RAISE Act may result in cost rise for IT firms

Firms shift focus from low-end services as the proposed act pushes for green card to highly-skilled

As the US President Donald Trump has backed the Reforming American Immigration for Strong Employment Act (RAISE) Act, a reform for green card application; IT services firms likely to see the rise in a cost as they may be pushed to hire high-skilled professionals locally.

If implemented, RAISE Act can also potentially increase the cost of employing an Indian software engineer in the US for both Indian and their global counterparts such as Accenture, IBM and others.

The Act, which aims to change the existing lottery system for issuance of green card (citizenship) into a point-based one, has proposed that priorities would be given to English speaking ability, highly-paid job, or a doctorate from any US university and other categories.

For example, as reported by BBC News, an individual can get 13 points (out of the total 30) if that person has a US doctorate; while a US or foreign high-school diploma degree will only get one point.

"It (RAISE Act), if implemented, will further force IT services firms to invest in onshore US workforces and higher skilled onshore employees (which they need to do anyway). I actually think it may help them shift the model towards higher value services and away from the lower-end work which is commoditized and very challenging to deliver profitability," said Phil Fersht, chief executive officer, HfS Research.

Fersht said this would "drive up" the costs of employing immigrant technology professionals to work on projects and that would be "a uniform impact" across all Indian and global IT services companies.

Ray Wang, principal analyst and founder of Silicon Valley-based Constellation Research, seconded Fersht that cost of hiring senior techies is likely to go up for IT firms across the board.

Both claim a higher probability of this Act being implemented.

During the past two quarters, Indian firms such as Infosys, Wipro officially announced plans to hire more locals both from universities and seniors in the US and increase mix of American workers owing to a shift towards digital technology coupled with protectionism.

In future, this Act may push for costly hires at senior levels in the US.

Wang said it could favour the Indian and global IT firms too as it focuses on higher skills. "This act benefits scare skills. Applicants earn points based on education, English-language ability, high-paying job offers, age, record of extraordinary achievement, and entrepreneurial initiative. This is in the favor of the IT services firms but expect wages to rise."

The RAISE Act is making a strong case for highly-skilled workers to be eligible to become US citizens and filter the low-end workers.

"The new law, dubbed the 'Raise Act'," focuses on the legal side of the immigration equation. Right now, our system for handing out green cards makes no sense...Britain, Canada and Australia have all moved to a point-based system and had success. No reason that can't be the case here, too...While economists largely agree that immigration is overall a net benefit, low-skilled immigration has a devastating impact on the US minority communities, pushing down wages and job opportunities for unskilled and untrained American workers," wrote a White House note justifying the reason behind Trump backing the Act.

While major Indian IT services firms, including Infosys, Wipro, Tech Mahindra, declined to comment on this story, IT services industry lobby Nasscom said the at an industry level it focuses on "skilled labour mobility" and greencard applications are usually filed on an individual basis.

"Our focus is on skilled labour mobility for works. Immigration is every country's priority," said Sangeeta Gupta, senior vice-president, Nasscom.

Peter Bendor-Samuel, chief executive officer of Everest Group, a global technology researcher, however, believes it is too early to be cautious and this Act has a "low probability" of getting passed anytime soon.

"This is playing to the Trump base which feels that low-skilled worker immigration has been a major contributor to low wage growth for the low skilled labour. It would appear that there is some movement in opinion in this direction in the country but it is still very early."

The fine print

• The Reforming American Immigration for a Strong Economy Act aims to alter the existing lottery system for issuing green card (citizenship) into a point-based one
• It has proposed that priorities would be given to English-speaking ability, highly-paid job, or a doctorate from any US university and other categories
• The Act may push for costly hires at senior levels in the US. But experts feel it could also favour Indian and global IT firms, as it focuses on higher skills