By Ryan Boyle, Vaibhav Tandon

Advocates of reforming the U.S. government lament its complexity and bureaucracy. The country’s convoluted immigration system is a great example: the U.S. offers 34 categories of visas just for non-immigrant (temporary) visitors.  Comprehensive reform is elusive and easy to postpone; instead, we are seeing piecemeal changes to programs for individual categories of immigrants.

The H-1B visa is an example of an over-engineered classification.  Holders of these visas  are skilled, requiring at least a bachelor’s degree in a technical domain.  Recipients include doctors, architects and engineers, but the modal recipient is trained in technology.  The visa is valid for three years and may only be renewed once.  An employer must sponsor the applicant, and the recipient must remain employed for the visa to stay valid.  A maximum of 85,000 new H-1Bs are issued each year, though the total is higher due to exceptions for employers like research institutions.

Allegations of abuse surround the H-1B system.  The most common sponsors are information technology (IT) outsourcing firms, who replace in-house IT workers at other domestic employers.  As H-1B workers’ legal status is tied to their employment, they lack protections and work for below-market pay.  Applications exceed the limit each year, and a lottery is used to allocate visas—not the most thoughtful approach to immigration policy.

As we discussed last year, the H-1B program is in desperate need of reform.  On short notice, the Trump administration took up this effort last month, adding a $100,000 application fee for new visas.  Making H-1B workers more expensive to onboard will remove some of their wage arbitrage.  Domestic applicants gain a form of protection from competition, akin to placing a tariff on imported labor.

If the market for tech-savvy labor tightens, the new fee will not necessarily deter larger, high-revenue employers from sponsoring H-1B candidates.  Smaller startups with less capital will be at a disadvantage in the market for talent.  If employers are willing to pay and maintain H-1B volumes, government revenues derived from them will run into the billions.  Application of the fee could prove to be uneven: the executive order allows the Secretary of Homeland Security discretion to waive it. 

Immigration reform was a hot topic in the 2024 election, and stringent enforcement has been a priority ever since January’s inauguration.  But H-1B recipients are a small cohort, unrelated to the controversial migrant surge.  In the past 15 years, the program admitted an average of 116,000 new applicants annually, increasing the U.S. labor force by less than 0.1%. 

The H-1B program is a well-intentioned effort to keep valuable skills in the U.S. economy.  Its new cost will give more reason for foreign students to reconsider their options at home or in other nations.  The consequences will outlast the three-year visa term; for many, the temporary H-1B is a first step while applying for legal permanent residency.  

The shift in policy will reverberate to other major markets.  India and China are the two largest suppliers of H-1B candidates.  Indian technology firms have long relied on this visa to deploy talent onshore for client projects; Indians account for 71% of visa approvals.  Chinese nationals make up about 12% of beneficiaries; no other nation represents a significant share.

India’s $280 billion IT sector faces a reckoning over its strategy of deploying skilled workers to the U.S., which accounts for more than half the sector’s revenue.  The steep hike in visa costs will squeeze margins, forcing firms to raise prices and rethink operating models.  This concern is reflected in equity markets, with shares of leading Indian tech companies falling after the announcement. 

The policy shift may lead U.S. clients to outsource more functions entirely to India to offset higher visa or onshore labor costs.  Multinational firms could scale up global capability centers in India as a cost-effective alternative to hiring H-1B talent. Meanwhile, many professionals who once targeted U.S. roles could pivot to domestic opportunities, strengthening local innovation ecosystems.

While the immediate impact of the H-1B visa fee hike will be felt by India and China, the long-term economic hit could be far greater for the United States.  Skilled immigrants are not just filling jobs:  they support economic growth and public finances.  H-1B visa holders and their families contribute an estimated $86 billion annually to the U.S. economy, including $24 billion in federal payroll taxes and $11 billion in state and local taxes. 

High-skilled workers are deeply embedded throughout America’s economy.  Indian-born executives lead some of the largest U.S. tech firms, and Indian doctors account for over 5% of the U.S. physician workforce.   Roughly 6% of the U.S. college student population comes from abroad, and one in four of them are from India.  Restrictive immigration policies will undermine tuition revenues and the future talent base for American employers.

This policy shift comes amid a global tightening of immigration norms aimed at protecting domestic jobs.  Even traditionally immigration-friendly nations like Australia and Canada are signaling caution.  But on the other end of the spectrum are countries such as Germany that are actively courting highly skilled workers, which would redirect talent flows away from America.

Given these global market forces, the benefit to U.S. workers may be limited.  Technology firms proved the case for global outsourcing: many tech jobs can be done from anywhere in the world.  H-1B holders were only a subset of the competition for technology positions.  Today, applicants are also contending with the effort to automate many roles through artificial intelligence.

Technology workers are no strangers to complex systems: They may be hired to build them, or to simplify them.  That expertise will serve them well as they navigate U.S. immigration rules.  The new H-1B fee adds another element of complexity to a system that is already overcomplicated.