Norm Matloff explains why the USA labor market is hopeless (and the problem isn’t excessive labor union activity)

Police and firemen, some with their wives and children, assemble on Philadelphia’s Rayburn Plaza, Nov. 13, 1956 to carry their wages and hours demand to City Council. The police and firemen are demanding an increase of $1,000 a year and a 40-hour week. (AP Photo/Sam Myers)

Many years ago, back in the 1970s, before Ronald Reagan smashed the air traffic controllers, the USA had labor unions.

They were not ideal. They were mixed up with organized crime. They were not very altruistic. And yet, somehow, they were better than nothing.

Norm Matloff is apparently highly accomplished, and he doesn’t mention labor unions, but he does know what’s wrong with migrant labor in the USA’s tech sector.

Recall that Trump promised to make things better for the ordinary working man of the USA.

Trump’s administration will probably inspire a few Mexicans to flee the USA, and that might slightly reduce the pain of the lower-class USA worker, but Trump is not likely to pick up the torch of the old 19th century industrialists. The modern USA worker would probably prefer to have authoritarian bosses like Carnegie and Ford and Edison. I doubt that they will get them.

Below is Matloff’s brief description, with links to more detailed documentation.


Professor Norm Matloff’s H-1B Web Page


The H-1B work visa is fundamentally about cheap, de facto indentured labor.

The tech industry lobbyists portray H-1B as a remedy for labor shortages and as a means of hiring “the best and the brightest” from around the world. Though I strongly support that latter goal, the lobbyists’ “best and brightest” claims are not valid.

The vast majority of H-1Bs, including those hired from U.S. universities, are ordinary people doing ordinary work, not the best and the brightest. On the contrary, the average quality of the H-1Bs is LOWER than that of the Americans.

Furthermore, vast majority of H-1Bs, again including those hired from U.S. universities, are not doing work for which qualifed Americans are unavailable.

Instead of being about talent, H-1B is about cheap, immobile labor:

  • Employers accrue Type I wage savings by paying H-1Bs less than comparable Americans (U.S. citizens and permanent residents).
  • Employers accrue Type II wage savings by hiring younger, thus cheaper, H-1Bs in lieu of older, thus more expensive (age 35+) Americans.
  • Both types of wage savings are fully LEGAL, due to loopholes in the law and regulations. The problem is NOT one of lack of enforcement.
  • For many tech employers, having immobile workers is even more important than having cheap labor. If an engineer leaves an employer in the midst of an urgent project, this can be a major problem for the employer. The H-1B and green card programs give the employer heavy leverage to force workers to stay.
  • Abuse of H-1B extends across the industry, including the large U.S. mainstream firms., facilitated by the nation’s top immigration law firms. It does NOT occur primarily in the Indian “body shops,” and it DOES occur in the hiring of international students from U.S. university campuses.

The underpayment of H-1Bs is well-established fact, not rumor, anecdote or ideology. It has been confirmed by two congressionally-commissioned reports, and a number of academic studies, in both statistical and qualitative analyses.

Even former software industry entrepreneur CEO Vivek Wadhwa, now a defender of foreign worker programs who is quoted often in the press and who has testified to Congress in favor of expansion of the programs, has confessed,

I know from my experience as a tech CEO that H-1Bs are cheaper than domestic hires. Technically, these workers are supposed to be paid a “prevailing wage,” but this mechanism is riddled with loopholes.

Wadhwa has also stated

I was one of the first [CEOs] to use H-1B visas to bring workers to the U.S.A. Why did I do that? Because it was cheaper.

Even Rep. Zoe Lofgren, the most strident advocate of the H-1B program Congress has ever had, now realizes that H-1B is used for cheap labor, in full compliance with the law. She concedes that the program is undercutting American workers:

U.S. Rep. Zoe Lofgren, a Democrat whose Congressional district includes Silicon Valley, framed the wage issue at the hearing, sharing the response to her request for some wage numbers from the U.S. Department of Labor.Lofgren said that the average wage for computer systems analysts in her district is $92,000, but the U.S. government prevailing wage rate for H-1B workers in the same job currently stands at $52,000, or $40,000 less.”Small wonder there’s a problem here,” said Lofgren. “We can’t have people coming in and undercutting the American educated workforce.”

(Lofgren’s 2011 reform bill, however, would not have fixed the situation, and would add an equally-harmful automatic green card program. In addition, Lofgren’s bill implicitly singles out the Indian IT services as the main offender, disgraceful and absolutely inaccurate scapegoating.)

Similarly, an expert on Quora writes about dysfunctional labor practices:

Ethar Alali

Well, you’ll be pleased to know, this has already been done and is being done. It was an idea put forward by GE many many years ago. Decades ago. With a view to improving performance. The aim is to fire the bottom 10% or so, lowest performing staff. However, the effect is definitely not what you think it is. It is a false economy.

Microsoft did this under Steve Balmer. It became a horrific place to work! The results are not what you think and Microsoft lost so much ground! The worst years of Microsoft’s life were under Balmer. Never give operational control to a salesman, ever, on anything. Or more pertinently:

If you have an accountant as a CEO, you have no business. If you have a salesman as a CEO, you have no money and no business – Unknown (happy to edit if anyone find the source)

But I digress.

What happens?

Any time someone has imposed such a scheme, people start to panic. What panicking does over time is encourage horrific, disingenuous, back-stabbing behaviour from staff. In the melee, some good staff, the ones you don’t want to lose, will also leave citing the pressure culture and dishonest behaviour, because they know they can get work elsewhere.

How does that happen?

You, as a boss, like I, as a boss, have to evaluate the work of people to determine what “average” performance means. In addition, there are people out there who are constant scaffolding to everyone else. You have to watch out for them, but not because they’re trouble. Because you could be trouble 🙂

Their individual productivity looks poor, but they’re natural givers. You fire them, as Microsoft did, then the teams they are in, literally collapse overnight. You actually fired the most productive member of the team, who is shoring up everyone else….


As time progresses, people need to find ways of staying out of the bottom 10%. They have to learn stuff faster than than they can outstrip the bottom 10% line catching up with them. Sounds easy right? Not so. New developers who are top rung create a step change in capability which shifts the average up by some margin. Let’s do the math to exemplify.

Evaluation scores: 10, 27, 32, 33, 36, 37, 43 52, 72, 74.

Average = 41.6

Fire below average. That is everyone until 43. So 6 people. You now have a dev team of 4 instead of a team of 10.

New average = 60.25 (Mr/Ms 43 – 52 are looking pretty ominous now)

Hire a 95, 71, 61, 63, 71, 80, 45

New set: 43, 45, 52, 61, 63, 71, 71, 72, 74, 91

Average: 66.7

This creates a massive step change from the original 41.6. You think “great! Better performance”. Not so fast.

Where 360 degree reviews have been used in such a context, together with the threat of dismissal, what has been found is the bottom half will start to throw the average or even most capable, under the bus, to save themselves. They game the system through tactical voting. After all, there are very few top end developers and a basic, unweighted 360 process is one person, one vote, which immediately becomes non-meritocratic. The mob of mediocrity votes against the elite in an attempt to save itself.

If you have ever watched the Weakest Link, it is literally that sort of tactical voting. This happened to Microsoft and initially led to people being poached by Microsoft’s competitors. The way Microsoft solved that, wasn’t to get rid of 360’s and improve its culture, it was to add anti-poaching/anti-competitor clauses to their contracts [allegedly]. So if anyone was fired through this 360 process unfairly, they could not take up a role at another large tech company! Which added even more pressure on to staff, as poor developers who knew they were poor, knew they couldn’t get work elsewhere and startups wouldn’t hire them either. Also, that is unfair practise on a grand scale. Something that would be shot down here in Europe and the UK (for as long as the UK is in Europe) as it breaches workers rights.

Absurdity of Reason?

In any event, it’s counterproductive, as it leaves organisations that tried this with all the weakest developers! If this happens, your very best developers may also leave in disgust (I’ve done that before myself). Furthermore, as you get past 50% of the market average, it get harder to recruit. It is, after all, a statistical (usually normal, but often skewed) distribution. That means you have to find more and more people, from a smaller and smaller pool, in a general population which stays roughly the same, or increases at a slower rate. Hence, you have to offer significantly higher salaries every time.

Sadly, some managers who employ this technique think developers are two a penny, and they’re all equally capable, which they’re not! The frequency of top end developers (say, the top 3%) in the population is low. After all, why are they firing below average if everyone is the same and replaceable? It is a totally absurd position. They’re all equally capable, so the average is the same, but they want to fire the below average? Who’s the below average if everyone is 50%?

The Dead Sea Effect

Hence, you’re then stuck with your worst developers who will form a clique and do anything to protect themselves, including vote out new developers. It decimates teamwork and leads to what’s called the Dead Sea Effect.

“Many large IT shops… work like the Dead Sea. New hires are brought in as management deems it necessary. Their qualifications… will tend to vary quite a bit, depending upon current needs, employee departure, the personnel budget, and the general hiring ability of those doing the hiring. All things being equal, the general competency of the IT department should have roughly the same distribution as the incoming hires. Instead, what happens is that the more talented and effective IT engineers are the ones most likely to leave — to evaporate, if you will. They are the ones least likely to put up with the frequent stupidities and workplace problems that plague large organizations; they are also the ones most likely to have other opportunities that they can readily move to. What tends to remain behind is the ‘residue’ — the least talented and effective IT engineers.”

Your organisation is going to suffer badly for that, as Microsoft did. Not least because of…

New Developers and the Productivity Hit

The problem with new developers, however technically competent they are, is they do not have knowledge of the platform, the code style, or the business domain your organisation operates in, on the day they start and for the short-term. The weak developers you’ve fired, for no misconduct, do and you threw them out. Research has time and time again, proven that the productivity hit to the company, of replacing a lost average employee, is a third of their salary (in unproductive time, recruitment costs, management time etc.). Effectively, the organisation and the work go through a context switch and as we know, there is no such thing as a zero-cost context switch.

Hence, in our previous example, if developers are fired, each earning $100,000, they will each cost $30,000 to replace. Hence $210,000 in lost productivity. If this happens every month, not only may you fire developers who are new and thus, leave a clique of people, you will also lose $2.52 million just in the productivity hit, as well as delay your projects by the net effect of 3 months or so each time. In turn hitting your rate of return and hence, the return on investment.

So you can see, it isn’t a productive way to run a business. It’s a minefield! It’s also totally rubbish, even as a theory, because it isn’t grounded in anything useful, so was always bound to fail.



This entry was posted in political economy. Bookmark the permalink.

comments with fewer than 4 links should be auto-approved if everything works properly...

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.