Immigration Uncertainty and Offshoring Jobs: Evidence from India

Immigration and its impacts on the host country have risen to the forefront of political agendas and policy debates in the recent years. Both low skilled and high-skilled legal immigration has come under attack from policy makers. Brexit and restrictive H-1B visa regime under Trump regime in the USA are recent examples of restrictive policies in movement of high skilled labor across countries. Supporters of these policies often blame immigration for lower domestic wages and decline in employment opportunities for the natives. However, multinational companies can undertake offshoring of such jobs (hiring people in their affiliate offices abroad) when visa regimes become more restrictive, instead of increasing native employment.

In this paper, we aim to examine the impact of increase in uncertainty in costs of access to high skilled migrant workers under the Trump regime on the US and India based jobs posted by firms in India. The H-1B program in the US forms the cornerstone for high skilled immigration and Indians form 70% of the migrants under the program. In 2016 when Trump won the primary election it created a stir in the US given the high pitched political campaign against immigration, specifically the H-1B program. When he came to power, legal changes were made that increased costs of hiring under the visa program by increasing uncertainty, even though the quota remained unchanged. Such uncertainty can have impacts not only on the host country through its impacts on productivity and growth of firms that hire H-1B workers, it can also impact the labor markets in migrant sending country.

Our primary dataset comprises job postings on India’s largest online job platform between
2014 and 2019, with a market share of more than 70% in 2017. There is also information on job title, role category, functional area, location, company id, salary and educational and experience requirements along with a detailed job description. The key advantage of the vacancy data vis-a-vis the administrative datasets is its high frequency and detailed occupational classification and the possibility of tracking US based demand for labor across firms. We hypothesize that firms more impacted by the visa policy change are more likely to change hiring behaviour for India based postings after the shock. As firms exhibit heterogeneity in the number of US-related job postings, we assess the differential change in India based postings by their exposure to the policy change. We then assess whether offshoring explains the observed differential changes in jobs posted in India by firms that earlier hired for US based positions i.e., firms shift the jobs performed in the US to India.

Policy Implication: Free trade in products and people is often regarded as an important engine for creating better jobs, increasing incomes and reducing poverty in the sending country and also addressing labor and skill deficit in the receiving country. India-US trade ties are important not only for product trade but the US is also the largest market for Indian labor and for services exports from India. Hence, policies around H-1B visa access have always been a crucial fulcrum on which trade ties between the countries have rested. Indian government has often intervened on behalf of Indian industry when visa curbs have been imposed by the US (Livemint). Our study throws light on how India and US based firms cope up with curbs on hiring immigrant workers by the host country. If firms offshore jobs instead of hiring more native workers in the US, it shows that the availability of talent is indeed a binding constraint for these firms. Visa curbs or increase in uncertainty in visa policy are then unlikely to improve outcomes for native workers in the US, a usual argument for increasing visa restrictions by governments.