lower cost.
To understand better how companies decide whether to outsource a function I interviewed more than 10 experts who advise major corporations. None of the advisors I interviewed considered H-1B visas to play an important role in outsourcing decisions.
Here is a typical response: “I would say cutting off the H-1B visa program wouldn’t really impact outsourcing overall, as the H-1B visa holders have a limited and specialized role in the outsourcing process (specifically, in pushing through the transition phase),” according to Alex Kozlov, director of content, Alsbridge, a leading management consulting firm. A transition phase is often when employees see the foreign nationals on-site and blame them for the loss of jobs. IT services companies would help their cause by avoiding situations where employees believe they are training their replacements when providing information during the transition.
The evidence that it is the sighting of foreign nationals on a company’s premises that triggers media attention came in 2015, in a situation nearly identical to the well-known cases involving Disney and Southern California Edison. Citizens Bank of Rhode Island announced in 2015 that it would restructure its information technology and, as a result, work would be done offshore and the company would lay off more than 150 IT professionals. But unlike Disney and Southern California Edison, Citizens Bank of Rhode Island received no angry editorials or attacks from U.S. Senators. The reason? No foreign nationals were spotted at Citizens Bank during the transition phase, which meant no one could blame H-1B visa holders for the layoffs. The transition was conducted over the Internet and via phone, according to Computerworld.
In fact, a recent article in Computerworld, which has been sympathetic to the plight of laid-off workers, explained that H-1B visas are not the key factor in U.S. company decisions to outsource work abroad. “Curbing the H-1B visa doesn’t eliminate offshore outsourcing,” noted Computerworld. “Visa restrictions may complicate the ability of the IT services industry to work in the U.S., but they may have little impact on offshore outsourcing. Business models will adjust.”
A close examination of stories in the media calls into question the charge that H-1B visa holders were responsible for the layoffs at Southern California Edison, Disney and other companies. A critical report of management that followed a shooting in the company’s IT department appears to have been the impetus for the decision to contract out work at Southern California Edison, while Disney had been contracting out IT services for many years with no allegation it had anything to do with immigration, including a $1.3 billion contract 10 years earlier that resulted in four times as many people laid off as in 2015.
Experts who advise companies on whether to contract out services explain that these decisions are made without regard to immigration law and involve competitive bidding, which means a company would not know prior to deciding to outsource a function which contractor it would choose or such things as the immigration mix or makeup of the workers who would conduct the transition to a new system under the contract. There was no evidence presented by 60 Minutes that the workers interviewed would have kept their jobs if a different contractor had been chosen, or that 60 Minutes would have reported on it if a different contractor had employed only U.S. workers.
Once a contracting out decision is made by a company, some employees, unfortunately, are likely to lose their jobs regardless of whether H-1B visa holders are present. But for context, note that every year in the U.S. economy approximately 20 million people are discharged or laid off, according to the U.S. Department of Labor. French-style labor laws that prohibit most layoffs might have helped the workers in the 60 Minutes broadcast, but the tradeoff of such laws is that rigidity in the labor market generally leads France to have an unemployment rate twice that of the U.S.
Companies are not replacing long-time employees with new workers doing the exact same jobs, according to experts I’ve interviewed, but rather replacing the employees with new systems in an attempt to perform the function in a more efficient way, often with an offshore element. Figuring out how best to help laid-off employees transition to new jobs should be the focus of policymakers, since trying to prevent companies from focusing on their core activities and bottom line in today’s competitive global environment is a losing proposition.
Lawyers and politicians have sought to capitalize on the layoffs. During the GOP primary in 2015, Sen. Ted Cruz (R-TX) cited the Disney case and signed on to a bill by then Sen. Jeff Sessions (R-AL) that proposed a series of draconian provisions that would virtually end high-skilled immigration to the United States.
H-1B visas are generally the only practical way for any international student or high-skilled foreign national to work in the U.S. and are used by up to 20,000 employers annually in many sectors. Research our organization released last year showed 51% of privately-held startups valued at $1 billion or more had at least one immigrant founder, usually a former H-1B visa holder. Reforms that would be helpful include granting H-1B visa holders waiting for green cards employment authorization documents (EADs) to increase their labor mobility, raising the number of employment-based green cards and eliminating per country limits.
If Congress were to enact some of the new restrictions on H-1B visas currently being discussed, it would not prevent the layoffs that can happen when major corporations contract out work. Instead, it would encourage the delivery of those contracts to include higher levels of automation and cause far more of the work to be performed outside the United States, not the outcome most U.S. workers favor. The bottom line: Good television does not make for good policy.