Opinion

Stop labouring over the new H-1B rules

M Muneer | Updated on October 14, 2020 Published on October 14, 2020

New norm: US firms keen to employ non-Americans must pay higher than current wages at the location of work   -  istock

Indian IT/ITES firms should shed their sweatshop mentality and pay their overseas staff well. That will raise productivity

The October 8 announcement by the Trump administration of yet another modification to the H-1B rules may be a dampener to the Indian IT-ITES industry, but the knee-jerk reactions of some experts are not only capitalistic but also selfish. Either they are being paid by the Indian IT lobby or have vested interest in benefiting from lower wages.

The new-age slavery in the IT industry must end sooner or later, and the latest H-1B rules deserve a lot of praise from the IT doyens whose mission-vision-values talk of lofty goals such as fairness, equality and parity. For long, the Chinese equivalent of sweatshops have been in India for knowledge workers. Deputing lower-paid Indians to global client locations to earn more money for shareholders is no more a good business model in a world that has been exploiting the poor and the weak for a while now.

Glorified perks

The truth is that the average Indian IT employee on H-1B gets “glorified perks” that are only slightly better than his/her peers working in India (PPP basis). They never get wages at a level where they can be called upper middle class in the country they are deputed to while their peers in India will be upper middle class.

Critics of the modified rules say these norms are framed under the “guise” of protecting US workers. What they are not saying is that these rules are actually good for those skilled foreign workers who will now get parity pay with their American counterparts. The panic is from the majority shareholders who fear lower profit margins that could reduce their market capitalisation.

That’s why they protest against higher pay for their own countrymen and women. Isn’t this totally against stakeholder capitalism? Most of our companies seem to advocate shareholder capitalism even in an economy that is driving more middle class below the poverty line. The Prime Minister himself had said the government would supply free food to over 80 crore people till November end, that is, a whopping 60 per cent of the population!

Productivity factor

The US President seems to have understood the premise that higher pay will pay for itself, which Indian IT enterprises still have not grasped. Contrary to what many CEOs, analysts and HR heads seem to believe, employees’ rate of pay is not synonymous with labour costs (which reflect not just the rate of pay but also productivity). Moreover, labour costs have little bearing on competitiveness or profitability.

Many IT companies pay very well, but are extremely profitable. Lower wages do lead to ill health, financial stress, and ultimately chronic illnesses and diminished well-being. The costs of such illnesses will be borne eventually by other stakeholders including the government, public health systems, and society at large.

Evidence suggests that if companies paid more, not only would they help their employees but also actually themselves.

A quick study of private sector banks revealed some interesting aspects unique to India. HDFC Bank has the highest per employee revenue amongst all banks and its critical ‘job families’ — typically, 10 per cent of all employees, who are most essential to driving the strategy — pushing the business have higher wages than the industry average. ICICI, a comparable private sector bank, has higher overall wage bill but lower productivity, perhaps because it didn’t look at the concept of strategic job families.

Another analysis of the Top 5 Indian IT players revealed that Infosys paid highest wages to employees and led the per employee revenue compared to the next two high productivity firms — Wipro and TCS. Unlike in the banking sector, the direct correlation between higher wages and higher productivity is evident here.

Besides, as a stakeholder at a deep-tech startup based in the Silicon Valley and in India, I have seen the demonstrable pay-productivity correlation up close. The higher-paid American employees deliver much more than their Indian counterparts on the same programming and simulation.

Market determined wages

The current changes in the H-1B rules postulate that US companies wanting to employ non-Americans should pay higher of actual or prevailing wages at the location of work. Over a million H-1B holders will have to be paid more wages, starting from $30,000 annually. More and more of Indians will benefit from this hike while employed in the US.

Lobbyists, who are paid astronomically by the IT lobby, will only talk about the loss of profit margins of the employers and not address the larger benefit to employees and their families. Also, it will help qualified people earn what they deserve and bring in the market economies of supply-demand to decide on the wage levels.

Eventually, quality will pay for itself and the meritocracy will prevail. If more of highly skilled workers come to the market, the overall wage will come down anyway.

As for the argument that many Indians will lose jobs because of higher costs, some job losses will be inevitable just as we have seen with every tech revolution. People will become redundant because of their skills becoming replaceable with lower costs or when their skills get outdated. If people continually acquire new skills they will continue to stay relevant. Even if companies don’t get their H-1B renewed, they will find better jobs on their own in the land of great opportunities.

Indian IT/ITES companies should walk their talk and start looking after their workers’ well-being by paying them more if they are as productive as the locally available talent. It is time to shed the opportunistic and discriminatory mentality. Business models cannot run on cost-arbitration any more.

The writer is the co-founder of the non-profit Medici Institute and a stakeholder at Silicon Valley-based deep tech company Rezonent Corp.

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Published on October 14, 2020
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