Wage Theft, Market Power, and Outsourcing: The Case of H-1B Workers

Abstract

Wage violations against H-1B visa holders (i.e., cutting their wages below a legally required prevailing wage) is analyzed theoretically and empirically. The theoretical model suggests that violations are more likely when firms have less labor market power, and in subcontractor firms that have been outsourced work. New empirical evidence supports these predictions, revealing that 60% of firms with at least one violation are subcontractors and that the incidence of violations is 40-65% less likely in a monopsony versus a competitive market. The results have implications for how scarce monitoring resources could be prioritized to minimize violations against guest workers.

Keywords: wage theft, guest workers, H-1B workers, labor market competition, wage and hour laws, monopsony labor market

JEL Classification: J31, J38, J42, J44