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Comment by PaulHoule | Hacker News Reader

I have some familiarity with the "job shops" that hire a lot of H-1Bs, they do advertise for jobs in the US but I will say that the basic business model is something like "charge the customer $120 an hour and pay somebody $35 an hour to do the work" (Now there is some overhead, so this is not as bad as it sounds, but it is pretty bad.)

One thing that is fairly shocking is the low pay rates for people with skills that are unusual and high demand, I can only imagine they are throwing huge numbers of freshers at the problems.

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My questions is why can't someone else offer these same programmers >$35/hr and steal them away? What's the friction in the market preventing this?

H1Bs can't be stolen away. They're locked into their employment contract unless they want to go home.

Not true. Once a H1-b recipient has a receipt number, they can effectively transfer the H1-b to any company willing to sponsor.

Source: I hold a H1-b.

The customers of these body shops are not typically small businessmen or individuals who think about this rationally.

The customers are mini planned economies (aka corporations) with a the standard host of principal/agent issues - CYA behavior (shifting liability for poor decisions), kickbacks, etc.

The H-1B program itself. It is a bureaucratic thing that is easier to do if you do lots of them.

Although the Andressen Horowitzes are going to stand up for the rights of capital against workers (and against social mobility in general), if only to make it easier to do deals and to get kudos on the editoral page of the Wall Street Journal, "startup" companies don't hire H-1Bs. They are almost all hired by the likes Wipro, Infosys and IBM -- at least the first two pay the CEO at Indian rates. (Note that VC's are also deferential to the landlords and property developers that contribute to the housing crisis in the bay area since the first rule of being "respectable" is to respect other "respectable" people.)

The overhead is real and not entirely waste. The best indian dev shops have CMM 5 certification which is a matter of having a lot of process and management, so they do make up for whatever weaknesses they have by throwing more labor (both line work nad management) at the problem. They get good results, but it is not that much cheaper than the competition, particularly given that the cost of living has gone way up in Bangalore.

Also I think programmers are bad negotiators. I have definitely seen people doing the same work in the same area with pay varying by a factor of 2, very different working conditions, and sometimes with or without health insurance. (Funny the guys who didn't offer health insurance did offer a lot of free pizza)

Also, these guys in India would have a hard time working up business in another country without some help from the the business folks, so they are getting some value.

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