May 12, 2008

We may be in the midst of a recession with increasing unemployment and fewer jobs, but that’s not likely to have much long-term effect on shortages of talent.

We’ve all read about the aging of the population and other demographic factors. The likely effect of these on availability of talent has been extensively written about. But the problems are likely to be worse than we realize because of three factors: liberalization of immigration policies in other countries; more restrictive immigration policies in the U.S.; and supply of talent.

Pick a Card, Any Card

The European Union has just green-lighted the Blue Card. Modeled on the Green Card, the Blue Card (the color of the EU’s flag) will allow skilled foreign workers to work and live, along with their families, anywhere in the EU’s 27 member states.

Singapore, Japan, and Hong Kong have implemented similar programs, following the lead of Australia and New Zealand. The goals of all these programs are the same: to attract skilled talent and divert some of the talent that flows to the United States.

Currently, 85% of global unskilled labor goes to the European Union and only 5% to the United States. In contrast, 55% of qualified immigrants head for the United States and only 5% to Europe. With the Blue Card, the EU hopes to reduce the imbalance.

The EU and other countries may well succeed because their criteria for handing out permanent residency permits and work visas are much more liberal than those in the U.S., and the procedures will be simpler. Some allow employers to hand out residency permits along with offer letters.

In the EU, for jobs where a citizen is not available, an immigrant would only need to show a degree and three years of experience. Recognizing the need to attract young talent to Europe, immigrants under age 30 would have even easier requirements in qualifying for Blue Card status.

Setting Out the Unwelcome Mat

Our system of providing work visas and residency permits leaves much to be desired. It can take five to 10 years to get a Green Card and the system heavily favors family ties instead of skills. The process is byzantine, involving multiple government agencies and arcane procedures. The number of annual work visas is still only 85,000 despite clear evidence of a shortage of skilled workers. For example, the unemployment rate in computer- and mathematical-related occupations is about 2.1%, or full employment when allowing for people in transition between jobs. Incredibly, the number of visas was actually lowered from 195,000 in 2004, to a level that existed 15 years ago.

In testimony before Congress, Bill Gates had argued for elimination of the cap on H-1B visas. But in pandering to groups like FAIR (Federation for American Immigration Reform) and other isolationists, the solons in Congress, in their infinite wisdom, have chosen to do little about the problem.

The problem is mostly political. Anti-immigrant groups are opposed to any loosening of immigration standards, though immigrant workers make up barely 3% of the skilled labor force and disproportionately contribute to the economy. A quarter of all Nobel prizes won by Americans have gone to immigrants, and a similar proportion of IT firms were started by Indians and Chinese.

A study by the National Foundation for American Policy found that the average S&P 500 company creates five new domestic jobs for each highly skilled H-1B visa employee it hires. By raising the H-1B cap, Congress would insource jobs, allowing companies to fill vital positions and expand their operations at home instead of moving overseas.

Reductions in Supply

Even if the number of work visas is increased, the supply of talent is already getting diverted from the United States. From 2001 to 2003, applications from foreign students to American universities dropped by 26% while they increased in the United Kingdom (36%), France (30%), and Australia (13%).

A 2005 study by the Pew Hispanic Center revealed that temporary legal visitors (the vast majority are skilled workers and university students) dropped to 185,000 in 2004 from 268,000 in 2000.

There’s also a major increase in departures among skilled workers returning to their homelands. A survey by Duke University found that one in three new immigrants holding high-tech jobs in the U.S. plan to leave. Between 10% to 50% of the R&D staff of Indian and Chinese high-tech firms are returnees. The reasons are not hard to discern; with comparable jobs available at home, workers have lesser incentives to tolerate the long waits and uncertainty in the United States.

What compounds the problem is that the supply of talent is simply not adequate to keep up with demand, here or anywhere. The U.S. produces the highest number of engineers per million residents of any country in the world, but that’s only about 137,000 engineers with bachelors’ degrees every year.

Supply from elsewhere is not sufficient to meet all the demand. In 2005, Fortune magazine estimated that China was producing some 600,000 engineers and India 350,000 annually.

These numbers have turned out to be a fantasy. A report by the McKinsey Global Institute said more than half of those “engineers” would be no more than technicians in the United States.

The actual numbers are more like 351,000 for China and 112,000 for India. And that’s not likely to increase much, as it takes decades for a top-flight academic institution to get established and start producing quality talent. The Indian Institutes of Technology, considered among the best in the world, can only produce 5,500 graduates every year, more than 50 years after its inception.

The Future

There are some glimmers of hope. Representatives Gabrielle Giffords (D?AZ) and Lamar Smith (R?TX) have introduced bills raising the cap for H-1B visas. These are the Strengthen United States Technology and Innovation Now (SUSTAIN) Act and the Innovation Employment Act.

The SUSTAIN Act would temporarily raise the cap to 195,000 for FY 2008 and FY 2009, while the Innovation Employment Act would initially raise the cap to 130,000 and allow the cap to increase the following year if it is reached.

Raising the cap is necessary, but more should be done to make H-1B visas flexible. Their number should reflect the economy’s need for high-tech workers, not arbitrary limits set by Congress.

In general, Congress’ record on improving the situation is not encouraging. The last attempt to reform immigration, the Security Through Regularized Immigration and a Vibrant Economy (STRIVE) America Act, adopted the worst features of other countries’ immigration programs. It would have been better called the Stop Companies Recruiting Effective Workers (you can figure out the acronym for yourself) America Act. Thankfully, it did not pass.

But prospects for recruiting are not good. The EU hopes to attract 20 million skilled workers over the next two decades as a result of the Blue Card program. That may be overly optimistic but it will undoubtedly impact the flow of talent to the United States. How much is anyone’s guess.

Without drastic action, the gap between demand and supply will continue to widen. Recruiting will only get much, much harder. If there’s a bright side to this, it’s job security for recruiters.

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