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In 1927, the German physicist Werner Heisenberg hypothesized and articulated that the position and the velocity of an object cannot both be measured exactly, at the same time, even in theory. In a complex environment where order emerges from chaos in a continuum and then reverts back to chaos, uncertainty is the underlying norm. Our neuropsychological systems protect us from being exposed to this massive combinatorial variety in life. The uncertainty principle has been long forgotten by our management schools and by prediction experts. As a hyperforecaster forecasting potential outcomes in complex and chaotic environments helping clients convert risk to growth opportunities, it is easy to notice that our world is undergoing a paradigm shift where uncertainty is the new normal where all the swans are black (contrary to the Black Swan theory by Nassim Nicholas Taleb). It becomes problematic to predict which Black Swan will upend the established norm. During this time of considerable uncertainty, the highly improbable event is the most probable event to play itself out.


It is becoming less harder to notice that emergence of certain individuals like President-elect Donald Trump and Nigel Farage, the Brexit movement leader is no accident. The undercurrents of uncertainty are rising to the surface, and a new skillset is required to adapt to this increasing complexity. One of the most notable after the fact event is the shock, democratic supporters experienced due to their campaign loss. These well-meaning supporters were not even considering the probability of Donald Trump winning and started feeling comfortable in their echo chamber. Once the events played out, their nervous system experienced a major shock. Our brains are multi-layered probabilistic prediction machines, however, the accuracy rate and timings of our internal predictions remain poorly developed. Our brains can also accurately predict a range of outcomes from worst case to best case. However, our unconscious, intuitive filters work as self-fulfilling prophecy machines i.e. they only stream data in our consciousnesses which aligns with our belief systems and unconscious biases. Once the developing reality plays itself out in the global consciousness, those who lived in their comfortable echo-chamber experience a neuro-psychological shock. An insight around this area led to a significant career shift for the third time and a development of a robust process called “Hyperforecasting”.


Even if you may not like Donald Trump due to his slant on women, minorities, and liberal policies, not being ready for his policies is an act of delusion which will create more shocks to our already fragile nervous system. One can avoid these prediction failure shocks by considering the possibility of improbable becoming a reality. Donald Trump is one of the reincarnations of Heisenberg of our time and is the master of generating chaos and well as  thriving in uncertain environments. He is not the last one, and one can expect more such individuals to mirror the emerging complexity of the world into global consciousness. Schools, colleges, and our environment rarely teach us how to cope with uncertainty and our established and deep-rooted skills are woefully inadequate for the significant complexity emerging in our environment.

“Donald Trump is one of the reincarnations of Heisenberg of our time and is the master of generating chaos and thriving in uncertain environments”


Now that Trump is on the way to the White House in few weeks, massive anxiety prevails for the startup movement, Silicon Valley as well as the Tech Industry. At the center of this discussion is the policy around legal immigrants and H1B Visas. There are many views on this, and there are predictions with a positive as well as a negative slant. Sundeep Khanna articulates in this article that all the noise around H1B visas is all bluster. His premise is that Indians are the largest beneficiary of  H1B visas, they are not replacing Americans as there is a shortage of qualified Americans. He predicts that H1B visas are too important for the American economy and the new President Elect will tone town his campaign rhetoric. Nick Statt of Verge is less optimistic in his write-up here.  He claims that the hard times are descending on the Silicon Valley and the tech industry in general. Critics of the program argue that American middle class has been sacrificed to give way to emerging middle class in countries like India, China, Philippines, Mexico. Some argue that for every replaced American worker, there is at least one H1B worker imported into the country and five to ten off-shore workers employed in IT hubs.

There is a definite lure of the American Dream and it not surprising to note that there are Visa Temples in India where people donate airplane replicas as people believe that it will boost their chances of foreign travel. A large majority of Indian and foreign students are indebted with large loans to meet their aspirations of the American Dream. The lure is such a cultural movement in India that parents succumb to the societal pressures by mortgaging their homes and their life savings. The economic impact due to any changes in the immigration policies will be severely felt in India and US alike. Some claim that H1B grooms are the most sought after candidates and Trump’s new policies may lead to a drop in demand.


Should we Believe the Media Analysts ?

Many analysts claim that the changes to the legal immigration system will be superficial. With so many views with significant variance, which ones do you believe. After all, the established pollsters were predicting a landslide win for Hillary Clinton, and they were spectacularly wrong. Should you believe them at all? This hyperforecast is aimed at providing you the deeper undercurrents behind Trump’s win, his personality, the general economic environment and then provide you with a premise for the base case scenario. Hardliners claim that Silicon Valley leaders have improved their bottom line by reducing their cost to the company (CTC); are less worried about American middle class but more than about their own wealth coffers. Having interviewed a large diaspora of Tech workers over time for our various hyperforecasts, it is not surprising to hear derogatory comments about the structure of “bad innovation”. “Bad Innovation” leads to erosion of the middle class, increases the gap between have and have nots and replaces long term employment with contract workers or outsourced workers.

This hyperforecast is aimed at providing you the deeper undercurrents behind Trump’s win, his personality, his motive to govern, the general economic environment and then provide you with a probable case scenario also called as the base case scenario.  Although the probability is very low, the worst case and the best case scenario have the potential to play out, so, one should cautiously read this hyperforecast.  8 out of 10 our hyperforecasts have been spot on, 2 out of 10 have suffered from timing or accuracy error. I would also like to boast that the hyperforecasts have never been wrong, at least till now due to the unique methodology of tempering our unconscious, intuitive systems.


Hyperforecast 


*** Update – We are updating our hyperforecast certainty to 95%. Major changes in H1B, Legal Immigration, and TN Visas will be rolled out slowly, but firmly.


Hypeforecasting is an advanced process utilizing knowledge acquisition, prediction error minimization; mental model innovation ; and Intuitive Decision Making. The process once learned and mastered allows an individual or group to acquire accurate world models precision weighted for accuracy. Accuracy rate is further improved by enhancing perception, cognition, and intuitive recognition. Once we combine intuitive recognition (inner knowing) with a tempered assertion (projection), we focus on improving accuracy and timing for forecasts. The most difficult part of the process is converting a forecast into a prediction. If you need a primer on Hyperforecasting, this link provides a fairly good overview of “A Primer in Hyperforecasting”. You can read more about the “Core Philosophy” around our methods, process and consulting framework. 

Predictive Range Chart

The hyperforecast is developed basis the state of the current economy, the current state of the Tech Industry, the undercurrents that propelled Trump to the White House and Chaos Theory.

We hyperforecast that in the short term (3-6 months), the changes to the legal immigration and specifically H1B visa policies may be incremental and may occasionally seem conciliatory to the Silicon Valley. However, over the medium range (1-3 years), there will be significant changes and almost disruptive changes to the legal immigration system. These changes will be unfavorable to immigrants and tech workers who long for the American Dream. Over the long range (4-6 years), most of the radical changes in the program will be unable to sustain themselves and move towards the center (liberal). However, the short and medium term policies will fundamentally alter and fracture the existing progressive structure for startups, work visas and innovation in Silicon Valley.

We forecast that there is an 85% chance of this forecast turning into a prediction. On the Hyperforecasting Predictive Range Scale, we would rate the possibility of our prediction somewhere between “Probable (75%)” and “Almost Certain (100%)”

Let us now outline our basis and premise for this hyperforecast.


Trump’s last mile sprint to the White House

President Elect Donald Trump won in his last mile race to the White House shocking the world leaders, many of whom did not even consider the possibility (Even Chances – 50%). We had predicted Donald Trump’s win in this widely acclaimed and critiqued here. You may notice that since Feb 2016, when the first prediction was dolled out, we never changed the forecast and held to our prediction in spite of the many perceived setbacks Trump’s campaign experienced. Our conviction of his win was based on the prediction framework drawn on “Chaos Theory” and a well-tempered “Intuitive Assertion Process”. As I discussion in this article on S-Curves being the language of nature and structure of events as the strategy of Nature, when we see S-Curves developing in a particular direction, there are always adjacent bigger S-Curves that we miss to notice. One of the missed S-Curves was the ability of candidates to recover from setbacks. In “Emergent Strategy Simulation,” an incredibly powerful emergent strategy process, we have empirically observed with 100% certainty and accuracy that “setback recovery” becomes a significant unconscious strength.

A  major pattern pollsters missed during the race was that Trump experienced a setback and relatively quickly recovered from the setback. It was also easy to see that the “Setback Recovery” time for Hillary Clinton was slightly longer than that of Trump. In such dynamics, the one who quickly recovers from setback would most likely win in the last mile sprint.

It is also important to have an in-depth understanding of a key segment of Trump’s supporters who helped him win this race. They are Americans negatively impacted by globalization, lobbying effort of powerful corporate entities, liberal policies and finally the impact of outsourcing.  The problem has been compounded by the opening of floodgates for legal immigrant visas and student visas which have created a path to Permanent Residence (Green Card) as well as Citizenship (H1B, L1, H2B, etc.) for many. American workers have been directly and indirectly impacted by the significant rise of Tech Industry and the related immigration laws that enabled the meteoric rise of this industry. The origins of Silicon Valley have been explained in some detail in our hyperforecast “The Return of the Global Depression 2.0”. One must understand that everyone does not work at Google or Facebook. Everyone is not creating the next Robotic Venture that leaves people awe struck fascinated by the range of possibilities opened up due to technological innovation. The American Dream had become a tale of two cities, one in which people start their day drinking their cafe lattes in Silicon Valley, dreaming of sending people to Mars and the second where older laid off American workers struggle with making end meets and their days are filled with gloom about their and their children’s future.


It was the blind sightedness of the Clinton campaign and the lack of empathy in the design innovation driven Silicon Valley which ignored the latent anger within a large segment of the American society. Trump tapped into this segment and gave them a platform for voicing their concerns. In the landmark and award winning book  ” Strangers in Their Own Land : Anger and Mourning on the American Right“, the liberal sociologist Arlie Hochschild chronicles the pain felt by this vast alienated class by demolishing the “Empathy Wall”. Empathy Wall is a metaphor for the blinders we build in our mind to ignore perceiving the pain felt by others. The author chronicles the plight of the less educated white minority who are struggling with closed factories, destroyed lives, higher health care costs. However, she has missed to highlight the difficulty and pain felt by the educated white middle-class workers who have lost their jobs directly to the increased outsourcing and inflow of immigrant workers through the various legal visa programs. If one can drop their empathy wall for a moment, it is as heartbreaking to notice the plight of these negatively affected workers as much empathy as one feels while watching social media videos of a homeless person being helped by a well-meaning individual. It is simply a matter of perspective; if you can choose to switch perspectives. I am a liberal and support liberal policies, but, could not ignore the paradox inherent in our point of view.

The laid off IT workers at For McClatchy Company who lost their jobs due to work being outsourced to India are a long list of American Tech workers who feel angry at the manner in which companies treated them as replaceable furniture. Abbott Labs, another US-based firm laid off 180 workers by outsourcing work to Indian IT giant WIPRO. From Disney to IBM to UCSF (University of California, San Francisco), these tales have been building up.  In a Trump rally, two laid-off Disney workers spoke out against their plight and well articulated their anger while saying “IT workers “are afraid, they’re in shock. The fact is that Americans are losing their jobs to foreigners,” said Moore. “I believe Mr. Trump is for Americans first.”Irrespective of what the different campaign PR efforts may make you believe, these educated middle-class white workers were a significant segment that propelled Trump to Victory. They were combined with the lesser educated segments from the “rust belt”, who were committed to change the way things were being run in their country.

If one wants to understand how this segment will shape Trump administration policies on legal visas, one should deeply understand this segment well. They are rightfully angry that their job stability and the American dream is now being exported to legal immigrants who are changing the diversity of daily life as well as the employment structure of their society. This is not a very vocal segment, and you will not see them protesting across highway intersections or in front of IT companies. However, this segment is well organized, is strategic and is committed to seeing a change. If Trump administration goes off track its promises, this key middle-class segment will not fail to deliver a wake-up call and even start another movement to replace this government at the next opportunity.

Trumps’ Motive to Govern

Donald Trump is a wealthy billionaire who was born with the golden spoon in his mouth. He is not a career politician and will soon realize that he may not want to run for another term and rather replace himself with a proxy candidate. He has never been politically correct and has not learned how to frame his mental computations in a populist manner. While he has got into trouble due to his lack of semantic filters, a particular segment liked him as with Trump “What You see is What you Get (WYWYG).”  At a time, when politicians have no qualms maintaining a different public position to gather votes while holding a polar opposite private view, Trump appealed to some who perceived him as relatively more authentic than the career politicians. Notice that I said relatively, as in this campaign, both the candidates were morally flawed. The only way to make a comparison with good and bad was relativity.

Supporters of both Hillary Clinton and Donald Trump conveniently ignored certain flaws of their candidates to convince themselves to vote for either. Making choices between a good and bad choice is easy. It becomes tough to chose when both the options are equally good or equally bad. It is a dilemma I have struggled with repeatedly while avidly studying “unconscious decision making,” which is a complete opposite of what our B-Schools teach us.Trump has promised major changes in how Washington D.C will usher in change from the conventional politics. Once can read about his proposed policies in this write-up by Washingtonpost. 

Trump also enjoys creating uncertainty and chaos around him as it validates and mirrors his internal mental models which keep flip flopping every few seconds. Flip-Floppers may sound inarticulate or unintelligent to others, but, exhibit a different kind of intelligence that thrives in uncertainty. One thing is for sure, Trump will be slaughtering more and more sacred cows and demolishing everything established and deep rooted. On this basis, one should expect that he will not hesitate to take the road less traveled and experiment with the unthinkable. I have many friends in the tech sector and it is not hard to see that tech sector is facing the last mile headwinds before its final drive. While Tech Industry maybe not completely unravel, the structure of Tech Industry will significantly alter. The tech workers who cannot spur innovation in their home countries will have a gloomy future, while, those who can seize the opportunity may contribute to the rise of parallel Silicon Valleys. In an upcoming post “The Impossible Task of Cloning Silicon Valley- How Innovation fails to Innovate itself “, we will discuss the dynamics of a major opportunity for countries over-reliant on American Innovation industry. These countries like India, Mexico, Chile and Canada have the potential to create their own replica of Silicon Valley. Countries such as India which export significant intellectual capital to the rest of the world will seriously need to rethink its business model. The tech leaders in India should plan to move upstream rather than we content with seizing downstream opportunities. The timing is right, the challenges are enormous and the journey is full of chaos, but, this is a historic moment for those willing to risk it all.

“The timing is right, the challenges are enormous and the journey is full of chaos, but, this is a historic moment for those willing to risk it all”

The lack of long-term political ambition in Trump and missing obligation to wealthy donors makes it probable that Trump will listen to his key segments and follow through with his policies firmly. One may see attempts by Republican House and Senate players to tame this wild side of Trump. The taming effort may work in the short-term creating a perception that Trump is going soft on his promises, however, in the long term, Trump will be Trump. As he experiences the challenges of governing as POTUS, he will again move from the President Trump personality to the campaign candidate personality who thrives on spur of the moment decisions generating lots of uncertainty.

On this basis, Trump is very likely to roll out radical changes to the legal and illegal immigration process using the various avenues available to him. We will discuss the potential new framework in great detail as we move along this hyperforecast.

 

Concentration of Democratic Voters in Technology Hub Clusters

Most of the technology hub population predominantly voted for Hillary Clinton and most of the post-election protests were also concentrated in these cities. Even if Trump wants to forget the intrinsic hatred he generates amongst this segment , the team around him will continually remind him of the deep dislike for him in these clusters. Tech groups and entrepreneurial hotbeds are mostly left leaning, well-educated segments with significant money power at their discretion. The money power can be easily converted into proactive anti-Trump movements without anyone noticing.The hawks in Trump team will always remind him that this is his time to neutralize the influence of the Tech CEO’s, leftist leaning populace and their thick wallets. The only way to do is to pretend to be nice to them, while getting the razor edge ready for a sneak attack.

It is our premise that Trump will seem conciliatory to the the power makers in the technology clusters in the days preceding his inauguration. However, within weeks of taking over the mantle, he will start throwing curve balls at them to keep them on edge.

The End of Tech Industry Yield Curves

In an earlier Hyperforecast ” The Tech Bubble Burst of 2016″ and as highlighted in a more recent commentary on the state of the Startup movement in The Great Indian Tech Bubble Burst, we emphasized in great detail how low-interest rates have created asset bubbles and hyped up ventures. Investors are looking for higher yields, and eventually, the returns run out on S-Curves. If you struggle with understanding yield curves, I would like to provide an analogy. In many developing countries in the world, street vendors sell sugarcane juice while processing in real time the sugarcane sticks through rolling crushers. Every pass of sugarcane sticks through the crushers generate a yield (sugar cane juice). However, they want to get more yield so keep passing the sticks through the crushers till nothing is left of the sticks. The sugarcane vendor has limited passes after which the sticks will generate Nil yield. 

It is our premise that investments in the startup industry propelled by technological innovation have significantly slowed down and have already extracted the maximum yield from the startup phenomenon. We also claim with hyperforecasting certainty that the tech industry has been experiencing a silent bubble burst. Layoffs, Litigation setbacks and Revenue Slowdown are a testament to the fact that silent burst is at work in the background. The muted volume of the burst is enabled by the fact that most of the money in this industry is private money as a bust in private money occurs more silently.  The invested parties also keep the volume of the burst low as it is not self-serving. On the other hand, the Dot-Com Bubble burst occurred with public money. Hence, the signals and impact were more widely seen and felt.

Even before Trump won the presidency, the Tech industry has been facing headwinds and layoffs had been increasing. It is our premise that while the yield curves for the tech industry have run out, we have a bigger problem at hand. We are heading into a “Global Depression” . Low-interest rates have led to asset bubbles, and globalization has resulted in a marginalization of workers in their own countries. The unending search for yields leads to hyped up asset bubbles and economic imbalance. All the social, industrial and civic populist movements emerge to offset the imbalance by resetting the norms. It is during such resets that personalities such as Donald Trump are assigned the power to make changes in the fundamental structures of our socio-economic reality.

The movement against globalization is only likely to gather further momentum and protectionist policies will be the new order of the day. One will soon hear that globalization in its current form has failed and led to a redistribution of wealth to the more affluent who also want to control the politics, the politicians,  and the governments. The start of the Tea party movement was motivated by the influence of private money, wall street banks and military-industrial complex over politics. The Tea Party was a movement against the elites and continues to gather groundswell around the globe. Bernie Sanders movement was the Tea Party of the democrats while Trump movement was the tea party of the Republicans. Brexit movement was the tea party of UK and one can expect to see more such movements surfacing into our consciousness.

 

“Bernie Sanders movement was the Tea Party of the democrats while Trump movement was the tea party of the Republicans.”

 

In short, the countries will move from global to more local economies while becoming protectionist in nature. This significant shift will only unfold as a big movement in the next decade as the oncoming depression will at least last for 7-10 years.  If the situation seems gloomy and doomy, it is indeed pointing in this direction. We are experiencing a paradigm shift across the global industry landscapes, and a significant disruption of the established is in the offing in the very near future. As I discussed in the “S-Curves, the Language of Nature, it is easy to jump from one S-Curve to the adjacent S-Curve, however, it is very challenging to jump over to new and distant S-Curves. When a disruption of the established occurs (established careers, established political following, established family systems, established marriages, established professors, experts, MBA’s, strategy consultants etc), most of us have to deal with extreme chaos combined with a helplessness that paralyzes us.

 

A new disruptive world is the new normal and those unprepared for this oncoming eventuality; one will experience the same or even larger shock levels visibility experienced by heartbroken, devastated and shocked Democratic supporters.  The improbable is becoming more probable every day.

 

Tech sector does not operate in a vacuum and requires supporting government policies to spur growth and profits. The Tech Industry is quick to adapt to the changes in the new administration after they have flapped their wings trying to alter the forces of winds by used paid lobbyists. It is clear that lobbyists will not be allowed in close proximity to the Trump campaign except those who already toe the administration slant on policies. The recent election was a campaign in which money did not win and it is unlikely that money will win during governance. On this basis, companies will quickly toe the administration line. There are already indications that Trump effect is working. Reports claiming that Apple is considering manufacturing some parts of iPhone in America and Ford has indicated to the president-elect that it will not be outsourcing jobs to Mexico. One can expect more such announcements to flow in. Those hoping for no changes to H1B and legal immigration policies may be mistaken as industry is used to

Those hoping for no changes to H1B and legal immigration policies may be mistaken as the industry is not used to “When in Rome, do as Roman’s do”.  The wealthy billionaires who own and run these companies will soon pivot to the new reality and even proactively appease the new administration by laying off H1B workers and hiring American workers. The H1B workers who cannot see this possibility unfolding will experience a major shock to their nervous system. Basis the above, our assertion here is that the tech industry will not try to fight the changes to the legal worker immigration program, will quickly adapt after some complaining and even go ahead and lead the way in advancing the new policies.

 Silicon Valley Rhetoric during Elections 

Donald Trump was able to connect with the ignored segments of the populace and steal more bandwidth than conventional media would have allowed using social media. Silicon Valley created Donald Trump through their social media inventions as highlighted in this excellent piece by New York Times. The unintended consequences of innovation or our strategic actions can only be seen in hindsight. The emergence of unexpected results always trumps careful planning, and as mentioned in this post, Trump’s win was due to his unconsciously utilizing emergent strategy. Emergent strategy always wins over carefully crafted Strategy. As we will discuss in an upcoming post “The Massive Disruptive of the Consulting Industry is on the Menu”, emergent strategy based on a new understanding of intelligence is the new order of the day and all consulting firms, strategy consultants and MBA programs teaching and practicing conventional strategy will experience a significantly disruptive S-Curve in the near future.  

 

While Silicon Valley and its technological innovative social media products such as Twitter may have unintentionally helped Trump win the last mile race, the promoters of Silicon Valley have had bad blood with Trump as a candidate. Many of the Silicon Valley leaders were vocal about Trump’s flaws and many called him out publically. While they may have followed their beliefs and convictions, they suddenly realize that they have no choice but to work with the subject of their intense dislike. Over 140 of Silicon Valley executives signed an open letter citing Donald Trump as a potential “disaster for innovation,” praising government involvement in the economy, and claiming “diversity is our strength. Trump has made no qualms about his likes and dislikes, and these executives may have a lot to worry about. The collective power of these billionaires will be unable to trump the new administration powers through legislation and executive orders.

 

Our powerful working model of Embodied Predictive Intelligence ©” is a paradigm shift in understanding of Intelligence. Intelligence is more about prediction than IQ, EQ or other forms of Intelligence. Predictive Intelligence requires foresight and the lack of foresight exercised by the brightest in the industry during this election definitely questions our assumption about their intelligence. Influential people injected themselves in the middle of this election and now find themselves struggling to surf the new tide. Silicon Valley leaders who will be most impacted by tightening of legal immigration policies were vocally and visibly sparring with candidate Donald Trump. Some are trying to make up using flattery, but, the damage is already done. Trump, as we all have seen, does not forgive and forget. Here are some examples of the exchanges of vocal insults shared between the President-Elect and Silicon Valley bigwigs.

Keith Rabois is a technology entrepreneur; Jeff Bezos is the famed founder of Amazon.com and even Eric Schmidt of Google injected himself into this election which was exposed during Wikileaks emails. Of course, there is Marc Cuban who was most vocal in this campaign against Trump.

Image result for Silicon Valley Trump Tweets

Given the fact that Trump is not looking for a career in politics, is not beholden to powerful lobbyists and has powerful likes and dislikes, Trump would like some of his distractors to bite the dust. A policy framework that can increase his popularity amongst the segment that voted him in and decimate his distractors will be very attractive for Trump to implement. Even if Trump seems friendly towards his insulters during the initial phases of his governance stage, he is likely to pursue policies which could hurt them financially. It is our premise and prediction that Trump will follow through with hardline policies that will rattle the Democrats and the Silicon Valley while immensely pleasing his supporters.

Trump’s Election Promise of a Smaller Government

Trump has asserted on multiple occasions that he will reduce the size of the government.  Reducing the government size without improving the efficiency will likely create a significant backlash from the populace including those who supported a smaller government. The alternative is to modernize the processes using enabling technology. The new administration will lay off hundreds of federal workers and enabling technology will have to quickly ramped up to avoid a paralysis of day to day government work. Multi-million dollars contracts could be awarded according to the Federal Acquisition Regulation (FAR) guidelines. With Yield curves of existing business models close to the finish line, technology companies will be eager to capitalize on the new opportunities.

This is where a concept of “domestic inversion” is likely to come into play. Under FAR (Federal Acquisition Regulations), “Domestic Inverted Companies” who move their headquarters overseas are already banned from all government contracts. A new legislation may be created which may classify significant outsourcing in the same category as “Domestic Inversion”. All big tech players will not want to miss a piece of the government contracting work and will quickly warm up to new administration’s anti-guest worker policies.

Companies like Palantir co-founded by Peter Thiel are likely to gain big time since they won a court battle against the Department of Defense contracting procedures. Hawkish CIA, NSA and Pentagon leaders will lead an effort to modernize Department of Defense and Federal Government. They will channel the big money that usually is reserved for the military-industrial complex towards the new modernization triad of supportive Silicon Valley ventures (Palantir and other ventures supported by In-Q-Tel, the CIA’s venture capital arm) and the efficient government proponents.

A big chunk of money will be set aside on priority for improving immigration processes under Department of Homeland Security. Finally, immigration reform will enable new technology contracts and government spending will quadruple during this time. Trump administration will most definitely include rigorous conditions in the Statement of Work (SOW) which will mandate

Trump administration will most definitely include rigorous conditions in the Statement of Work (SOW) which will mandate the hiring of American Workers to bid for these contracts.

A new gold rush is coming and billionaire Tech Industry founders will go overboard replacing foreign guest workers with American workers to bite into the new golden pie.

Legal Worker Immigration Channels into the United States 

Legal Worker immigration into the United States has many routes, and it may be helpful for those who are not aware of reading the paths available for legal worker immigration. A small primer may help one come up to speed with this. Go to the link here to read about the visas outlined in the graphic below.

Coming to America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source : FundersandFounders.com

In addition to the above visa categories, there is the F1 Student Visa which allows one to study in the United States and post completion of study allows STEM (Science, Technology, Engineering, and Mathematics) degrees students to work up to three (3) years without seeking a specialty category visa. The original legislation allowed students to study only for one year under the program, but executive orders have enabled the OPT to be extended to three years. Students apply for work authorization through the United States Citizenship and Immigration Services, and once their application is approved, they can legally stay and work in the United States.

Students can work in the United States for up to three years on OPT Extension and then migrate to H1B Visas if an employer is willing to sponsor them. The extension beyond one year was signed under the presidential executive authority and is very likely to be rolled back within the first few days of Trump taking over the President’s role. It is important to note here that President Obama actively campaigned against Donald Trump and it is not a hidden fact that they do not like each other. Trump has already signaled that he will damage Obama’s legacy by rolling back any presidential orders signed by the Obama administration. Technically, Trump does not need approval to roll back these executive orders and is likely to follow through with this promise here. The 1 Year OPT rule will, however, require a legislative change and as we will highlight in our conclusion is unlikely to be altered.

GAO Report on H1B Visa Reforms

The GAO report is for an earlier period i.e for the year 2009, however most of the recommendations of this report were not implemented. DHS refused to implement some of the suggestions for compliance and increased scrutiny. This particular report and the report by DHS on L-Visa Abuse is likely to become the focal point during forthcoming discussions. 

In 2011, GAO (Government Accountability Office) carried out a study on H1B guest worker program, its impact on innovation as well as impact on American workers. Although this is an old study, it is likely to become a focal point during discussions on changes to the legal immigration system. The report was titled ” H1B Visa Program : Reforms are needed to minimize the risks and costs of current Programs” . The congressional oversight agency (GAO) highlights that thousands of U.S. guest workers are being paid less than the prevailing wages for their jobs. Prevailing wages are continuously monitored by the US Labour Department and it is very likely that the department’s wage levels estimation are much lower than the industry trend. The number of underpaid visas approved was only a tiny percentage of the 960,000 applications electronically reviewed as a sample during the study. Based on this small sample, it is quite likely that the “underpaid wages statement” is grossly understated. The report unequivocally cited that there were apparent violations of Department of Labor stipulations that all applicants are paid the prevailing wages for their positions.

We will discuss the key highlights of the report as this is most likely to become a baseline document around which changes will be initiated in the guest worker program.
Majority of the H1B Visas went to big corporations or staffing companies 

GAO has highlighted in its report that H1B visa application employers were either established businesses or staffing companies. It also highlights that it is aware that staffing companies get employees on a bench and then sub-contract the workers to other businesses looking for tech workers. Maximum complaints about abuse of H1B visa process were received from employees of the staffing companies.It is our premise that the new legislation will exclude staffing companies from H1-B application process. Some staffing companies have found a loophole around this by incorporating themselves as staffing as well as technical services companies. If the new legislation forbids companies from sub-contracting H1B workers to other businesses for the long term, then, it will negatively impact these staffing companies.

All H1B applicants must have existing projects at hand, before applying for the visas. The process is easy to abuse as indicated by recent cases of abuse of the visas. A company bidding for renewal of a services contract may cite the projects as existing project and may seek H1 visas for the same, but, may lose the contract renewal and may have to sub-contract the H1B worker to the contract winner in some cases. Two Indian-American brothers were jailed for misuse of H1B process. There have been other convicted violations where workers were benched, not paid salaries till they got a project. Other cases have been reported where resumes were faked to get on to the H1B or tech industry rush.

Some of the  Top 10 H1B employers cited in the below graphic are also staffing companies as well as technical services companies. Any change to the guest worker program will have an adverse impact for these enterprises. More information on these top employers is available in this Information Week article.Top Employers

 

Image Source : www.myvisajobs.com 

There are significant benefits of H1B visa process to the American economy; however, the new administration should focus on how the program has been misused to the detriment of the American workers and legitimate “fully competent workers.”

Majority (54%) of H1B Visas were issued to hire Entry Level Workers, and only 6% were issued to hire fully competent workersWage Levels

 

 

The report cited that only 6% of the H1B Visas were issued to guest workers who were considered fully competent for their roles. The majority of the H1B’s were issued to the workers who were entry level workers and had only basic understanding of their duties. This is indicative of the fact that industry claims about extreme shortage of highly skilled tech workers may be skewed and implicitly points to the fact that H1B visa is mostly used to replace American workers with cheaper foreign workers. Opponents of H1B program claim that the visa program is used to replaced aging American workers with younger foreign workers (see figure below) who are ready to work at lesser wages. There are implicit hints of Age Discrimination in this report which is illegal under the law.

 

An area that the report does not highlight or discuss is the relative wage levels of these H1B workers in their home countries before they moved to the United States on H1B visa. Although more study is required in this area, based on the data available with our research team, it is notable that majority of the H1B Visa workers are not the highest paid in the home country industries. It is possible to hypothesize* at this stage that of the 54% entry level visas issued, the ones seeking to relocate may have some advantage in H1B application issue due to the structure of the application process, their accessibility to skilled immigration consultants/recruiters and their motivation to relocate for permanent residency/citizenship potential. The minority 6% skew towards “fully competent guest workers” may be indicative of a larger problem. The application process, its structure and migration of the program from guest worker to green card transition may have skewed the recruitment process in favor of green card seekers as opposed to career relocators. Competent foreign workers may be getting paid higher wages in their home country with other significant employment perks and may not be willing to relocate at entry level wages. The increase in reverse brain drain of the fully competent workers from the United States back to home country indicates that these workers are motivated by factors other than the ability to permanently settle in the United States.

The increase in Visas approved through the staffing companies rather than direct employers may prove our hypothesis* above.

 

The minimum wage level at Level 1 is 60,000 USD/annually and it is not difficult to see that any increase in the minimum wage level will negatively impact the foreign workers and positively impact the American Workers. The unintended consequence of this wage rise may be that fully competent worker may be more inclined to relocate displacing their American counterparts due to skills advantage. Trump has claimed that he will increase the minimum wage level to 110,000 USD and although he did not explicitly state that this will be done for Level 1, it is understood that he was citing Level 1 Wage level increase. Our premise is that the committee working on the legislation will also consider the costs of applying for H1B’s (around 5000-12000 USD per candidate) and probably increase the minimum wage level at Level 1 to be around 90 K or 100 K USD.

Our premise is that the committee working on the legislation will also consider the costs of applying for H1B’s (around 5000-12000 USD per candidate) and probably increase the minimum wage level at Level 1 to be around 90 K or 100 K USD so that the CTC (Cost to the Company) does not become much higher than hiring “fully competent” foreign workers.

Basis the above, it is imperative that the new administration reviews the unintended consequences of raising the minimum wage levels. As discussed above, raising minimum wage levels will keep entry-level workers out but become attractive to “fully competent workers – Level IV”. Employers will prefer to choose more skilled workers over less skilled and an increased pool of skilled workers may skew the hiring in favor of guest workers again. The shortage of skilled workforce is a complex problem and the new administration will have to do a lot more than simply raise the minimum wage levels. It will most definitely require more initiatives to improve access to skilled training programs for the American workforce and students so that they can compete with the foreign workforce categorized under “Fully Competent”. The most challenging part of this problem is how to motivate young American students to enroll in STEM programs. Motivation is not a problem that the new administration can solve easily.

– Majority of H1 B Visas went to Indian workers (46.9%) , closely followed by Chinese (8.9%)

 

There is likely to be enhanced focus on the largest receipts of H1B. Combined with information about misuse of visas by staffing companies, one can expect caps based on country of origin. It is estimated that there are more than 700,000 H1B workers in the United States including initial petitions and extension petitions.

H1B caps Resulted in Increase in number of L-1 Visa applications 

 

The GAO study shows that H1-B applications are capped at 65,000 per year and an additional 20,000 applications are permitted for those with Masters or Ph.D. degrees from American Universities. The research highlighted that whenever caps on H1B were reached, there was a proportional increase in the L1 visa applications. L1 visas allow companies to transfer employees intra-company and L1 visas are cap exempt. Some companies went to the extent of hiring rejected visa applications (due to cap limits) in foreign offices and then applied for a transfer to the United States using L1 Visa after the minimum requirement were met.

The report indicates that unmet needs for foreign skilled workers was much higher than the overall cap on the visas. Companies took an indirect, longer and more costly route i.e. L1 visas to get these workers to the United States. Our study indicates that the upper cap problem is compounded by the fact that staffing companies who had over time become skilled and successful at getting most of these visas consumed most of these visas. They got workers on a bench without any projects at hand and may be responsible for creating an artificial shortage of H1B Visas. Bigger companies who had the financial horsepower and global presence were able to use the L1 process to bypass the visa caps, but smaller companies and startups had to make do with hiring American workers at a higher price or hire bench workers through the staffing companies.

The L1 visa program is already under scrutiny since Business Week published a scathing article in December 2003 “A Loophole as Big as a Mainframe”. The article is only available for professional services subscriber in this link or you can read about the highlights of the article in this link.

The article amplified what the GAO study had discovered, that L1 visa had been rampantly abused by firms who could not get H1B visas. As per this article “With the travails of the high-tech industry and the jump in IT unemployment, fewer U.S. companies can tap the H-1B program these days by saying qualified Americans aren’t available. At the same time, many employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad. “

With the travails of the high-tech industry and the jump in IT unemployment, fewer U.S. companies can tap the H-1B program these days by saying qualified Americans aren’t available. At the same time, many employers looking to slash costs have discovered that they can use firms that hire L-1s to dump high-paid Americans in favor of cheaper workers from abroad. – Business Week, December 2013

Basis this, it is quite likely that the congressional team working on legislative changes will also consider closing loopholes in L1 visa processes. L1 visas are the relief valve for overflow of foreign workers into the United States and if left unchanged will only make the changes to wage levels cosmetic.

–  Employer Application Requirements

GAO also studied the application process to understand deficiencies in the process. All employers need to submit an LCA (Labour Condition Application) to the Employer & Training section as well as submit I-29 (Visa Petition).

 

LCA requires employers to make four (4) attestations:

  • The Employer will pay H1B worker prevailing wage level of workers with similar experience and qualifications.
  • Employment of H1B worker will not adversely affect the working conditions of US Workers
  • No Strike or Lockout exists at the place of Employment
  • Employers have notified employees at the place of employment their intent to hire H1B workers.

GAO emphasizes that H1B program does not require employers to provide evidence that they have unsuccessfully tried and searched for the equivalent skill in the country.  GAO also highlights that making truthful attestation does not further require any evidence and only a compliance audit can catch violations of the process. Employers may place the LCA notices in areas within the company where the affected employee may not see them. GAO recommends that there must be a centralized LCA notification portal on its website where employees can find out if their employer is seeking H1B workers and potentially replacing them. On a side note, if affected employees use the notice to commence a strike, the H1B applications cannot process, unless the employer willfully lied in its attestation. 

In the case of H1B workers subcontracted by one company to another, it is possible that the consulting company or staffing company is getting the prevailing wage. The H1B worker may be getting a percentage of the wage. The prevailing wage data of Labour & Wages department is not updated as frequently as the wages change and it leaves another area for abuse.Any increase in compliance burden for employers will likely lead to increased scrutiny of the H1B process and a lesser number of approved applications.

– US Worker Protection has been weakened by Poor Agency Oversight 

The part of the report that is likely to get a lot of attention is the one that highlights lack of oversight leading to inadequate protection for US workers leading to potential misuse of the process. Four agencies are responsible for oversight of the H1B program and poor information handshake between them enables abuse of the program. The key problems highlighted in this report are “lack of information sharing”, “limited work site visits to monitor compliance” and “lack of enforcement powers to correct violations”.

Another area that gets a minor mention is the inability of auditors and inspectors to catch fraudulent work and educational certifications from the H1B applicants. Once LCA and I-29 is approved, the State Department and its visa counsel officers have limited powers to deny the H1B to the applications outside the country, unless significant material deficiencies are found in the application process missed by other departments.

 

 

A small number of complaints were processed due to limitations of enforcement powers, the reluctance of H1B worker complainants to come forward and testify in court. Due to this challenges, the “Administrative Site Visit and Verification” program was rolled out by Homeland Security’s Directorate of Fraud Detection and National Security.

Under the Obama administration, the Worksite Enforcement program has shifted it focuses more towards employment of illegal workers by employers. Significant fines were levied under Form I-9 violations to deter employers from hiring and retaining workers who are not authorized to work in the United States. The Trump administration will most likely enhance the Worksite Enforcement program to improve compliance of H1B program.

 

Abuse of L1-Visa

Department of Homeland Security (DHS) had carried out a study of abuse of L-1 Visas titled ” Review of Vulnerabilities and Abuse of L1 Visas”. The study highlighted the vulnerability of L-1 Visa in several aspects. The program was originally rolled out to allow transfer of managers and executives, but, companies starting using them as overflow visas (when H-1B caps were reached). The vulnerability of the program was in the language used in the legislation i.e “allowing workers with specialized knowledgeto be transferred from the intra-country offices of the company. The term “Specialized Knowledge” was a gray area and the adjudicators had no option, but, to approve the visas. DHS also cited that most of the employers using L-1 visa should be involved in business abroad or have global offices serving local customers. Reduction in incorporation fees, other costs and swift adaptation by various countries to benefit from the tech boom made it easier to demonstrate that the business seeking L-1 visa is involved in business abroad. Finally, the program allows petitioners which are in the process of establishing a company within the United States to transfer themselves to the United States. DHS noted that the last two provisions created the maximum opportunity for abuse of these visas.

Within the L-1 Category of Visas, L-1A visa was for “specialized workers” and L-1B for “managers”. Not surprisingly, DHS found in the study that increased scrutiny of L-1A visas led to a significant increase in L-1B visa applications.

 

The report also cites that the top two countries whose nationals petitioned and got approved fro L-1 Visas were Canada and India.

The “body shop” employees again get a special mention in this report. DHS cites “body shops”  as companies companies “whose business involves providing the services of their own employees to other companies for a fee.” GAO report referred to these companies as “Staffing Companies”. These body shops initially started using the L-1 Visas, specifically the L-1B visas to capitalize on the tech boom, but soon, crossed over into applying for H-1B visas by adapting their business model to “staffing as well as service companies”. 

DHS made the following recommendations for USCIS to increase oversight of L-1 Visas :

1: Establish a procedure to obtain overseas verification of pending H and L petitions by Department of State officers in the related countries.

2: Explore with ICE whether ICE Visa Security Officers, experienced criminal investigators assigned abroad in compliance with Section 428(e) of the Homeland Security Act, could assist in checking the bonafides of L petitions submitted by petitioners in the countries in which the officers are assigned.

3: In cooperation with “L Visa Interagency Task Force,” which consists of representatives from the Departments of Homeland Security, Justice, and State, seek legislative clarification relative to:

a) applying the concepts of manager and executive to L-1A visas and verifying that the beneficiary will be so used;

b) the term “specialized knowledge,” as altered in the Immigration Act of 1990, and according to USCIS guidance issued in             March 1994; and

c) the criteria and proof required when a foreign company seeks to use an L petition to open a new office in the United States.        That almost any foreign business proprietor can effectively petition himself and his family into the United States may not be in accordance with congressional intent.

Increase in Tech Corporations North & South of the United States and Abuse of B1 Visa

We also need to discuss the misuse of B1 Business Visa (also known as Temporary Business Visitor) by companies in the context of immigration reform. Critics of the immigrant guest worker program claim that abuse of B1 Business Visa is rampant as CBP (Custom and Border Protection) officers reply on a truthful declaration by visitors while entering the United States. While Indian IT companies have been in the news for misusing this visa, they claim that abuse is rampant by workers from Canada, UK, Singapore, China and South American countries. As a part of our investor report, we spoke to investors, critics of the guest worker program and insiders from the Tech Sector across the globe. A majority of them agree that B1 Visa is an avenue for potential abuse.

The B1 Visa only allows a worker or employee to enter the United States for business meetings or for a visit to the employers. However, visitors routinely untruthfuly represent the purpose of their visit. Infosys, the IT Giant, had to pay a fine of 34 Million dollars for the inappropriate use of the B1 Visa. B1 Visa is another way for companies to position consultants or project managers on site for four (4) months without having a valid work authorization. Some of the staffing companies systematically found to have engaged in systematic training of its employees to misrepresent the real purpose of their visit to the country.

B1 Visa is used by Canadian IT and foreign Tech workers using the “Incorporated Employee” loophole. In this loophole, companies from the United States will hire staffing companies, who in turn hire tech workers who are prompted to incorporate in Canada and provide services to the Tech Company under the guise of outsourced work. Incorporated Employees are easy to detect as they usually have only one or two clients for long terms (6 months – 3 years). These workers visit United States on a B1 visa and claim that they are visiting for project meetings or visiting the client. There has been a crackdown in Canada on the “Incorporated Employee” for tax purposes. However, critics claim that the CBP officers in the United States require more training and tighter enforcement to detect abuse by business visitors.

Canada and Chile admits a large number of immigrants per year and it will make it easier for H1B workers to relocate to Canada and provide services to the tech companies in Silicon Valley using the “Incorporated Employee” loophole. Using this loophole, tightening of H1B and L1B regulations will lead to a proliferation of “Incorporated Employees” across Canada with no significant positive change for the American Workers.The tightening of H1B and L1 regulations in the United States will also lead to a proliferation of “Incorporated Employees” across Mexico, Chile and other countries which will use the B1 channel to mobilize workers to the project sites. If Trump administration leaves this major loophole fixed, there will be no significant positive change for the American Workers of the changed regulations. It is our premise that Trump administration will carefully review the use of B1 Visa and increase scrutiny of business visitors entering the country for temporary visits.

Jeremy Robbins, the executive director of the Partnership for a New American Economy, toldFortune magazine  “In a global world where people are competing for talent,” he said, “we’re the country that everyone wants to come to.” Adding more hurdles, Robbins said, could further incentivize companies to set up in countries like Canada and Chile, which make it easier to bring in skilled immigrants.”

[blockquote]In a global world where people are competing for talent,” he said, “we’re the country that everyone wants to come to.” Adding more hurdles, Robbins said, could further incentivize companies to set up in countries like Canada and Chile, which make it easier to bring in skilled immigrants – Jeremy Robbins, Executive director of the Partnership for a New American Economy[/blockquote]

H4-EAD Visa Rollback and Implications

The rule authorizing certain H4 dependents of H1B visa holders with labour mobility was signed by erstwhile President Obama using an EO (Executive Order). After a lengthy deliberation, the “Employment Authorization for H4 Dependents” was passed as an administrative rule on May 26, 2015. H4-EAD is even better than H1B as it provides unlimited labour mobility. It even permits the visa holders to start their own business. There was significant lobbying effort to get this authorization in place. Indians are the largest recipients of H1B visas and the ratio of visa holders in skewed in favor of males versus females. H1B Visa holders of both genders were the most sought after in the India, where arranged marriages are a cultural norm. H1B workers naturally attracted well educated potential spouses, but, this came with challenges of it’s own.

Well educated, independent women left their established careers in India to relocate to the United States to join their spouses. Unable to work, many found their version of the American dream a bitter pill to swallow. There are even reported cases of spouses going into clinical depression due to sudden change of culture and being stuck at home. Help was at hand when various lobbying groups promoting level playing field for women started knocking the doors of the Democratic Party and the White House. Multiple advocacy groups  finally found success, when President Obama agreed to sign an Executive Order in this regard.

Women have a much higher glass ceiling in Indian than in other developing countries of the world. It seemed like the right initiative to create a “feel good” regulation. The party was spoiled by SaveJobsUSA when it filed a lawsuit to seek injunction against the new rule , a group that advocates for protecting American Jobs. Their claim was that with H4-EAD authorization, each H1B visa essentially replaced two American workers. SaveJobs’s complaint lost in the lower courts and it filed an appeal in District of Columbia against DHS. DHS sought to nip the case right there, however the appeals court did not agree. The case is pending a hearing shortly and due to change of administration, it is further sending jitters in the immigrant community.

Various attorneys are busy convincing the worried immigrants that a roll back will take many months. In our premise the Trump administration can roll back H4-EAD in two possible ways. One way is to weakly defend the case or not defend the case at all. The plaintiff will potentially win in this situation and courts will order H4-EAD authorization to be revoked. There is another route which is to issue another Executive Order to repeal the rule. Either way, it is clear that H4-EAD will most likely be repealed. It increases the woes of H1B workers who are already living under significant uncertainty. To make matters worse for some, the H4-EAD rules have made the US based H1B workers less desirable to prospective partners. It may also be worth noting that H1B visa is the only foreign guest worker visa which allows accompanying spouses to apply for work authorization. TN visa holders from Mexico and Canada who are authorized to work in the United States under the NAFTA agreement do not have any such privileges. On this basis, lawyers can argue that repealing H4-EAD may be a way to create a level playing field. Proponents of H4-EAD claim that the work authorization is only granted to spouses of H1B holders who have applied for a green card and the application is approved. They claim that Indian (s) have to wait anywhere from 6-15 years for getting a green card due to the backlog. Therefore, it is unfair for spouses to continue to suffer due to lack of work mobility.

Executive Order Process to Repeal H4-EAD and potentially OPT Extension Rules

The process of repealing any EO based rule can take anywhere from 30 days to atmost 60 days to repeal H4-EAD Authorization. Unless of course, if there are any court challenges. H4-EAD is not a law, it is an Executive Order based Administrative Rule. Executive Orders cannot be used to create laws. They can only be used to provide guidance to administrative agencies how to act with the confines of US Constitution.Laws can only be made by the legislative branch and not the executive branch. Once a rule has been finalized, the new administration is required to undergo the same rulemaking process to change or repeal all or part of the rule. The congress can also make a legislation to revoke or repeal the rule.

The Administrative Procedure Act (APA) defines “Rule-making” as “formulating, amending, or repealing a rule”. Under APA, it is mandatory for agencies to publish a notice of proposed rule-making and seek comments from “interested parties” on the proposed rules. The process of issuing an Executive Order to revoke H4-EAD will follow the below cited path. It can take anywhere from 30 days to 60 days to revoke an existing rule.

  • EO is issued by President (Executive Branch) and acts as a guidance to DHS (Agency) to start the rule making process for revocation/repeal.

 

  • DHS publishes an intent to revoke/repeal H4-EAD (Proposed Rule) in the Federal Register and seeks comments within 30 days. An intent published in the Federal Register has a specific format[5]. Below is the screenshot for Proposed Rule which was issued for H4-EAD process. Source – FederalRegister.Gov

 

 

  • Under some circumstances, as cited under the Administrative Procedure Act (APA)[7], the proposed rule intent and 30 days notice is not required. The agency can directly issue a final rule if such an exception is invoked.

 

  • After 30 days notice is published and on reviewing the comments, the agency can implement the Final Rule or chose to deliberate further before the new rule is released. In many cases, the agency can simply ignore the comments and invoke the final rule. In such cases, technically speaking, on the 31st day, agencies can issue a final rule. The rule may be applied from the day the Final Rule is published. However, In most cases, Final Rule cannot may not become effective until after 30 days from the date of it’s publication.

In a ideal situation or best case scenario, the administration can involve an exception to the 30 days notice and release the final rule to be effective 30 days later. In the worst case scenario, administration issues a notice (30 days-60 days), issues a final rule which becomes effective 30 days after publishing. In maximum 60 days, H4-EAD Rule can be repealed. In summary, as H4-EAD was created under an Executive Order [8], which then went through the rule making process[9], it will take anywhere from 30 days to 60 days to revoke H4-EAD. It cannot be done sooner than 30 days unless an exception clause is cited by the agency.

Do note that revocation/repeal of rules is much faster than creating a rule. Reason is that inputs and preparatory actions from multiple agencies are required during rule creation and they have to be prepared for rolling out the new orders. As cited in this answer – What does the H1B premium processing suspension mean for visa holders ?, the suspension of H1B Premium Processing in 2015 was done to incorporate new policies and procedures before the final rule of H4-EAD could be released. Till USCIS is not ready which involves releasing SOP’s (Standard Operating Procedures) to related agencies, Final Rule cannot be published.

 

Choice of personnel indicates likely policy positions of the Administration

Selection of personnel for various roles by a President Elect can provide a pretty good indication of the direction of incoming administration’s policy. Selection of Sen. Jeff Sessions (R., Ala.) as the new Attorney General is a clear sign that a hardline stance is formulating around H1B visa and legal foreign workers. In early 2015, Senator Jeff Sessions warned that an increasing number of American workers were being replaced by foreign workers. He also responded to an article published in USA Today “Bill Gates’ tech worker fantasy” by claiming that the perceived shortage of tech workers is manufactured artificial shortage by Silicon Valley. He further stated that a shortage of staff is always accompanied by a rise in wages and not a drop in wages.

[blockquote]America is a country, not a spreadsheet. A country puts the needs of its own citizens first.

Sen. Jeff Sessions (R., Ala.)

[/blockquote]

Jeff Sessions and Ted Cruz proposed the “American Jobs First Act of 2015” bill which mandates major changes to the H1B program. If Sessions becomes the Attorney General, expect this bill to gather momentum and pass the senate and house easily. A filibuster may not be able to stop this bill.

 


 

Significant Reduction or Roll Back of NAFTA TN Visas

The North American Free Trade Agreement (NAFTA; Spanish: Tratado de Libre Comercio de América del Norte, TLCAN; French: Accord de libre-échange nord-américain, ALÉNA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994.It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada (Source – Wikipedia). The North American Free Trade Agreement (NAFTA) laid the framework for international trade between the three countries. The Agreement is made up of eight sections and 22 chapters.  NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

 Advocates and Opponents of NAFTA Agreement

The origin of NAFTA began with President Ronald Reagan who had advocated for a united North American market. The “Trade and Traffic Act” was passed by Congress in 1984, catalyzing Reagan’s push to negotiate and ink sign trade partnerships. The first partnership was signed between Canada and the United States named “Canada-U.S. Free Trade Agreement”. In 1992, NAFTA eventually replaced the US-Canada Free Trade Agreement and was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney. President Bill Clinton signed into law on December 8, 1993 and the law became effective Jan, 1994. Hillary Clinton in her First Lady role also openly advocated for this agreement attracting opposition from liberal activists and trade unions.

NAFTA agreement was actively promoted by proponents as a job creation agreement which will make America prosperous. Former President Bill Clinton highlighted in his speech on Dec, 8, 1993 “In a few moments, I will sign the North American free trade act into law. NAFTA will tear clown trade barriers between our three nations. It will create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone. The environmental and labor side agreements negotiated by our administration will make this agreement a force for social progress as well as economic growth. Already the confidence we’ve displayed by ratifying NAFTA has begun to bear fruit. We are now making real progress toward a worldwide trade agreement so significant that it could make the material gains of NAFTA for our country look small by comparison”

“It will create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone – President Bill Clinton, 1993”

 

Since then, critics have complained that the agreement did not live up to its standards. They claimed that while the proponents “got NAFTA, the workers got the SHAFTA”.  The “Economic Policy Institute” claimed in 2011 that 700,000 jobs were lost in the United States since NAFTA agreement was signed. The figure has since been revised to above 800,000 by NAFTA critics. Some claim that NAFTA never created the promised jobs and the net effect of jobs promised but not created and the jobs losses pitches the job losses at a million mark. More than a decade later, no one thought that the forgotten opponents of this agreement will propel President Donald Trump to power. The people who lost mostly manufacturing jobs lived in what we now know as the “Rust Belt” also known as the “Factory Belt”, “Manufacturing Belt” or “Steel Belt”. A significant opposition to Democrats and Hillary Clinton came from this segment. These rust belt workers saw no hope in the garden variety politicians and Trump became their savior.

There is another segment who will define the guest worker policies of new the administration. These are the American White Collared workers who have lost their jobs to “Guest Worker Programs” and the various “Free Trade Agreements”. As we will highlight below, the TN Visa category is an area which will muster significant opposition in the near future. Unlike the geographic clustering of”Rust Belt”, the “White Belt” consisting of negatively affected white colored workers are more widely and heterogeneously dispersed throughout the United States.

Trump’s Policy on Trade, Regulatory and Energy Policy (NAFTA Impact)

Trump campaign’s economic policy was written by “Peter Navarro,” the Harvard Ph.D. and University of California professor and “Wilbur Ross Jr“, a Harvard MBA and a billionaire private equity investor.  Navarro is the author of the bestseller “Crouching Tiger: What China’s Militarism Means for the World” while Ross is a vocal critic of bad trade deals. Both Navarro and Ross are advisors to the Trump administration, and Ross is also the nominee for Commerce Secretary.

They jointly authored a policy document for Trump Campaign titled “Scoring the Trump Economic Plan – Trade Regulatory and Energy Policy Impacts.”

Download here 

Navarro and Ross are both critical of Clinton’s economic plan. Some of the key highlights relevant to this report are :

  • They propose four pillars to grow the nation’s GDP (Gross Domestic Product) consumption growth, the growth in government spending, investment growth, and net exports. The national income accounts are divided into three categories Residential Fixed Investments, Change in Private Inventories and Non-Residential Fixed Investment. Their focus is on Non-Residential Fixed Investment, the CAPEX intensive capital investment in PPE (Plant, Process, Equipment) as well Intellectual Property. Unfavorable tax, trade, energy and/or regulatory policies create a reduction in the last category of investment due to what they call “Offshoring Drag”. They strongly cite that America has already lost tens of thousands of factories, millions of jobs, and trillions in wages and tax revenues due to the short-sightedness of the previous administrations who did not put “America First” in its negotiations.
  • They believe that there are approximately 2.2 million American workers excluded from the participation pool skewing the positive unemployment rate. They argue that if these workers are included in the Bureau of Labour Statistics, the unemployment rate will be close to 6.2%. Increasing the GDP growth from 1.9% to 3.5% would get those workers back into the workforce.
  •  They believe that Trump’s trade negotiations will not start a trade war. Instead, they firmly believe that America is already holding the short end of the stick on Trade War.
  • The proposal is to reduce taxation, regulations, reduce or balance trade deficits thereby spurring investments in PPE. A strong energy policy will combine with increased Non-Residential Fixed Investment will create significant new opportunities for the workforce.

Surprisingly, there is no mention of Worker Mobility agreement in NAFTA and the TN visas in this report. Neither are TN Visas a focus on Trump’s draft Executive Order on H1B. However, our premise is that TN Visas will be a focus on negotiations and possible reductions/roll back. In the North American Free Trade Agreement (NAFTA), the two sections that are relevant to our Risk Advisory are Chapter 16 (Annex 1603), Section A to D.

Section A – Business Visitors

Section B – Trade and Investors

Section C– Intra-Company Transferees

Section D –  Professionals

The relevant provisions under which workers from each country can work on guest worker visas in the partner countries are guided by Section D. The key highlights of Section D are :

  • Each Party shall grant temporary entry and provide confirming documentation to a business person seeking to engage in a business activity at a professional level in a profession set out in Appendix 1603.D.1
  • No Party may:
    • (a) as a condition for temporary entry under paragraph 1, require prior approval procedures, petitions, labor certification tests or other procedures of similar effect; or
    • (b) impose or maintain any numerical restriction relating to temporary entry under paragraph 1.

 

NAFTA agreements allow special work visas to be issued for Canadians and Mexicans. It allows professionals in almost all categories to work in the United States and vice versa.

 

Discussions have been muted on this topic. However, Trump Administration could reduce or completely roll back this visa category. Unlike H1B Visa, there is no cap on the number of visas issued. It is estimated that there are currently more than 70,000-100,000 guest workers in United States from Canada (including 30,000-40,000 TN Visa Holders from Canada who work in multiple sectors as per the professions listed here.) In addition to TN Visas, Canadians and Mexicans can also apply for H1B Visas. Our premise is that NAFTA TN Visas will be a major negotiation point for the Trump Administration. They cannot tighten up H/L Visas and leave a large uncapped work visa loophole available to Canadians and Mexicans. We are still collating current data on TN Visa admissions every year (admissions for approved/extended visa holders) as well as new issues of TN Visas. Looking at the legacy data, it is clear that TN Visa has been admitting almost as many numbers of guest workers as H and L Visas combined. It is unlikely that the new administration will leave the TN Visa category untouched.

 

 

Here is a comparative graphic evaluation of H and L Visas compared to the TN Visas from legacy data.

 

Note that the number of admissions does not equal the number of Visas issued every year. TN Visas are initially valid for three (3) years and can be indefinitely extended without any caps. The total number of admissions are the cumulative number of NAFTA workers inside the United States assessed for the year ending statistics. TN-1 Visa for Canadians is also exempt from any minimum wage limit. If a limit is introduced on minimum wage such as being proposed for H1B, number of TN-1 visas issued will significantly drop in numbers. NI V is an abbreviation for Non-Immigrant Visas.

 

Our premise is that NAFTA TN Visas will be a major negotiation point for the Trump Administration.

Looking at the figure below, the total number of TN Visas Holders (both from Canada and Mexico) who were admitted to the United States for year end 2015 were 787,180. Please note that admissions are not equal to the number of Visa Holders.  These guest workers are working in various industries in the United States. Canadian CEO’s and politicians should be careful of their rhetoric against the Trump Administration as any reduction in the number of TN visas will most definitely lead to a countrywide recession in Canada for years to come. Imagine 100,000 or even 30,000 workers having to go back to Canada and lose their employment in the United States. We disagree with analysts who perceive this as a major opportunity for Canada. The Trump administration could perceive Canada as a major competitor and tighten up compliance on TN Visas as well as close the “Incorporated Employee Loophole“.

The overall impact on Canadians and Mexican Nationals will be severe looking at the initial data, we have collated on H1B, L1 and TN visas issued to both NAFTA partners.

Perchingtree Solutions Inc.

 

The below numbers include other categories of visas e.g. H-Visa includes (H1B, H2A and H2B Visas).

Perchingtree Solutions Inc.

Some claim that the TN Visa allows highly skilled workers to enter the United States. Analysis of legacy data indicates otherwise. While Engineers and Computer Scientists made a bulk of TN Visas issued to Mexicans and Canadians, the cumulative number for low-skilled categories is very high. TN Visas are a major bone of contention in the rust belt (Manufacturing and Steel Belt) and the white belt (skilled workers). Critics claim that it is too easy to get TN Visas as there is no minimum wage cap, there is no visa sponsor required and there are many loopholes in the system.

 


Conclusion 

Conclusion

Impact on H/L/OPT Visas

Assessment of various economic factors namely the lifecycle yield curve assessment for the tech industry combined with the president elect’s motive to govern gives an indication of the direction of new policies. Personnel create processes and systems. Due to the recent appointment of immigration hardliner Senator Jeff Sessions as the Attorney General; it is likely that the legal immigration will go through a significant tightening and modification. In our view, the following changes will occur in the short term, medium term and long term. If you are affected by any of these potential policy changes, you may want to calibrate your choices carefully rather than be caught unaware suddenly. Advice for Investors and a detailed conclusion is not included in this conclusion.

 

  • Cancellation of OPT Extension/Reform OPT Structure – The OPT extension is likely to be canceled without much warning as soon as Donald Trump takes over the presidency. However, the one year OPT post-completion of a degree is likely to remain in force until the Congress approves legislative changes. Canceling the OPT altogether will be detrimental in the short term for the American colleges as students will choose to go to other countries instead of United States. In the medium and long term, the impact of OPT changes will be negligible. American education is still coveted across the globe, and if the Trump administration decides to remove the one year OPT completely, the number of students to well-known universities are not likely to reduce in numbers. Some colleges have an application to admittance ratio of 20:1, so, colleges will eventually find a way to fill the seats. The number of students seeking admission in lesser known colleges will significantly drop as the motivation for seeking admission in these colleges is more to do with seeking long-term residency status, rather than getting an advanced degree. There is, however, a possibility that OPT extension may be replaced with an alternate visa to allow deserving STEM students to remain and work in the United States while allowing sufficient opportunities for American graduates.

 

  • Revocation of H4-EAD Work Authorization – H4-EAD authorization is likely to be rolled back. The roll back can occur through an Executive Order by seeking comments and then repealing the previous Executive Order within 30-90 days (see the section on H4-EAD rule-making process). The repeal can also be processed leveraging the current court case where SaveJobsUSA is suing DHS against the H4-EAD authorization.

 

  • Drop in new H1-B and L-Visa Applications -Companies will be reluctant to apply for H1 and L-Visas for new/offshore employees as well employees under the OPT Visa. This will create a sudden drop in overall application numbers for H1B and L1Visas. Changes in OPT visas scheme will try and balance the benefit to American Students versus workforce availability, and it is possible that a quota system could be introduced for OPT Visas based on merit, education level as well as country of origin.

 

  • Bearish Future for Staffing and Consulting Companies – H1B visa in all likelihood be denied for Staffing Companies and sub-contracting of H1B workers to other companies for permanent onsite work will be rolled back. Sub-contracting of H1B workers for temporary project assignments (3-6 months) will likely be permitted under greater scrutiny. These changes will most negatively impact staffing Companies and Tech Consulting Companies in the same order. A large number of advisory firms hire H1B workers and we believe that they will also come under increased scrutiny.

 

  • Increasing Enforcement – Enforcement of H1B visas and scrutiny of L1 Visas will significantly increase, and one can expect to hear about increasing investigations into abuse of H1B and L-Visas visa retrospectively. One can also expect more scrutiny during the visa application process significantly delaying the visa process. The State Department and US Embassy personnel in various countries do not have power to reject visas stamped under H1B and L-Visas unless they can cite material misrepresentation in the application. An H/L Visa approved by the Labour Department is almost guaranteed to be followed up with a visa stamping by State Department. GAO report cites this deficiency in the system and it is quite possible that State Department will have final authority on visa stamping. Combined with enforced CBP inspections at point of entry, we can expect to hear 4-5% of the approved applications rejected by State Department and another 2-3% approved application by State Department refused entry by CBP. We also expect “Country of Origin” investigations into resume fraud or experience embellishment. Currently, there is a minimal penalty for misrepresentation of work experience. It is our premise that misrepresentation on application forms both from employers and applicants will entail more stringent criminal penalties in the future.

 

  • Increased Secondary Screening at US Airport – H1B visa caps overflows into L1 visas, and both L1 and H1B visa limits overflow into misuse of B1 Visa both by established companies, staffing companies and by “Incorporated Employees.” While the GAO report does not directly address the misuse of B1 Visas and fails to highlight L1 visa abuse in great detail, the congressional committee entrusted with immigration reform will most definitely address the abuse of B1 Visa as well. One can expect more denied entries at various borders as well as continued investigation of companies where employee visits on B1 Visa are considered suspect.

 

  • Minimum Wage Increase for Level I and Level II employees – Wage Levels of H1 B Levels from I to IV will most likely be increased by atleast 30% to bring the wages at par with local wages. Any rise in the wage levels with increased scrutiny (which translates into more legal costs) will discourage employers from importing workers from outside the country. The businesses will shift to hiring from the pool of recently graduated STEM students and will have to pay higher wages for hiring foreign workers.

 

  • NAFTA TN-Visa Impact and Abolishing Lottery System -The H1B currently accepts most students from India followed by China based on a lottery system. There may be a quota system introduced where approved numbers of H1B’s from Indian and China will be reduced, and other countries increased. NAFTA agreement allows workers from all participating countries to work without special visas in the United States and vice versa. It is possible that President Trump will reduce the number of foreign workers allowed under the NAFTA Visa by unilaterally canceling or reducing the TN-1 Visas. Expect a lot of Canadians and Mexicans to return home. It is expected that only from Canada itself, there are 30,000-40,000 workers on TN-Visa in the United States. Even a 20-30% reduction will open up job opportunities for American Workers in this space. Our premise is that the reduction will be a much higher percentage and TN visas will also come under increased scrutiny. Eventually, it is our premise that Trump Administration will perceive Canada as an adversary and competitor rather than as a participating partner in trade. We disagree with Canadian Analysts who claim that Canada has a major opportunity due to these impending changes in the United States. A separate post will highlight the extreme risks Canada faces in this overall space.
  • Increased Administrative Checks/Visa Processing Times – Tightening of immigration for visitors, refugees and family reunification immigrants into the United States will have a carry over effect into visa processing for guest workers and students. Increased wait times, more stringent administrative checks (secondary multi-agency checks) will bottleneck inflow of foreigners to the country. The tightened procedures will be under the guise of improved national security, and it is unlikely that any lobbying pressure will work to change the “Follow the Book” practices. At the second line of defense, the CBP officers will get more powers and number of refused entries are likely to increase in numbers.

 

  • Compliance and Qui-Tam Provisions – There will be an increased demand from Department of Labour and Department of Justice for all companies with more than 50 employees to set up Compliance Hotlines to enable Whistleblower complaints. It is also possible that the DOL and DOJ will appoint special monitors for high risk employers to monitor compliance on a quarterly basis. It is possible that increased whistleblower complaints under labour rules abuse will entail increased number of Qui-Tam cases in courts which translate into civil and criminal penalties for convicted individuals and companies. (Qui-tam is a type of fraud which can be a violation of the False Claims Act, or similar state and local laws. And a whistleblower who exposes fraud on the government can bring a qui tam lawsuit on behalf of the government, and can receive a share of the recovery as his or her reward.)

 

  • Closing the “Incorporated Employees” Loophole – As per critics, the largest abuse of visas occurs at entry points to the United States in Mexico and Canada. Many IT consulting companies employ “Incorporated Employees” in these countries to bypass regulations. Most of these incorporated employees frequently enter the United States under the guise of business visits (B1/B2) and work on projects illegally. We are already hearing about increased scrutiny at CBP entry points and even some cases of denied entries for professionals across Canadian Borders. Companies cited asIncorporated Employee Status” are one or two person companies created to reduce taxes by the founder, to sidestep requirement by employers to hire permanent employees and pay them full benefits. Incorporated Employee loophole is also used to hide the fact that companies are employing foreign workers under the guise of outsourcing to companies. It is also easier to sue companies that individuals. It is estimated that there are more than 600,000 incorporated employee status companies in Canada, Mexico and rest of South America.  

 

  • E-Verify System -E-Verify system is likely to be rolled out through a bill in the congress making it mandatory for all employers. Mandatory compliance will cause processing delays for legal immigrant workers again forcing the employers to either outsource work or hire American Workers. E-Verify is an Internet-based system that compares information from an employee’s Form I-9, Employment Eligibility Verification, to data from U.S. Department of Homeland Security (DHS) and Social Security Administration (SSA) records to confirm employment eligibility.

 

  • Lengthy Path to Green Card and Citizenship -In the current framework, H1B workers can apply for a Green Card before completing their six years on H1B Visa in the United States. They can also stay indefinitely in the United States on H1B with yearly extensions till a decision is made on the Green Card. Currently, it takes around 7-10 years from the date of application for an H1B worker to get the green card. If green card related extensions are removed, workers will have to go back as employers may not be willing to renew H1B visas at the new wage rates. The H1B program was initially conceptualized as a guest worker program, but paths to permanent residence and citizenship have been created in the recent years. It is very likely that the administration will roll back the provisions that allow for an easy path to permanent residence or citizenship unless the employer keeps on renewing the H1B visa on its accord.

 

  • STEM students may benefit from these changes -United States Citizenship and Immigration Services (USCIS) processes around 200 K work related visas every year, and visa filing fees can be anywhere from 2000 to 4000 USD per application The H1B workers also contribute to Social Security. Reduced taxes for corporations and curtailing of guest worker program entirely will lead to a massive deficit for USCIS and the government. A negative financial impact may force the legislation team to seek a middle path and offset H/L Visa reduction with discretionary visas for STEM students.

 

  • Inverted Domestic Corporation Act -How will Trump force companies to hire within the United States and not outsource the work to foreign countries? There is already a precedence of “Inverted Domestic Corporation” within the legal framework where there is a complete prohibition of awarding any government work to Inverted Corporations. As soon as a tech company inverts itself, a ban will come into force. We expect the Donald Trump administration to issue significantly large government contracts and any company cited as “Domestically Inverted” will miss out on bidding on these contracts. Currently, the “Domestic Inversion” clause applies to companies who shift their headquarters overseas. We expect that a new legislative framework including companies with significant outsourcing ratios as “Domestically Inverted” will be discussed and debated in the near future.

 

  • Buy American Act – The “Buy American Act” mandates that all Federal Entities must buy above the micro-purchase threshold value (3000 USD) should buy products only from American companies. Based on these two precedent laws and combined with taxation disadvantage of outsourcing more than a threshold level of consulting work, Trump administration would most likely come up with a new legislation framework. Companies complying with the framework could get significant relief from the government. We expect the “Buy American Act” to be expanded for private companies or industries marked as “High Risk” by the Trump Administration.

 

Final Conclusion

It is unlikely that H1B program will be rolled back in its entirety and it is more probable that it will be significantly reformed over time allowing for more Level III and Level IV workers (see GAO Report in the Article) to be hired. In the short term, increased fraud detection, compliance checks and rollback of executive orders will send a shrill through the tech industry. Increased scrutiny of initial applications, higher costs and fees of applying and enforcement of applied and approved application will create a higher compliance burden on employers. Compliance failure under the United States litigation system can translate into millions of dollars in fines. Many employers will rather choose to hire American workers or foreign workers already in the country on legitimate visas.