September 17, 2019

A Bill Allowing More Foreign Workers Stirs a Tech Debate

Mr. Doernberg worked in chip design, before that industry shrank, and then for a solar energy company, before that industry shrank, and has been unemployed since the middle of last year. By his own account, his skills are not ideal for the current job market. Nor does it help, he says, that at 53, he looks older than he is; youth is at a premium in his industry. So, too, is optimism.

“It’s a question of convincing someone that with these skills, I can do this job, even though I haven’t done it before,” he said. “I’m very optimistic. I know I will find a job.”

The questions of skills, jobs and nationality are a combustible mix these days.

Silicon Valley companies, warning of an acute labor shortage, say it is too costly to retrain older workers like Mr. Doernberg, and that the country is not producing enough younger Americans with the precise skills the industry needs. Their arguments have persuaded a majority of senators to give them what they want: a provision in the immigration bill to let in many more foreign professionals.

But Americans like Mr. Doernberg and the powerful labor lobby say that what the tech industry really wants is to depress wages and bring in more pliant, less costly temporary workers from overseas. If there is such a talent shortage, they ask, why are wages for most engineers not rising faster? Labor groups have pushed for a requirement to offer jobs to equally qualified Americans before hiring foreigners, a provision that the industry has fiercely resisted.

The pitched arguments of both sides, which are likely to resurface in the House when it takes up its version of an immigration overhaul, cloud a complicated reality. There is little empirical evidence to suggest that foreign engineers displace American engineers as a whole. If anything, one recent study suggests, the growth of immigrant workers in American companies helps younger American technical workers — more of them are hired and at higher-paying jobs — but has no noticeable consequences, good or bad, on older workers.

“In the short run, we don’t find really any adverse or superpositive effect on the employment of Americans,” said William R. Kerr, a Harvard business professor who conducted the study on the work force of 300 American companies. “People take an extremely one-sided view of this stuff and dismiss any evidence to the contrary.”

A recent analysis by the Brookings Institution reached a similar conclusion. It found that in the top 10 cities that bring in the largest number of high-skilled guest workers on H-1B visas, college-educated Americans — those who could compete for jobs with high-skilled guest workers — are not more likely to be unemployed.

At the same time, though, the industry’s claims of a labor shortage may be somewhat overblown. Most H-1B workers hold entry-level positions. Economists say that bringing in more of these workers would serve to keep wages down. It also saves employers the trouble of having to retrain workers.

There is a difference between what companies say they need and want, said Peter Cappelli, a management professor at the Wharton School at the University of Pennsylvania. “Saying we need people with these skills is like me saying I need a four-wheel drive,” he said. “They could retrain people.”

It is true that for certain categories of engineers, wages are not going up as sharply as one would expect if good engineering talent were indeed hard to find. But it is also true that engineers with certain specialties, like software development, are hard to find.

Intel, for instance, which has more than 50,000 employees in the United States, said it has 1,000 openings. Motorola Solutions said it was scrambling for software engineers. And unemployment among technology professionals is generally about half the national average, buttressing the industry’s claims.

Economists say there may be other reasons for opening the door to high-skilled immigrants. In cities where there are large concentrations of such immigrants in science and engineering, overall wages tend to go up, especially among college-educated American residents, and eventually, so do housing prices, according to a study by Giovanni Peri, an economist at the University of California, Davis.

The Congressional Budget Office weighed in this week too, concluding that the growth in high-skilled immigration would lead to “slightly higher” productivity and in turn higher wages overall.

Already, the fight over high-skilled immigration has led to arguments and counterarguments on the Senate floor, with one side warning that jobs will go to workers from overseas and the other rallying for Americans first.

But Ardine Williams, the vice president for human resources at Intel, said that hiring Americans is not always practical. Asked about hiring unemployed engineers in this country, she said, “I encounter those folks as well. They are skilled and have expertise outside of an area where we need engineers. In some cases they haven’t kept their skills current.”

The debate over the effect of foreign engineers on American ones has obscured the critical issue of why more Americans are not going into the thriving technology sector. Students in the United States consistently rank low on global math and science tests, suggesting that relatively few are prepared to go into rigorous science and engineering programs.

In engineering programs at American universities, a little more than 40 percent of all graduate students were from abroad, according to data from the National Science Foundation. Even among Americans who do graduate with computer science or engineering degrees, a third pursue careers outside the tech sector.

Mr. Doernberg is keeping his fingers crossed. A resident of Woodside, Calif., an upscale town south of San Francisco, he spends his days scouring online job boards and attending networking sessions at diners and church halls across Silicon Valley. One of them is a Thursday morning group that meets in a church in Saratoga, a short drive from his home.

It was set up years ago by Hamid Saadat, an electrical engineer who came to this country from Iran as a graduate student in 1978, worked at a series of semiconductor companies in the area, became a United States citizen and went through the same rite of passage as Mr. Doernberg.

In 2001, just as the technology industry slumped, he lost his job. He was 47 and he soon learned one lesson. In Silicon Valley, it may not matter where you were born, but when.

“As much as we like to believe there’s no discrimination, being younger usually helps,” Mr. Saadat said.

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High & Low Finance: A Fine Line Between Social Welfare and Politics

As to how we got to this point, the answer involves disparate elements like a provision of tax law adopted a century ago — a provision that had nothing to do with political campaigns — and a change in tax law adopted in 1954 at the behest of Lyndon B. Johnson, then the Senate Democratic leader, who was angry that some ministers in Texas were opposing his re-election.

But mostly it stems from legislation, passed in 2001, that required normal political committees to disclose their donors. Seeking a way around that law, organizations formed for the purpose of influencing elections began to claim they were really “social welfare” organizations, which have had their own special tax status since the modern income tax took effect in 1913.

What are “social welfare” organizations? The tax code defines them as “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” Note the word “exclusively.” Over the years, the I.R.S. has issued rules saying that things like a retirement plan for voluntary firefighters, or an organization devoted to providing free parking in a downtown business district, could qualify.

That section of the law, by the way, is Section 501(c)(4). Normally, I would not burden you with such a number, but in this area it is hard to figure out what is going on without a scorecard. That section is next to, but distinctly different from, Section 501(c)(3), which defines charitable organizations. Both groups are tax exempt — meaning that under normal circumstances they do not owe income tax on profits from investments — but only the 501(c)(3) organizations can receive tax-deductible contributions.

The law used to be silent on whether charities could have anything to do with politics. But that changed in 1954, when Senator Johnson, facing a primary challenge from a conservative Democrat with substantial Catholic support, inserted into a pending tax bill a provision “denying tax-exempt status to not only those people who influence legislation but also to those who intervene in any political campaign on behalf of any candidate for any public office,” as he put it in a brief Senate speech. The provision was added without any real debate.

Six years later, in 1960, the I.R.S. adopted regulations extending the political prohibition to Section 501(c)(4) organizations, but with a caveat. Social welfare organizations could intervene in politics as long as the organization’s “primary” purpose was social welfare. The idea was that it was perfectly acceptable for a local organization supporting, say, renovation of a downtown to participate in a campaign for a referendum to impose a tax for that purpose.

It was not clear what “primary” meant, but as Donald B. Tobin, an Ohio State University law professor, wrote in 2011, “it is certainly less than the statutory term ‘exclusively.’ ”

In practice, none of that made any real difference for decades. There was no need for a political group to maintain it was something else. That changed after the 2001 law required normal political committees — covered under Section 527, which allows them to avoid paying taxes on contributions they receive — to disclose their donors. And it became more important when the Supreme Court, in the Citizens United case, cleared the way for corporations to spend unlimited amounts on elections.

By last year’s presidential election, dozens of such “social welfare” organizations were trying to influence elections. The way they saw it, advertising to promote issues was not political, and as long as an advertisement did not actually back a candidate, it could qualify as a nonpolitical issue advertisement.

Floyd Norris comments on finance and the economy at

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Bucks Blog: Still More Mortgage Protections Unveiled

Last week, the federal government capped a slew of announcements about new mortgage rules aimed at protecting borrowers with another announcement of more rules designed to protect borrowers.

The Consumer Financial Protection Bureau, in one rule unveiled on Friday, barred lenders from paying brokers and loan officers based on the terms of the loan they sell – such as by steering customers into loans with higher interest rates, fatter fees or prepayment penalties. And, the bank or lender originating the loan can’t get paid more for selling related products, like title insurance, from affiliated companies.

“These rules recognize that people tend to do what they get paid to do,” said Richard Cordray, the agency’s director, in prepared remarks. “By removing financial incentives for originators to push borrowers towards risky loans, we are ensuring that the mortgage market will be more stable and sustainable, and consumers will be better protected.”

Some other protections that had been under consideration, however, are still under review. They include a rule, proposed by the bureau in August, that would require lenders to also offer a loan with no upfront origination charges, when they offer a loan that does include upfront charges. That provision, Mr. Cordray said, would wait for further study after the other new rules take effect, to see if it is necessary.

Also on Friday, the agency made it clear that borrowers were entitled to receive a free copy of the appraisal on which their loan was based, before the loan is finalized. That way, borrowers can see the value placed on the property that is securing the mortgage.

Have you ever had a problem obtaining a copy of an appraisal when applying for a loan?

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Court Grants Delay in S.E.C.’s Case Against Citigroup

The United States Court of Appeals for the Second Circuit, based in New York, ruled that further action in the case would be delayed until at least Jan. 17, giving it time to rule on whether it would grant an expedited hearing of the appeal and whether the two sides should have to simultaneously prepare for a trial.

Judge Jed S. Rakoff of Federal District Court in Manhattan threw out the settlement in November and ordered the agency and Citigroup to prepare for a trial in July. Although Citigroup and the S.E.C. have jointly appealed Judge Rakoff’s decision, he said the underlying case should proceed, with the two sides continuing to prepare for court hearings in the case.

Citigroup had faced a Jan. 3 deadline to submit an answer to the S.E.C.’s fraud charges, initially filed in October. That requirement, the S.E.C. said, “threatens a central provision of the proposed consent judgment, namely that Citigroup would not deny the commission’s allegation.”

The S.E.C. and Citigroup entered the agreement to settle accusations that Citigroup had defrauded investors in a $1 billion fund invested in mortgage-related securities. The fund was sold by Citigroup in early 2007 as the housing market and mortgage securities were already showing signs of distress.

According to the S.E.C., Citigroup sold the securities without telling customers that it was stuffing the fund’s portfolio with mortgage investments that it thought would fail and that it was betting against the portfolio.

Citigroup agreed to pay $285 million in penalties and forfeited profits under the condition that it neither admit nor deny the S.E.C.’s accusations, a common settlement method used by the S.E.C. and other government enforcement agencies.

That provision, however, led Judge Rakoff to say that he had no agreed-upon facts by which to judge if the punishment was fair and adequate. Therefore, he rejected the settlement.

After it said it would appeal, the S.E.C. first asked Judge Rakoff himself to halt the proceedings temporarily. But on Tuesday he denied that request.

“In short, it seems patently clear that the parties have no basis for an appeal,” Judge Rakoff wrote.

The S.E.C. and Citigroup told the appeals court that they would suffer irreparable harm if they were forced to prepare for trial while the appeal was pending. A motions panel of the appeals court will consider whether to further stay the proceedings beginning Jan. 17.

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Citing ‘Legal Error,’ S.E.C. Says It Will Appeal Rejection of Citigroup Settlement

In a statement accompanying a filing in Federal District Court in New York, the agency cited “legal error” in the decision in late November and said it would ask the United States Court of Appeals for the Second Circuit to overturn the opinion of Judge Jed S. Rakoff. In the ruling, the judge rejected an agreement for Citigroup to pay $285 million and accept an injunction against future violations of an antifraud provision of federal securities laws.

Judge Rakoff’s ruling shook a central pillar of federal securities law, potentially upending a practice that allows the S.E.C. to settle hundreds of enforcement cases each year. The commission usually settles charges with companies by getting them to pay a fine and agreeing to reimburse investors without making them admit or deny the charges. 

Citigroup was charged by the S.E.C. with fraud for selling a $1 billion fund in 2006 and 2007 that invested in mortgage-related securities without telling investors that the bank was betting against many of the securities. Citigroup, which has said it disagrees with Judge Rakoff’s decision, is expected to support the appeal.

Judge Rakoff dismissed the proposed settlement as “neither fair, nor reasonable, nor adequate, nor in the public interest,” in part because Citigroup did not have to admit or deny the charges. Judge Rakoff said that without an admission or evidence that Citigroup violated the law, he had no way to determine whether the settlement was adequate.

The S.E.C., in a statement issued Thursday, sharply criticized the judge’s decision.

“We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits,” Robert Khuzami, the S.E.C.’s director of enforcement, said in the statement.

“The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country,” Mr. Khuzami said. “Courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.” 

Appealing the judgment carries risk for the S.E.C., because if the ruling is upheld by the circuit court, it would set a precedent that is likely to influence judges hearing similar S.E.C. cases.

The Second Circuit court, located in New York, hears many cases involving financial issues and securities laws; though its decisions are not binding on other circuits, they often influence judges around the country because of the court’s familiarity with securities law, experts say.

Judge Rakoff’s decision also could affect many other types of civil settlements forged by government regulators. Several other agencies, including the Environmental Protection Agency and the Federal Trade Commission, have settled civil cases by letting a defendant avoid having to admit or deny the charges.

Securities law experts say they know of only one previous instance where the S.E.C. appealed a federal judge’s rejection of a commission settlement — and the S.E.C. won that appeal. In 1983, a federal district court judge in San Francisco rejected an insider trading settlement because he thought the penalty was inadequate and did “not appear to be in the public’s best interest.”

The next year, in S.E.C. v. Randolph, the Court of Appeals for the Ninth Circuit reversed the decision, saying “the courts should pay deference to the judgment of the government agency which has negotiated and submitted the proposed settlement.”

While it was correct to consider the public interest, the appeals court said, that does not mean the “best interest” possible. “Compromise is the essence of a settlement,” the court said.

In the Citigroup case, Judge Rakoff said in his decision that investors lost more than $700 million in the transaction, and he criticized the proposed penalty as “pocket change to any entity as large as Citigroup.”

The S.E.C. batted away the importance of Citigroup’s size. “The law does not permit the commission to seek penalties based upon a defendant’s wealth,” Mr. Khuzami said.

There are limits to the size of penalties that the S.E.C. is allowed to assess in such a case. The $285 million settlement, all of which would be returned to investors, includes a $95 million penalty, a $160 million disgorgement of profits and fees earned on the securities offering, and $30 million in prejudgment interest. The S.E.C. recently asked Congress to amend the law to allow it to seek bigger penalties.

Whether the S.E.C. could be hampered in its efforts to settle other fraud cases while the appeal is outstanding is uncertain. Two former S.E.C. enforcement officials, who spoke on the condition of anonymity because they now represent clients facing S.E.C. charges in separate cases, said the commission seemed to have slowed its settlement efforts since Judge Rakoff’s ruling.

A person involved in another S.E.C. settlement matter said there had been no slowdown, in part because commission officials have made clear that they expected Judge Rakoff’s decision to be overturned.

The S.E.C. has long contended that it must settle most cases rather than take them to trial because, with limited resources, it cannot afford much litigation. The commission says it frequently achieves in its settlements much the same result that it could hope to obtain in court, without the expense of a trial.

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DealBook: How the Google Deal Hampers Motorola

I previously pointed out some reasons why Google may have been O.K. with paying a large reverse termination fee in its deal to buy Motorola Mobility for $12.5 billion.

I postulated it was a way for the Internet company to stare down antitrust regulators. The $2.5 billion breakup fee was also probably driven by Google’s likely refusal of a “hell or high water” provision.

But while Motorola may have pushed for the high fee in exchange, the company must put up with a lot in the meantime. The acquisition agreement sharply regulates how Motorola can run its business in ways beyond normal deal terms.

It prohibits Motorola from:

1) terminating any employee at or above the level of corporate vice president without consulting Google

2) increasing salaries and benefits for employees at or above the level of corporate vice president by more than 5 percent in any year period

3) substantially changing Motorola’s option and other incentive plan systems no matter how many times headhunters call

4) making capital expenditures greater than $50 million individually and $225 million in the aggregate in 2012

5) making any acquisition of more than $150 million

6) incurring debt greater than $250 million

These are very tight restrictions and will keep Motorola on a very short leash, dependent upon Google until this acquisition closes.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

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Air Traffic System Update Encounters Turbulence

Those are the changes the Federal Aviation Administration has been promising for years through an ambitious program to modernize the nation’s air traffic system, and replace radars on the ground with satellite technology. The problem is that this new system, called NextGen, will cost an estimated $30 billion to $42 billion to complete. So far, the airlines have been reluctant to put up their half of the money for a system that will not be operational for at least a decade.

But NextGen, which stands for the Next Generation Air Transportation System, received a boost on Friday with House passage of a $59.7 billion bill that finances the F.A.A. over the next four years, providing much-needed stability to the agency’s flagship program. Since 2007, the F.A.A. bill had been repeatedly stalled and its budget temporarily extended 18 times.

The bill, which was approved 223 to 196, largely along party lines, also cuts overall spending on aviation by $4 billion and includes a provision that would curb the right of airline employees to unionize. The bill from the Republican-dominated House must still be reconciled with a vastly different version that the Senate, controlled by Democrats, approved in February. The White House has said it will veto a final bill that includes the labor provision.

And Representative Nick J. Rahall of West Virginia, the ranking Democrat on the House Transportation and Infrastructure Committee, assailed the deep cuts in the F.A.A. budget, which, he noted, came a week after two airliners landed at Washington National Airport without being able to contact the single air traffic controller on duty.

Modernizing the nation’s current air traffic system, which is based on technology invented during World War II, is universally seen as critical to coping with the congested airspace over the United States and to accommodate growing traffic. In its latest forecast, the F.A.A. estimated that United States airlines would carry 1.3 billion passengers in 2031, up from about 700 million in 2011.

Just like GPS for cars, satellite navigation gives pilots their exact location at any given time. Air traffic controllers would not have to wait 30 seconds for the next sweep of their radar screen to know the locations of planes. Radar’s limits means that controllers must now keep planes three miles apart when they approach airports. This limits the number of planes that can land each hour and contributes to the longer lines for takeoff.

“Today’s airspace is woefully antiquated,” said Steve Fulton, who helped pioneer satellite-guided navigation with Alaska Airlines in the 1990s and now works for GE Aviation.

Airlines burn an extra 10 percent of fuel today, he said, as they circle complicated approach routes or are put on a holding pattern by controllers juggling several flights.

“Instead of a chaotic and unplanned and unpredictable system, NextGen would provide precise synchronization,” he said.

Because of the surge in traffic in recent decades, the current system is often operating at the limits of its capacity. Robert W. Mann Jr., an aviation industry expert in Port Washington, N.Y., estimated that delays and airport congestion cost the industry as much as $12 billion a year in lost time and extra fuel costs.

The United States has also been lagging other countries that are already moving into this digital navigation age, including Australia, Canada, China, and several European countries like Sweden.

Yet airlines, which continue to be low in cash, have been reluctant to commit before they get a clearer sense on how the F.A.A. plans to transition to this new technology.

“Basically, it comes down to economics,” Mr. Mann said. “This is an industry that is not operationally driven. It is financially driven. And unfortunately, the airlines have learned to be very circumspect.”

Experts said the repeated delays in financing over the last few years have contributed to NextGen’s slow pace. The F.A.A. also has a history of being unable to complete large-scale investment programs on time and on budget.

In a report last month, the Department of Transportation’s inspector general said that another of the F.A.A.’s major technological programs, called En Route Automation Modernization, was four years behind schedule and could end up costing as much as $500 million more than its initial budget of $2.1 billion. The program, one of the building blocks of NextGen, is intended to track airliners at cruising altitude. It has suffered software glitches, including tagging flight numbers to the wrong planes, at its initial testing centers in Seattle and Salt Lake City.

“Yes, we have not been perfect in the past in technological rollouts,” said Michael P. Huerta, the F.A.A.’s deputy administrator. “But this one is different.”

Of NextGen, he added, “We are beyond this being a research and planning project and we are very much in implementations.”

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