Opinion Best of both sides: Uncertainty around H-1B and US immigration policy has unintended consequences

For instance, the IT boom in the US led to an increase in the acquisition of computer science skills among Indian students according to research by Gaurav Khanna and Nicolas Morales. The resultant “brain gain”, coupled with the return of STEM migrants (33 per cent according to a study by Stefano Breschi, Francesco Lissoni and Ernest Miguelez) from the US due to circulation, provided critical human capital to boost the Indian IT industry. Not surprisingly, several CEOs of India’s successful startups have spent significant time in the US, honing their business and technological expertise before bringing their knowledge and skills back to India.

For the US, as the CEOs of top tech firms are emphasising, the need for the H-1B programme arises to attract skilled workers and address skill shortages in the country. However, some Trump supporters are suggesting a clampdown and reform of the programme, claiming that foreign workers displace American employees at lower wages.

Similar discussions on “H-1B visa abuse” constituted a part of Trump’s rhetoric in 2016. Despite no changes to visa quotas or regulations, uncertainty around immigration policy soared right before the 2016 US elections. According to the Economic Policy Uncertainty Index, migration-related uncertainty tripled following Trump’s primary victory compared to 2015. The consequences of this rise in uncertainty rippled across global labour markets, particularly in India, which supplies 70 per cent of H-1B workers annually.

Economic theory suggests that uncertainty makes firms more cautious, often leading to delays in investment. Since the H-1B visa process involves significant upfront costs, including legal fees, administrative work, and relocation expenses, it is expected that firms would delay hiring the H-1B workers until the uncertainty is resolved. Under such circumstances, firms are likely to explore alternative strategies, including relocating jobs overseas to mitigate these risks. Our research (Ritam Chaurey, Kanika Mahajan and Shekhar Tomar) looks at the impact of this rise in immigration policy uncertainty in 2016 on firm-level demand for workers using data from a leading job platform in India. It offers critical lessons for the current period.

India, as the largest source of H-1B workers, was uniquely impacted by this shift. Our analysis reveals that job postings for US-based positions dropped by 15 per cent almost immediately after Trump’s primary win. Simultaneously, it led to a significant rise in India-based job postings by firms most affected by the uncertainty. We find that firms with a 10-percentage point higher reliance on H-1B workers increased India-based postings by 11 per cent. For an average firm posting ads for US-based positions, this translated to 16 additional India-based positions and four fewer US-based ones. This highlights how immigration policy uncertainty can quickly reshape global hiring patterns.

We also find that this increase in India-based postings was not on account of firms creating new roles in India but rather relocating positions originally based in the US. Jobs most vulnerable to offshoring, such as IT and software, saw the largest increase in India. India’s service exports rose significantly for more H-1B reliant firms during this period, suggesting that these offshorable jobs were moved to India. India-headquartered firms were twice as likely as their US-headquartered counterparts to relocate positions back to India.

One of the most striking aspects of our study is the role of uncertainty in changing firm hiring decisions. Despite no changes to the H-1B visa programme during the initial period, firms preemptively adjusted their hiring strategies. When the Trump administration made the H-1B process more strenuous in March 2017, we find that the effect of uncertainty in 2016 was almost two-thirds as large as the impact of these actual policy changes. This shows how mere speculation around contentious issues like immigration can drive significant firm action.

Our research highlights the unintended consequences of some of these protectionist measures. While policies aimed at restricting immigration are often designed to protect domestic jobs, they may not be fully effective. Faced with uncertainty, firms are quick to shift hiring to other countries. In this case, US immigration policy uncertainty inadvertently fuelled job creation in India.

More importantly, the debate itself, regardless of whether it leads to actual policy changes, can shape firm decisions. This highlights the need for policymakers to recognise the economic ripple effects of public discussions around immigration policy. Beyond economics, the human costs associated with families dealing with such uncertainty is immense and underscores the need for a stable and predictable immigration policy.

Chaurey is assistant professor, Johns Hopkins University, SAIS, Mahajan is associate professor, Ashoka University and Tomar is assistant professor, Indian School of Business