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Angelo Paparelli on the New H-1B Rules: Rush to Judgment

October 15, 2020 (8 min read)

Angelo A. Paparelli, Oct. 13, 2020

Immigration Rush to Judgment – No Good Cause for New H-1B Rules in a Hurry

"The U.S. Department of Labor (DOL) and Department of Homeland Security (DHS) last week affirmed the truth of the Upton Sinclair maxim on just how hard it is get someone “to understand something, when his [or her] salary depends on . . . not understanding it.”

In this case, federal immigration bureaucrats have had three decades to comprehend the delicate legislative balance of business needs and labor protections that produced the H-1B visa category for workers in specialty occupations.  For most of the ensuing years they seemed to appreciate that balance.  Yet, now, with the fate of their Executive Branch leader and paymaster up for a plebiscite in three weeks, their comprehension has (unsurprisingly) failed.  As this blog post will explain, because the needs and best interests of employers and workers (citizen and noncitizen alike) are intertwined, changing the rules of play late in the game without fair notice in order to favor one team over others will only hurt everyone.

Four days ago, the two departments — with the gushing enthusiasm of its two leaders — together delivered a one-two punch, each posting a distinct interim final rule (IFR) dramatically restricting and making more costly and burdensome the H-1B nonimmigrant visa category for foreign workers in the H-1B and other specialty occupations.  The DOL rule, “Strengthening Wage Protections for the Temporary and Permanent Employment of Certain Aliens in the United States,” takes effect immediately on publication (October 8, 2020).  The DHS rule, “Strengthening the H–1B Nonimmigrant Visa Classification Program,” will be binding for new H-1B requests filed on or after December 7, 2020. Each rule consumes more than 40 pages of dense three-column, single-line text in the Federal Register.

The DOL rule instantaneously jacked up the prevailing wages that must be paid to H-1B workers if employers rely on the DOL as the source of prevailing wage data (this graphic, courtesy of  David Bier at the Cato Institute, shows how high the new DOL rates have jumped). These elevated rates, DOL has now ordered, must also be considered the going rate for cases involving the sponsorship of noncitizens for employment-based green cards under the PERM labor certification rules.

The DHS rule is a comprehensive overhaul, with a multitude of added burdens and restrictions, as explained here:

Specifically, DHS is: Revising the regulatory definition of and standards for a ‘‘specialty occupation’’ to better align with the statutory definition of the term; adding definitions for ‘‘worksite’’ and ‘‘third[-]party worksite’’; revising the definition of ‘‘United States employer’’; clarifying how U.S. Citizenship and Immigration Services (USCIS) will determine whether there is an ‘‘employer[-]employee relationship’’ between the petitioner and the beneficiary; requiring corroborating evidence of work in a specialty occupation; limiting the validity period for third-party placement petitions to a maximum of 1 year; providing a written explanation when the petition is approved with an earlier validity period end date than requested; amending the general itinerary provision to clarify it does not apply to H–1B petitions; and codifying USCIS’ H–1B site visit authority, including the potential consequences of refusing a site visit. (DHS rule, 85 Federal Register at 63918.)

The societal costs of the two IFRs are substantial.  Just the initial cost to employers, with help from their outside counsel, to understand what the new rules require (the initial “familiarization costs”) amount to $1,954,336 for the DOL rule, and $11,941,471 for its DHS companion; but these sums pale in comparison to the whopping long-term cost projections:

For the 10-year implementation period of the rule (FY 2021 through FY 2030), DHS estimates the annual net societal costs to be $51,406,937 (undiscounted) in FY 2021, $416,212,496 (undiscounted) in FY 2022, $541,795,976 (undiscounted) from FY 2023 through FY 2027 each year, $388,592,536 (undiscounted) from FY 2028 through FY 2030 each year. DHS estimates the annualized net societal costs of the rule to be $430,797,915, annualized at 3-percent and $425,277,621, annualized at 7-percent discount rates.  (DHS rule, 85 Federal Register at 63921.)

[The DOL’s] IFR will have an annualized cost of $3.06 million and a total 10-year cost of $21.51 million at a discount rate of 7 percent in 2019 dollars. . . . The IFR will [also] result in annualized transfer payments of $23.5 billion and total 10-year transfer payments of $165.1 billion at a discount rate of 7 percent in 2019 dollars. . . . Transfer payments are the result of changes to the computation of prevailing wage rates for employment opportunities that U.S. employers seek to fill with foreign workers on a temporary basis through H–1B, H–1B1, and E–3 nonimmigrant visas. . . . [not including PERM transfer payments which DOL, without explanation, considered de minimus].  (DOL rule, 85 Federal Register at 63903-63903 (footnotes omitted)).

The new IFRs would upend complex rules in effect since 1991, regulations that — in a balanced way — considered the needs of employers to fill labor shortages by employing foreign workers, while also providing labor protections. See, H.R. REP. NO. 101-723, pt. 1, at 6721, 6723 (1990) (recognizing “the need of American business for highly skilled, specially trained personnel to fill increasingly sophisticated jobs for which domestic personnel cannot be found and the need for other workers to meet specific labor shortages.”), and DOL Administrator v. Volt Management, DOL Administrative Review Board, ARB CASE NO. 2018-0075, p. 15, fn. 62, Aug. 27, 2020.

Exhibiting virtually no sense of irony at almost three decades of bureaucratic inaction, DOL and DHS explained that it would not be right, nor is there time sufficient, to give the public advance notice or an opportunity to comment before the changes are final.  They cite two reasons for acting so hurriedly:  (1) President Trump issued his April 18, 2017 “Buy American and Hire American” (BAHA), Executive Order (E.O.) 13788, which required them to “propose new rules and issue new guidance, to supersede or revise previous rules and guidance if appropriate, to protect the interests of U.S. workers in the administration of our immigration system,” and (2) the nation is in the throes of an economic emergency as businesses and individuals are buffeted by the immediate harms and aftermath of COVID-19 (as DHS maintains, “[the] pandemic emergency’s economic impact is an ‘obvious and compelling fact’ that justifies good cause to forgo regular notice and comment”).

Given the pro-labor, oblivious-to-business slant of the two IFRs, it is no surprise that the DOL and DHS somehow neglected to discuss the President’s May 19, 2020 Executive Order 13924 on Regulatory Relief To Support Economic Recovery.  EO 13924 addressed several ways to promote an economic recovery in response to the pandemic, including by showing sensitivity to the challenges that U.S. businesses now face:

Agencies should address this economic emergency by rescinding, modifying, waiving, or providing exemptions from regulations and other requirements that may inhibit economic recovery, consistent with applicable law and with protection of the public health and safety, with national and homeland security, and with budgetary priorities and operational feasibility. They should also give businesses, especially small businesses, the confidence they need to re-open by providing guidance on what the law requires; by recognizing the efforts of businesses to comply with often-complex regulations in complicated and swiftly changing circumstances; and by committing to fairness in administrative enforcement and adjudication. (Emphasis added.)

Similarly ignored in the two IFRs are two other Trump Administration executive orders designed to relieve regulatory compliance burdens on businesses, discussed in my November 10, 2019 blog post. These orders — issued after BAHA — should have signaled to DHS and DOL that now is not the time to rock the boat on H-1B stakeholder reliance interests:

Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication

Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents.

Also given little weight by DOL and DHS is the possibility that sharp increases in prevailing wage rates and added burdens and limits on the employment of H-1B workers might actually harm U.S. workers and endanger the economy, as this excerpt from the DOL IFR suggests (but nonetheless disregards in its rush to publication):

With the increases in prevailing wage levels under this IFR, some employers may decide not to hire a U.S. worker or a foreign worker on a temporary or permanent basis. The prevailing wage increase may mitigate labor arbitrage and induce some employers to train and provide more working hours to incumbent workers, resulting in no increase in employmentThe Department is unable to quantify the extent to which these two factors will occur and therefore discusses them qualitatively.

The labor economics literature has a significant volume of research on the impact of wages on demand for labor. Of interest in the context of the H–1B program is the long-run own-wage elasticity of labor demand that describes how firms demand labor in response to marginal changes in wages. . . . It is likely that U.S. employers will pay higher wages to H–1B workers or replace them with U.S. workers to the extent that is possible. However, we can approximate that, if U.S. employers were limited in the ability to pay higher wages and did reduce demand, it would reduce the transfer payment [to workers in the form of higher wages] by approximately 7.74 percent. (DOL rule, 85 Federal Register at 63908; emphasis added.)

The DHS’s IFR does not address whether or not an increase in compliance costs and burdens, and restriction on H-1B eligibility and the maximum period of authorized stay, would result in quantitatively fewer H-1B workers hired.  Surprisingly, this omission comes notwithstanding that two federal courts in Northwest Immigrant Rights Center v. USCIS, and Immigrant Legal Resource Center v. Wolf, et al., have just wrapped USCIS’s knuckles and issued preliminary injunctions against filing-fee increases because the agency did not consider demand elasticity, i.e., that higher fees might result in lower total funding.  In other words, DHS has not learned the lesson (similarly discounted by DOL) that immigration demand goes down when costs go way up.

* * *

Ironically, the haste of DOL and DHS to make their ill-considered IFRs effective immediately have confirmed Upton Sinclair’s wisdom — but with a twist.  It is indeed hard to get someone “to understand something, when his [or her] salary depends on . . . not understanding it.”  It is harder still when the salary paymaster, who faces a vote of the populace in a few weeks, issues conflicting executive orders in the midst of a plague, and the wage recipients are partial to one group of stakeholders over others in a competition which Congress ordained should be fair and balanced."