Mainstream WeeklyThe Government of India has been evaluating the impact of the US restriction on H-1 B visas on skilled talent mobility, technology development, innovation, economic growth, competitiveness, and wealth creation in India [1]. The impact of the modifications to the US H-1B visa policy for Indians on the rising firm concentration ratio in India’s current oligopoly market structure will be explained in this article. The proposed $100,000 fee per H-1B application for companies and a new $250 Visa Integrity Fee on top of standard fees for non-immigrant visas are two of the new US visa regulations that significantly increase the cost of employing skilled workers from India [2]. Consequently,it causes skill and quality differentiated heterogeneous firms in the urban formal and informal sector and rural sector, which leads to the growing informalisation and contractualisation in the urban informal and rural sectors through the rise in the firm concentration of the urban formal sector.
A change in visa regulations suggests that highly trained people remain in the domestic economy, which increases the concentration of the urban formal sector and the size of the urban informal sector, as well as the labour supply in the rural sector. The intensive margin of the urban formal sector rises more than the extensive margin, enabling concentrated absorption of skilled workers in a few urban formal sectors, since the highly skilled workforce remaining in India will be employed by a few conglomerates in an oligopoly market structure.Given the framework, a stricter US visa policy will restrict labour force mobility, which goes against the premise of a free and open global economy. This will result in a skilled labour pool that is abused by a small number of corporate elites in India.
Key Words: US Visa Policy, H1B Visa, Skill Premium, Oligopoly, Labour Mobility, Inequality, Wage Differential, Informal Sector, Formal Sector.
Exploring Labour Mobility and Employment in India
Despite the presence of positive marginal products in agriculture and high levels of urban unemployment, rural-urban labour mobility not only continues but appears to be accelerating as long as the predicted urban real income at the margin surpasses real agricultural product. To put it another way, prospective rural migrants maximise predicted utility. It is predicated on the idea that both the available supply of rural migrants and a permanent urban proletariat with no ties to the rural sector comprise the whole urban labour force. The decision to migrate is influenced by economic incentives, salary disparities, and the likelihood of finding employment in the destination [3]. However, the skill premium is limited for the foreseeable future due to the enormous pool of jobless labour force, including covert unemployment in agriculture in a rising nation like India. To prevent higher premiums from spreading to informal jobs, the skill premium tends to establish an exclusionary hierarchy. Only large corporations that offer generous compensation and benefits hire highly skilled workers.
There are two sides to the huge disparity in skill-based labour productivity. It has the potential to greatly boost output by transferring labour from small businesses and farms to huge organised industries, but it also has the destructive potential to generate a serious unemployment crisis because any given level of output can be produced with much less labour.Therefore, if the significantly higher labour productivity in the organised sector is constrained by market size, it may lead to a significant loss of livelihood. Due to lower or stagnant earnings in the small businesses and informal sector, there is inadequate effective demand, which limits market size.Organized industry will find it unprofitable to raise production beyond the market capacity; will not be able to accept the majority of the displaced workers from small businesses and farms. Moreover, when this massive demand expansion fails due to falling and stagnant wages, only a tiny percentage of the displaced workers are absorbed, leaving the rest as surplus labor.
Furthermore, industrialisation usually both produces and destroys livelihoods and jobs at the same time. As is common with jobless growth, GDP would increase in tandem with rising unemployment. While output, livelihood, and employment are generally lost in the unorganisedsector, particularly in small agriculture owing to land acquisition, in the event of jobless growth, output and employment are gained in the organised industry. When growth is positive, the gainers, who are newly hired in industry, can only make up for the losers in terms of output because of their increased labour productivity [4], but not in terms of giving unemployed people a different means of subsistence. According to this perspective, industrialisation may be justified in terms of output growth but not in terms of welfare or livelihood considerations.
A higher rate of structured and formal industrialisation highlights the need for technological advancement to boost factor productivity. However, a big pool of unemployed workers in a developing nation leads to labour-saving technological advancements that limit labour employment. Technological advancement, according to Schumpeter, is what drives industrial expansion and eventually raises labour productivity [5]. Schumpeter, however, overlooks the issue of technically induced wage discrimination, which could lead to the concentration of low-skilled and low-paying positions in tiny and informal enterprises.
Due to its ongoing trade imbalance, India has been unable to implement labour-intensive technological advancements, which has made it less competitive internationally in labour-intensive industries [6]. Instead, it has promoted capital-intensive production methods. Furthermore, many Indian companies have been unable to grow due to complicated labour rules, expensive compliance costs, and infrastructure delays, which have decreased their capacity to take on displaced workers. As a result, salaries remain low, and unemployment is high, especially for those with lower levels of education, in a labour market where job creation lags behind workforce growth [7].
By lowering workers’ consumption, these pay restrictions have decreased rather than raised effective demand, which has not been offset by increasing investment or consumption by other classes [8]. However, the show has continued thanks to foreign capital inflows, primarily in the form of "portfolio investments," which have an impact on stock ownership patterns rather than on the economy’s potential for productivity [9]. Therefore, the need for labour-saving technology to boost productivity to stay competitive and a higher skill premium for skilled labour to be employed in the formal organised sector in an oligopoly market amid a vast labour pool hijack the rural-urban migration thesis to equalise the wage differential.
The Rise of Oligopolistic Firms and Economic Inequality
An oligopolistic market structure has emerged in India. Several industries, including aviation, telecommunication, gas and energy, infrastructure, banking, retail market, media, and automotive, have seen an increase in the prevalence of oligopoly, which is defined by a few major corporations controlling an industry [10]. The number of formal sectors in the economy has decreased as a result of the firm’s increased concentration ratio [11]. In the meantime, the new US visa regulations suggest that highly trained workers remain in the domestic economy, which reduces the size of the urban formal sector and increases the size of the urban informal sector as well as the labour supply in the rural sector.
Bigger companies have emerged as a result of India’s declining formalisation of economic activity; these companies may establish cartels and begin raising prices. By using great political influence to monopolise or restrict access to limited resources, they can erect obstacles to entry for effective smaller and marginal players. Raising import taxes, imposing burdensome laws or licensing requirements, and altering the game’s rules to limit competitors are some ways to accomplish this. Smaller firms cannot match the larger players’ access to vast distribution networks, cutting-edge technology, and large sums of money. However, maintaining mass consumption and creating jobs depend on the survival of small and medium-sized businesses (SMEs).
It indicates that the expansion of large corporations coincides with the growing formalisation of corporate enterprises, which may be exacerbated by the stringent US visa regulations. It would have two effects: it would increase the firm concentration ratio in India’s oligopoly market structure and reduce the labour market, which would weaken labour mobility and deteriorate labour conditions due to the presence of a sizable unemployed reserve army. As a result, the large structured formal sector grows, increasing the skill premium for a small number of highly skilled individuals and expanding the small and medium-sized informal sector due to greater entry barriers. As a result, there are islands of a few large businesses amid India’s expanding contract and informal employment.
At 42% in 2023–2024, the percentage of contract workers in India’s organised manufacturing sector reached its highest point in almost thirty years [12]. Additionally, lower or stagnant wages are the outcome of contractual workers’ weaker negotiating position, which highlights the wage premium of skilled and unskilled labour working in organised and unorganised sectors, respectively. Even though the Contract Labour (Regulation and Abolition) Act of 1970 forbids it, contract workers are still paid less for doing the same work [13]. Labour Bureau data from 2014–15 to 2021–22 reveals that, between 2014–15 and 2021–2022, the real wage growth rate was less than 1% annually; for agricultural labour, construction workers, and non-agricultural labour, it was 0.9%, 0.2%, and 0.3%, respectively [14].
Conclusion
The US H1B visa regulation reform has had an impact on labour employment in developing nations that have a reserve army of jobless workers. In the case of India, these limitations on skilled labour mobility encourage a reverse brain drain, with trained labour appearing to be heading towards India. However, India’s oligopolistic market structure indicates that these few business conglomerates will hire the highly skilled labour force that is returning, creating a significant skill gap between large corporations and small and medium-sized businesses that cannot afford to pay these immigrant workers comparatively higher salaries. The skill and wage gap between formal organised and informal unorganised enterprises will be highlighted by higher-skilled employment in large industries, which will promote capital-intensive technical advancements.
In addition to increasing business concentration in the economy, it will increase labour income disparity. Furthermore, the US visa policy shows that labour mobility restrictions are antagonistic to the principles of free trade to guarantee that commerce becomes a tool of labour mobility. India’s current firm concentration and inequality may be exacerbated by a stringent US visa policy. Therefore, trade agreements for greater labour mobility to an oligopolistic market structure and indiscriminate skill premium are impending for a developing nation with a large labour pool like India.
(Author: Ajay Kumar Mishra teaches Economics at Lalit Narayan Mithila University, Darbhanga, Bihar)