Monday, November 24, 2014

Redesigning the U.S. Business Workforce by Obama Fiat

If you thought Obama’s recent fiat on immigration only on focuses on Hispanic families and other illegal aliens, you are wrong. It targets business growth across the size, maturity and territorial footprint of a wide array of US businesses.

On November 20, 2014, President Barack Obama announced an Executive Order changing the legality of current illegal residents, creating  a path to regularization and amnesty for some 4 million to 5 million illegal aliens who have been in the United States for over 5 years, are not felons and will pay taxes.  But the real economic impact of his governing by “national interest waiver” and “parole” of foreigners into the U.S. will be felt more broadly, in startups, technology-based businesses and outsourcing services.

His proposal is to govern not by enforcing law, but by waiving enforcement and announcing it as an executive fiat rather than by legislative reform.  For politicians, this will potentially expose his waiver policy to judicial scrutiny and political contests in Congress, so much so that I believe that true legislative reform is highly unlikely in the next two years.

The political impetus was humanitarian aid to foreign parents of U.S. citizen children.   The economic impact will be felt broadly, not only in industries (such as restaurants, food processing, farming, landscaping and small business) that have traditionally employed illegal foreign workers.  Indeed, the greater impact will be felt across broad sectors involving STEM technology, startups, venture capital, outsourcing, global consulting and multinational companies.

  • Domestic business owners will face increased costs of compliance with new administrative regulations. Those businesses that have relied upon illegal foreign workers will likely have to increase wages because the newly protected illegal foreign workers will have new portability of their work at one employer as a basis for adjustment of status to lawful permanent resident.  The new rules for the “Deferred Action for Childhood Arrivals” (DACA) program will impact every U.S. employer who will need to adopt new employment eligibility reviews, on terms to be defined under future regulations.
  • Startup Mania.
    • Foreign-owned startups won’t need to worry about H1-B’s.  They will benefit either by “national interest waivers” or (on a case-by-case basis for “urgent humanitarian reasons or significant public benefit”) by “parole.”  For foreign inventors, researchers and founders of start-up enterprises, the Obama administration has set an agenda to “clarify the standard by which a national interest waiver may be granted to benefit the U.S economy.”  Under individual decisions on to “parole” a foreigner, the USCIS will evaluate and grant individual requests for admission from abroad or even extend the right to “stay in place” in the United States.  According to USCIS, waivers and paroles will be granted to “eligible inventors, researchers and founders of start-up enterprises who might not yet qualify for a national interest waiver,” but who (i) have been awarded “substantial U.S. investor financing”; or (ii) “otherwise hold the promise of innovation and job creation through the development of new technologies or the pursuit of cutting-edge research.”
    • Startup Investors.  The US government estimates that this will benefit about 400,000 highly skilled foreign workers.  U.S. angel investors, venture capitalists, startup incubators and their operational supporters will be overjoyed, though the details remain to be seen. 
    • Domestic startups will probably have greater access to foreign inventors, researchers and co-founders.
  • Foreign investors in US companies, global consulting companies and foreign outsourcing companies dodged a bullet.  Foreign outsourcers will probably be able to continue to send large numbers of skilled foreign workers to fill gaps in the US workforce.    However, I suspect that new regulations will be drafted to adopt (tacitly or explicitly) the restrictions and additional governmental scrutiny under the draft Border Security, Economic Opportunity and Immigration Modernization Act, see S. Rept. 113-40 (113th Cong., 1st Sess.), as passed by the Senate in mid-2013.  Thus, H1-B skilled worker dependent employers would likely need to take good faith steps to recruit U.S. workers first, advertise H1-B jobs on a U.S. Department of Labor website and offer the job to a any U.S. worker who applies and is equally if not better qualified than a potential H1-B skilled worker.
  • Foreign spouses of H1-B skilled foreign workers will get the right to work. This will bring additional foreign skills and competition to the American labor market.  But Indian and other foreign outsourcing companies were disappointed not to get an increase in the current 65,000 ceiling on H1-B visas, though they must accept that such an increase would take a new law, not a new “waiver” or “parole.”
  • Foreign students will likely get increased access to work in the U.S. after U.S. university training under an expanded and extended definition of “optional practical training.”
  • Foreign skilled workers who entered the country legally and are in limbo waiting for green cards (lawful permanent residency) will have new flexibility to change jobs without getting sent to the back of the queue for green cards.  This newfound job mobility will give them higher, more competitive salaries and thus less likelihood of being abused as “cheap labor.”
  • U.S. labor unions, Obama’s core supporters, have kept their mouths shut.  They probably will be happy to see higher wages for H1-B’s due to portability and no increase in the 65,000 H1-B cap.   They can’t complain about humanitarian waivers and parole for family unification under the DACA program.
  • Governing without a legislature.  In the short term, Obama’s executive order to waive the application of the law on a wholesale basis is good for business (especially high-tech, e-business and startups).  As a political gesture, it is probably bad for the incoming Republican-controlled Congress and the constitutional balance of power.  Thus, it will unlikely be overturned legislatively until a new Congress in 2016.
Not only illegal aliens, but businesses of all sizes, universities, startups, venture capital, business angels, tech-based operations can rejoice.   Of course, the devil’s in the details. 

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