Facing a dwindling supply of American tech workers, employers struggle to hire skilled foreigners.
(FORTUNE Small Business) -- Axiom Microdevices, a semiconductor company in Irvine, Calif., is embroiled in an increasingly futile annual ritual - the scramble by U.S. businesses to score scarce H-1B visas for their highly skilled foreign employees.
Axiom designs components for cell phones based on a European standard. As a result, the 45-person company often can't find qualified U.S. engineers to develop its products.
There are plenty of experienced system designers in Europe, but Axiom can't hire them without an H-1B visa, which allows highly skilled foreign nationals to work in the U.S. The U.S. Customs and Immigration Service (USCIS) recently concluded a five-day, H-1B application period for fiscal year 2009 (which begins October 1).
USCIS received 163,000 applications for an available 85,000 visas. (20,000 visas are allocated specifically for foreign workers with advanced degrees.)
Last year USCIS received nearly 140,000 applications, forcing the agency to use a computer-generated selection process similar to a lottery. USCIS conducted its lottery this week and will announce the results in June.
Last year Axiom made an offer to a European candidate, but couldn't hire him because he failed to obtain an H-1B visa. Axiom has two H-1B applications in this year's lottery, according to marketing VP Donald McClymont.
"We don't have U.S. designers who can do this work and at this point, we can't hire enough people to grow as quickly as we would like," says McClymont. "It's becoming a big problem for us."
Demand for H-1B visas is rising thanks to a shortage of American citizens with training in the hard sciences, mathematics and computer science. The number of U.S. college students graduating with computer science degrees this year has declined by 43% since 2004, according to a new study by the Computing Research Association, an advocacy group based in Washington, D.C.
Enrollment in computer science programs plunged 18% from 2006 to 2007.
The H-1B cap hits small businesses hard because they submit fewer applications than large companies and because individual employees are more important to the company's success. Howard Kogan, CEO of Molecular, a small digital marketing and Web development company in Boston, needs software engineers with knowledge of complex Web applications development systems. Last year he wanted to hire a handful of foreign engineers, but none received H-1Bs.
This year Kogan has several potential employees in the lottery.
"It's not like there are five people who don't need visas waiting in line to work for us," says Kogan. Like other small tech businesses facing a lack of qualified personnel, Molecular has been forced to ship some of its work out to other countries.
"I can't grow my business because I can't take on more projects," says Kogan. "I don't have the staffing for it."
For workers who do receive H-1Bs, a much larger problem looms: the backlog in processing green cards, which give foreign workers permanent residency in the U.S. Qualified applicants must currently wait between two and 10 years to receive their green cards. Indian and Chinese applicants wait even longer because so many apply from these countries.
Federal immigration policy caps the number of employment-based green cards each year at 140,000, including spouses and children. An estimated 500,000 H-1B visa holders are currently waiting for a green card - or about one million, if you include family members.
That can mean a frustratingly long wait for highly educated and ambitious foreign workers, who often want to start companies in the U.S.
"One in four successful high-tech entrepreneurs in the last decade were immigrants," says Robert Litan, vice president for research and policy at the Kauffman Foundation for Entrepreneurship, a nonprofit research and advocacy group based in Kansas City. "A lot of those people leave rather than take a chance staying here."
Litan argues that the visa crunch could impede U.S. economic recovery because it disproportionately hurts small businesses, the engine of recovery in past recessions.
"We are shooting ourselves in the foot," he says.
Mark Bartosik is a British software engineer who works for a multi-media company in New York City. Bartosik holds an H-1B visa and has been waiting for a green card for eight years.
To avoid losing his place in the green card line, Bartosik remained in the same position with the same company for that entire period.
Bartosik says he came to the U.S. with an invention around which he planned to launch a company.
"It was leading-edge when I developed it in the U.K., and I had a working prototype," he said. "But after four years of waiting in the U.S. for my green card, I gave up because I could see the market for it closing up."
The only option for many businesses is to outsource work or open up offices in other countries. Axiom, for example, is considering opening subsidiaries abroad in order to hire the workers it needs.
U.S. employers worry that H-1B holders who are frustrated by the long wait for a green card will leave for jobs in other countries. Ironically, a significant portion of the foreign nationals that want to work for U.S. companies were also educated in the U.S. Foreign nationals now make up more than 60% of the Ph.D.s in computer science and engineering at U.S. colleges.
But these students are increasingly opting for jobs outside the U.S. as word spreads about how difficult it is to get a visa, says Aman Kapoor, president of the immigration rights group Immigration Voice, whose members are highly skilled foreign residents of the United States.
"They take the education and training received in the U.S. to use in another country, along with the revenue they will generate," says Kapoor.
Organized labor leaders and some members of Congress oppose raising the cap on H-1Bs or eliminating limits on employment-based green cards for highly skilled workers. Rep. Dana Rohrabacher, R-Calif., has suggested there are enough skilled U.S. workers to fill vacant positions and that H-1B workers are just a source of cheap labor.
But federal law requires that H-1B employees be paid the prevailing wage for their positions. And immigration lawyers say it's actually more expensive to hire a foreigner, because of visa filing fees and legal expenses.
As for foreigners taking jobs away from Americans, new research from the National Foundation for American Policy, a public policy think tank, suggests that hiring H-1B workers creates new jobs for U.S. citizens. For every H-1B position at a U.S tech company, five new workers are hired, it says. For smaller tech firms the number rises to 7.5 new jobs for every H-1B hire.
Meanwhile, Axiom's Doug McClymont - who waits to hear if his company will get visas for the workers it needs - notes that hiring skilled foreigners tends to create new ideas along with jobs.
"People from different places and different backgrounds allow cross-pollination of ideas," he says. "We absolutely need that kind of innovation to keep growing. If you stagnate and close yourself off from that, you die."