The 69^th Economic Report of the President (ERP), released this week, has much to recommend it—especially its focus on policies needed to rebuild middle-class economics, including raising the federal minimum wage and increasing job-creating investments in infrastructure, science, and technology. However, the report runs off the road when it turns to trade. The official summary of the report features a chart on trade which claims that “export intensive industries report 17 percent higher average wages than non-export intensive industries.” As I pointed out in a recent blog post on trade and wages, this frequently repeated claim is less than half the story. Wages in import-competing industries (not shown in the ERP chart) are also much higher than in non-traded industries, and also substantially higher than the jobs supported by exports. Worse yet, growing trade deficits have eliminated many more good jobs in import competing industries than are supported by exports. So, on balance, U.S. trade has eliminated many more good jobs than are supported in exporting industries. For middle-class working Americans, trade and globalization has indeed caused a race to the bottom in jobs and wages.

As I’ve written before, a good illustration is provided by U.S. trade with China, which was responsible for nearly half (46.5 percent) of our $736.8 billion goods trade deficit in 2014. Jobs in industries exporting to China did pay well in 2009–2011 (the last years for which we have complete wage data)—an average of $872.89 per week, or 10.3 percent more than workers making non-traded goods and services (who earned only $791.14 per week), as shown in the figure below. However, workers in import-competing industries were paid even better—an average of $1,021.66 per week, or 29.1 percent more than workers in non-traded industries.

Figure A

Average weekly wages* in different industries affected by U.S. trade with China

	Average weekly wages*
Non–traded industries	$791
Export Industries	$873
Import Industries	$1,022

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The data below can be saved or copied directly into Excel.

The data underlying the figure.

* Average wages by education group are from a 3-year pooled sample of workers by industry from 2009–2011.

Source: Author's analysis of Current Population Survey Outgoing Rotation Group microdata

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Examined in isolation, jobs in industries supported by exports look good (at least when they are compared to jobs in non-traded industries). But those jobs come at a huge price to workers displaced by imports, and to all workers forced to compete with the growing surge of imports from low-wage countries.

Outsourcing by the thousands

The outsourcing companies involved in the Southern California Edison (SCE) scandal I wrote about last week—where U.S. workers were replaced with H-1B guestworkers—are Infosys and Tata Consultancy Services. These two India-based IT firms specialize in outsourcing and offshoring, are major publicly traded companies with a combined market value of about $115 billion, and are the top two H-1B employers in the United States. In Fiscal Year (FY) 2013, Infosys ranked first with 6,269 H-1B petitions approved by the government, and Tata ranked second with 6,193. As with the SCE scandal, these leading offshore outsourcing firms use the H-1B program to replace American workers and to facilitate the offshoring of American jobs. Because of this, it’s likely that Americans lost more than 12,000 jobs to H-1B workers in just one year. FY13 H-1B data I’ve analyzed, acquired through a Freedom of Information Act request, reveals new details about how firms like Infosys and Tata are using the H-1B nonimmigrant visa program. Spoiler alert: they don’t use the H-1B visa as a way to alleviate a shortage of STEM-educated U.S. workers; they use it primarily to cut labor costs. But the other main arguments proffered to support an expansion of the H-1B program are easily debunked with even a cursory look at the H-1B data.

Lower wages

The principal reason that firms use H-1Bs to replace American workers is because H-1B nonimmigrant workers are much cheaper than locally recruited and hired U.S. workers. As Table 1 shows, Infosys and Tata pay very low wages to their H-1B workers. The average wage for an H-1B employee at Infosys in FY13 was $70,882 and for Tata it was $65,565. Compare this to the average wage of a Computer Systems Analyst in Rosemead, CA (where SCE is located), which is $91,990 (according to the U.S. Department of Labor). That means Infosys and Tata save well over $20,000 per worker per year, by hiring an H-1B instead of a local U.S. worker earning the average wage. But at SCE specifically, the wage savings are much greater. SCE recently commissioned a consulting firm, Aon-Hewitt, to conduct a compensation study, which showed that SCE’s IT specialists were earning an average annual base pay of $110,446. That means Tata and Infosys are getting a 36 to 41 percent savings on labor costs—or saving about $40,000 to $45,000 per worker per year.

Table 1

Below Average Wages for Infosys and Tata's H-1B Workers Compared to SCE Employees and Local Average Wage (FY13)

H-1B Rank	Firm	New H-1Bs Received	Median Wage	Average Wage
1	Infosys	6,269	$65,631	$70,882
2	Tata Consultancy Services	6,163	$65,500	$65,565
Annual Wages for Computer Systems Analyst in Los Angeles CA (where SCE is Headquartered)			$90,376	$91,990
SCE Workers: Average Base Pay for IT Specialists/Engineers (2013)				$110,466

Source: USCIS I-129 microdata; BLS OES Tables, http://www.bls.gov/oes/current/oes_31084.htm#15-0000;  SCE workers' average wage from AON Hewitt compensation study

http://www3.sce.com/sscc/law/dis/dbattach5e.nsf/0/7BDB1F4E1B3463E688257C21008144AE/$FILE/SCE-06%20Vol.%2002%20Part%202.pdf

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An open letter to Secretary of Labor Tom Perez and Wage and Hour Administrator David Weil

Dear Mr. Secretary:

Several newspapers and journals, including Computerworld and the L.A. Times, have reported that Southern California Edison (SCE), a public utility, has laid off hundreds of its U.S. employees and replaced them with H-1B guestworkers employed by the India-based IT services firms Infosys and Tata Consultancy Services. As my colleague, Ron Hira, has written, “Adding to the injustice, American workers losing their jobs are being forced to do “knowledge transfers,” an ugly euphemism that means being forced to train your own foreign replacement.”

As you know, the law (the Immigration and Nationality Act) forbids the hiring of H-1B temporary foreign guestworkers whose employment would “adversely affect the wages and working conditions of U.S. workers comparably employed.” Clearly, taking away the jobs, wages and benefits of the laid-off SCE employees does adversely affect their wages and working conditions.

You have authority under the Immigration and Nationality Act to investigate this case, but I have seen no announcement that you intend to do so or that you share my sense of outrage that the H-1B program is being abused in such an egregious way. I hope that we will soon learn that the Department of Labor intends to investigate and remedy this harm to skilled U.S. workers who have pursued education and training in a technical field, worked hard, and played by the rules. Our government should, at the very least, ensure that its programs, including its visa programs, are not used to destroy the careers and financial security of its people.

Sincerely,

Ross Eisenbrey
Vice President
Economic Policy Institute

Rampant wage theft in the United States is a huge problem for struggling workers. Surveys reveal that the underpayment of owed wages can reduce affected workers’ income by 50 percent or more. Most recently, a careful study of minimum wage violations in New York and California in 2011 commissioned by the U.S. Department of Labor (DOL) determined that the affected employees’ lost weekly wages averaged 37–49 percent of their income. This wage theft drove between 15,000 and 67,000 families below the poverty line. Another 50,000–100,000 already impoverished families were driven deeper into poverty.

The extensive weekly minimum wage violations uncovered by the DOL study in California and New York alone amount to an estimated $1.6 billion–$2.5 billion over the course of a full year. Given that the combined population of California and New York is 18.5 percent of the U.S. total, it is reasonable to estimate that minimum wage violations nationwide amount to at least $8.6 billion a year, and as much as $13.8 billion a year. On the one hand, violations in these two states might be less frequent because the wage and hour enforcement effort in New York and California is greater than in most states and violations might be deterred (Florida, for example, does not have a state labor department). But on the other hand, their large immigrant populations might increase the prevalence of wage theft—the DOL study found that non-citizens were 1.6 to 3.1 times more likely to suffer from a minimum wage violation.

The DOL study vastly understates the total impact of wage theft because it reported only on minimum wage violations, which are more frequent than overtime violations but usually involve smaller per violation dollar amounts than many overtime pay violations. A bookkeeper, for example, earning an annual salary of $45,000, who works 10 hours of unpaid overtime a week might lose $325, whereas a minimum wage worker forced to work “off-the-clock” unpaid for 10 hours would lose “only” $72.50, or ten times the state minimum wage if it were higher than the federal minimum. (Overtime violations are very frequent among low wage workers: a 2009 study found that on a weekly basis, 19 percent of front-line workers in low wage industries were cheated out of overtime pay to which they were entitled.)

DOL’s new study shows the need for much greater efforts to ensure employer compliance. Helpfully, the president has called for increases in the budget and staffing of the Wage and Hour Division, but Congress should revisit the obsolete penalties for non-compliance: repeated or willful violations of the minimum wage and overtime requirements are subject to a maximum fine of only $1,100.

This week was a milestone for Apple. As its stock continues to rise, its market cap exceeded $700 billion—the largest valuation ever achieved by any U.S. company. This milestone, however, must be viewed with considerably less admiration after one takes a close look at its new “supplier responsibility” report. The report reveals important information about one of the less appetizing ingredients of Apple’s vast success: the continued mistreatment of the workers who make its products. The report shows that widespread labor rights violations can still be found in Apple’s massive supply chain, and that Apple continues to obfuscate these realities in its public communications on the subject.

Apple fails to report that its own data shows that labor practices are getting worse in several important areas. In its new report, which covers 2014, Apple says that in 92 percent of cases, the workweeks of the employees in its supply chain fell below its 60 hours per week standard. Apple fails to report that this compliance rate is down from the 2013 compliance rate of 95 percent. In 2014, Apple found that the overall labor rights compliance rate in the area of Health and Safety was 70 percent; it fails to state that this is down from the 2013 compliance rate of 77 percent. Notably, while Apple fails to report prior year data on those issues, which reveal negative trends, the report does provide such data on other topics—those where this year’s data is better than that of prior years.

The effects of Apple’s reforms are often dubious and overstated by the company. For example, in reporting that 92 percent of the time workers in its supply chain are working less than 60 hours per week, Apple ignores the fact that workweeks at its Chinese factories still consistently break Chinese law, which restricts workweeks to less than 50 hours and which Apple has repeatedly pledged to uphold. The average workweek Apple reports still exceeds this legal limit by a substantial margin. Apple also continues to make the remarkable claim that nearly all its suppliers have achieved freedom of association (the right to organize unions and bargain collectively), saying its suppliers achieved 96 percent compliance with this standard. As Apple is aware, such freedom is non-existent in China. Independent unions are illegal. Workers who try to form them go to jail. Moreover, the information available about a program run by the Fair Labor Association (FLA), which was supposedly going to provide a greater voice for Apple’s workers (within the cramped confines of Chinese law), indicates it has fallen woefully short of its stated goals. Further, Apple touts training programs under which, according to the company, 2.3 million workers were trained in labor rights in 2014. This is a large number, to be sure; unfortunately, it is the suppliers themselves, not worker rights advocates or worker representatives (and not even Apple or its new training academy), that provide this training—and Apple provides no substantive information on its actual content or impact. Independent reports indicate that this management-provided training may be entirely cursory. (Apple’s repudiation of the use of bonded foreign labor was a positive step, but does not address the much larger, multi-faceted problem within Apple’s supply chain in China of the excessive use of domestic labor hired through dispatch agencies.)

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Trade is a hot topic on Capitol Hill this year. President Obama has asked members of Congress for “fast track” trade promotion authority in order to finalize proposed trade deals with Asia and Europe that set the stage for growing, trade-related job displacement. One of the president’s core, frequently repeated arguments for these trade and investment deals is that “our businesses export more than ever, and exporters tend to pay their workers higher wages.” But that’s less than half the story. Trade is a two-way street, and talking about exports without considering imports is like keeping score in a baseball game by counting only the runs scored by the home team. It might make you feel good, but it won’t tell you who’s winning the game. Sadly, when it comes to trade and wages, trade is driving down the average wages of American workers because the United States runs large trade deficits with the world as a whole, including many countries in Asia and Europe—the regions targeted in current trade negotiations.

A case in point is provided by U.S. trade with China, which was responsible for nearly half (46.5 percent) of our $736.8 billion goods trade deficit in 2014. Jobs in industries exporting to China did pay well in 2009-2011 (the last years for which we have complete wage data)—an average of $872.89 per week, or 10.3 percent more than workers making non-traded goods and services (who earned only $791.14 per week), as shown in the figure below. However, workers in import-competing industries were paid even better—an average of $1,021.66 per week, or 29.1 percent more than workers in non-traded industries.

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A recent investigation by Computerworld revealed that hundreds of information technology (IT) workers were laid off by Southern California Edison (SCE) and replaced with temporary foreign workers through the H-1B guestworker visa program, which allows employers to hire temporary foreign workers for up to six years if they have at least a college degree (most work in IT). The replacement H-1B workers are employed by two India-based IT services firms that specialize in outsourcing and offshoring U.S. jobs: Infosys and Tata Consultancy Services. While U.S. Sen. Jeff Sessions (R-Ala.) and Rep. Darrell Issa (R-Calif.) have publicly criticized the move, it doesn’t look like any action will be taken to reverse it.

SCE describes itself as “one of the nation’s largest electric utilities…deliver[ing] power to more than 14 million people.” SCE earned net profits of $1.4 billion on $13.2 billion in revenues over the past year. The company’s stock price is up 10 percent over that time and it pays its investors a 4.8 percent yield in dividends. An observer could be forgiven for believing that a job delivering safe and reliable power to homes in the United States might be reasonably safe from being offshored to India or even outsourced to temporary foreign workers. But he or she would be mistaken. In fact, the SCE case is just one more example in a long line of cases in which American workers are being replaced by H-1B workers.

Adding to the injustice, American workers losing their jobs are being forced to do “knowledge transfers,” an ugly euphemism that means being forced to train your own foreign replacement.

Americans should be outraged that most of our politicians sit idly by while outsourcing firms hijack the nation’s temporary foreign worker programs. Unpublished H-1B data from United States Citizenship and Immigration Services reveals the scale of the problem: A majority of H-1B visas are now being used by firms that displace American workers and facilitate the offshoring of high-wage jobs.

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