Despite the improving unemployment situation in the United States, President Trump may still further restrict legal immigration. One program that the Trump administration is considering restricting is the L-1 visa program.[1] Multinational businesses use the L-1 visa to transfer important employees from offices abroad to the United States. Eliminating the L-1 visa program would harm job and wage growth in the United States by making it much more difficult to expand businesses here.

What is the L-1 visa?

The L-1 visa is a nonimmigrant (i.e. temporary) visa for intracompany transfers. It permits multinational companies to bring employees temporarily to the United States if they were employed for at least one year abroad.[2] The program permits petitions by U.S. employers only for managers and executives (L-1A) and specialized knowledge workers (L-1B) who may be admitted for up to 7 or 5 years, respectively.[3] The statute defines “specialized knowledge” for L-1B workers as “special knowledge of the company product and its application in international markets or has an advanced level of knowledge of [its] processes and procedures.”[4]

Spouses and minor children can travel with the employee to the United States,[5] and the spouse may work.[6] Unlike low-skilled seasonal workers and other temporary visitors to the United States, L-1 workers are not required to prove that they have no intention to live in the United States permanently, allowing employers to simultaneously request permanent residence on their L-1 workers’ behalf.[7] Employers must file a petition for each worker if filing with the USCIS, but need not file one if they have an approved "blanket" petition allowing L-1 employees of these pre-approved companies to apply directly at consulates abroad.

Why did Congress create the L-1 visa?

Congress created the L-1 visa in 1970.[8] The purpose was to facilitate greater investment in the United States by multinational companies. In 2015, U.S. Citizenship and Immigration Services stated, “Creation of the program reflected Congress’ concerns with meeting the workforce needs of multinational employers operating in an increasingly global marketplace.”[9]

Specifically, Congress was prompted to action following the immigration reform of 1965, which imposed caps on permanent immigration from the Western Hemisphere. The caps ended the ability for Western Hemispheric companies to quickly transfer employees to the United States using permanent immigrant visas and, the Senate Judiciary Committee found in 1969, “resulted in a serious disruption of the traditional conduct of trade and commerce between Western Hemisphere countries and the United States.”[10]

This created a major issue particularly for Canadian companies. Then-Senator Sam Ervin (D-NC) received letters from Canadian members of parliament that explained how Canadian firms were having to wait more than a year to transfer their employees to the United States and that they “cannot wait for this type of delay.” U.S. multinationals would expand into Canada and hire some Canadians—which made “the entry of these firms most welcome” in Canada—but when companies wanted to transfer Canadians back to U.S. jobsites, they had “to put up with extensive delays.” They noted that Canada conversely allowed immediate access to U.S. workers in that situation, and they noted that “restrictions imposed upon Canadians to their prejudice [could] see a pressure build up here in Canada for reciprocal treatment” on U.S. workers.[11]

Thus, to prevent retaliation against U.S. companies and workers transferring abroad, to make it easier for U.S. companies to expand abroad, and to encourage multinationals to invest in the United States without fear of being cut off from their key employees, Congress created the L-1 visa. Senator Ervin said that the proposal “would provide relief for the problems of businesses in both Eastern and Western Hemispheres in transferring key personnel to the United States for temporary tours of duty.”[12] The House report stated that it “would meet the objectives of American industry which has been seriously hampered in transferring personnel.”[13]

How has use of the L-1 visa program changed?

The L-1 visa program has no numerical limitations, meaning that multinationals can bring into the United States as many of their foreign employees as they need so long as they meet the requirements.[14] The L-1 visa expanded quickly in the 1990s before peaking just before the recession at 84,532 in 2007. It has declined since then, and in 2019, 76,988 visas were issued under the L-1 visa classification.[15] Last year, about 14,000 spouses of L-1 workers also received authorization to work in the United States.[16] Through half of FY 2020, there were 35,228 L-1 visas issued.

What are the most common countries of origin for L-1 workers?

Multinationals transferred personnel from about 160 countries in FY 2019.[17] By far the most common country of citizenship for L-1 workers is India with 18,354 visas issued in 2019. The United Kingdom, Brazil, Mexico, and China round out the top five with between 5,000 and 6,000 each. Other major trading partners—Japan, Germany, and France—also rank in the top 10. The sudden departure in upward trend in 2008 is entirely explained by decreasing approvals for employees from India.

What companies employ L-1 workers?

Table 1 shows the number of approved L-1 petitions by USCIS by company by fiscal year from 2015 to 2018. Companies—Tata, Cognizant, Deloitte, Amazon, Infosys, and IBM—made the most requests in 2018. Deloitte is the only non-tech company among the leading L-1 employers.

What is the L-1 share of U.S. multinational employment?

The government does not maintain information regarding the stock or population of L-1 visa holders in the United States at any one time. L-1 visa holders can receive status from 5 to 7 years. They may enter or reenter the country dozens of times per year during the course of project involving teams in multiple countries. Some may adjust to other statuses in the United States or leave the country. That said, Figure 3 below uses the prior 5 years of visa issuances to give a rough high-end estimate of 387,397 for the number of L-1 workers that could have been employed in the United States in 2019. [19] This is about 1 percent of the 35.4 million U.S. employees of U.S.- and foreign-based multinationals.[20] While the L-1 share rose from 1997 to 2008, it has since declined.

Multinationals are employing vastly more U.S. workers than L-1 workers. More importantly, nearly one in four jobs are with a multinational company.[21] Congress should make sure not to undermine these jobs by threatening the L-1 program.

Is the L-1 visa program necessary?

The L-1 visa is a critical component of multinational employment and investment growth. According to the Congressional Research Service, the L-1 “is considered a visa category essential to retaining and expanding international businesses in the United States.”[22] In a letter to President Trump in May 2020, the Chamber of Commerce and hundreds of businesses wrote that restricting the L-1 visa was a “significant concern” because it “plays a direct role in supporting job creation and job retention in the United States, as well as expanding U.S. advanced manufacturing, continuing U.S.-centered research and development, increasing exports from the U.S., and encouraging foreign direct investment into the U.S.”[23]

In 2006, the Department of Homeland Security Office of Inspector General (DHS OIG) found that “a number of business executives playing leading roles in U.S. companies were initially transferred to the United States on temporary worker visas.”[24] The National Foundation for American Policy (NFAP) has found that “75 of the 91 privately held, billion-dollar companies, or 82%, had at least one immigrant helping the company grow and innovate by filling a key management or product development position.”[25]

For example, Lior Div cofounded Cybereason, a cybersecurity firm, in Israel, but he grew his operation into the United States in 2014 by coming to the United States on an L-1 visa. He said, “You have to be close to the market you are selling to and for us the main market is the United States.”[26] He told NFAP’s Stuart Anderson that while his firm is now in many countries, “the majority of the team is in the United States.”[27] His expertise allowed the business to create jobs in the United States that otherwise wouldn’t exist.

In testimony to Congress in 2003, Daryl Buffenstein of the Global Personnel Alliance provided several examples of typical uses of the L-1 visa. He described, for example, a California-based software company who brought in an L-1 from Europe to transfer new product technology so that software developers could then develop products using its technology. He notes, “Without this transfer, the development would be taking place in Europe and the jobs would go there instead.”[28] After noting how vigorously states were competing for foreign direct investment (FDI), Buffenstein said:

Successful investments necessarily involve people. Without the select cadre of key executives, managers, and specialists who are involved in these transfers, there would be, quite simply, no investments and therefore no jobs. And many, if not most, of these people are here on L-1 visas. They are very few in number relative to the jobs they create.[29]

Recent academic research by the Wharton School confirms that following restrictions on high skilled immigration, “firms were more likely to open new foreign affiliates abroad in response, and employment increased at existing foreign affiliates.”[30] In other words, they send jobs abroad when they can‘t bring their foreign workers here. Worse, the research notes, “if skilled foreign-born workers are at a US firm’s foreign affiliate instead of in the US, the innovative spillovers that they generate will go to another country instead.”

According to the International Trade Administration, “12 million people (8.5 percent of the labor force) have jobs in the U.S. due to either direct employment at foreign firms (6.1 million), indirect and induced employment from foreign firms (2.4 million), or indirect and induced employment from productivity spillovers (3.5 million).”[31] It is important that Congress not undermine these jobs and future job growth by denying foreign businesses the ability to bring their existing employees into the country to guide and direct their operations.

Do L-1s displace U.S. workers?

L-1 visa holders are existing employees of U.S. multinationals, not new hires that could take a position within an organization. They come to the United States to perform duties that they were otherwise be performing abroad. It would be pointless to require companies to search for U.S. workers with specialized expertise in the company’s processes and procedures because such a search would yield no results. It would only delay important projects and impose costs on U.S. employers and consumers.

Opponents of the L-1 visa program cite a few instances over several decades in which L-1 workers were apparently hired and loaned to other companies to perform jobs that U.S. workers were doing in the tech industry. In 2006, the DHS OIG first investigated these claims and determined, “While many of the claims that appear in the media about L-1 workers displacing American workers and testimony may have merit, they do not seem to represent a significant national trend.”[32] The OIG concluded that “the demand for computer and IT related positions also seems to be strong” with wage and job growth much better than the average. It added, “The ebb and flow of L-1B workers correlates closely with the general health of the U.S. high tech industry.”

Even if some instances of U.S. worker displacement may have occurred, Congress should not adopt policies that attempt to stop all job losses. Job turnover occurs across the entire economy on the level of more than 40 million per year.[33] Stopping all such job adjustments in the economy would stifle innovation and drive businesses away from the United States because it would not allow them to stop inefficient processes. Far from displacing U.S. workers on net, allowing multinationals to bring employees into the United States from abroad prevents them from moving their entire operations abroad. This keeps America the leader in the world for foreign direct investment that creates jobs here.[34] Unfortunately, and perhaps unsurprisingly given his trade and immigration policies, the amount of FDI has fallen dramatically under President Trump.[35]

Do businesses use L-1s to avoid H-1B rules?

Because the L-1 visa is for existing employees of companies with operations abroad, the law imposes no numerical limit unlike the H-1B program, which is for new hires. It also allows companies to continue to pay their workers the same that they would have been paid in their home countries (so long as it accords with other state and federal laws), so as not to disincentivize them from locating their operations in the United States. If the L-1 program did have a numerical limit, it would essentially cap the amount of foreign investment and business growth in the United States, and it would lead more businesses to offshore.

Nonetheless, these differences between the L-1 and the H-1B have led some critics to argue that companies simply use the L-1 to avoid having to deal with H-1B bureaucracy. While this would be an understandable reaction to the H-1B’s incredibly bureaucratic procedures, the DHS OIG investigated these claims and found “only 1,975 applicants applied for both the L-1 and H-1B,” and that since some L-1s may also qualify as H-1Bs, this “does not indicate that either of the petitioners, or the beneficiary, is trying to take advantage of the system.”[36]

In 2013, the DHS OIG reiterated its skepticism of this theory, finding “no conclusive evidence that the L-1 visa program is being used to avoid H-1B restrictions.”[37] In fact, it noted that “Since FY 2008, the ratio of H-1B to L-1B submissions has actually increased.” This trend has only continued since then (Figure 4). From 2012 to 2019, the ratio of H-1B to L-1B petitions has nearly doubled, despite the fact that the H-1B caps were continuously being reached within days. Obviously businesses do not see the L-1B as a viable alternative to the H-1B.

The limited evidence available doesn’t support the claim that L-1s are generally lower paid than H-1Bs. While not much wage data is available on L-1s because employers don’t need to file wage information to bring in existing employees from abroad, the 6,934 L-1 visa holders for whom employers requested permanent residence in 2019 received an average wage offer of $118,014, roughly triple the median wage in the United States that year.[38] It was also higher than the H-1B average wage offer that year.[39]

Are there problems with the L-1 visa?

The biggest problem facing the L-1 visa right now is that the denial rate for L-1 petitions has escalated dramatically, decreasing the ability of businesses to operate in the United States. Figure 5 shows how the denial rate has increased from 15 percent in 2016 to 28 percent in 2019. Another 28 percent received a request for evidence (RFE), which is the equivalent of an initial denial that the business can overcome by presenting additional information to the agency. The majority of all L-1 petitions are now subject to a denial or an RFE request, which delay or prevent the transfer of important personnel to the United States, undermining economically important projects.

Most of the denials are for L-1B petitions for workers with specialized knowledge, and before 2008, the L-1B denial rate was below 10 percent, meaning the L-1 denial rates have been increasing dramatically for more than a decade.[40] This increase led the Chamber of Commerce and dozens of businesses to write to President Obama in 2012, saying that denials “do nothing except disrupt carefully-laid business plans and create significant costs to the company and the American economy.” Yet from 2016 to 2019, the share of L-1B denials increased again from 25 percent to 34 percent.[41]

It’s impossible to maintain a denial rate at this level without something seriously wrong with USCIS’s adjudication process. If USCIS consistently rejected certain applicants, those applicants that don’t meet adjudicators’ standards simply would not apply (even if they should be approved under the correct interpretation of the law) because it makes no sense to apply knowing that a rejection awaits. The fact that the denial rates remain this high is a sign that adjudicators’ denials are not at all consistent, so employers simply have no way of knowing what petitions are approvable. What is relevant is not the contents of the application, but who adjudicates it, making decisions seem arbitrary.

Indeed, the DHS OIG found in 2013 that L-1 “adjudicators reach different decisions despite similar fact patterns.”[42] The denials are mainly driven by some adjudicators narrow view of L-1B “specialized knowledge,” which despite congressional efforts to broaden it is vague enough to allow more restrictive adjudicators to issue denials. As USCIS has stated in official policy memoranda, Congress clearly intended to adopt an expansive view of this phrase in the Immigration Act of 1990, but many agency employees fail to follow its intent.[43]

Conclusion

Multinational companies play an exceptionally important role in the United States. U.S. parent companies account for nearly a quarter of all private sector output, nearly half of all exports, and nearly three quarters of all private research and development.[44] More than 30 million American workers’ jobs depend on multinationals. The U.S. government should not further upend investment and job growth by these companies in the United States during the economic recovery. The unemployment rate in computer occupations where many L-1s are employed did not increase at all during the downturn,[45] and the United States will need more L-1 workers as the economy expands.

This article by David J. Bier first appeared in CATO on June 10, 2020.

Image: Reuters.