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

Wage violations against H‐1B visa holders (i.e., cutting their wages below a legally required prevailing wage) are analysed using detailed firm‐level data. The incidence of violations is 25%–35% lower in a monopsony versus a competitive labour market, and 60% of firms with at least one violation are subcontractors. A new theoretical model provides an interpretation for these findings, predicting that violations are more likely when firms have less labour market power and generally wherever firm profit margins are more vulnerable to a negative shock (e.g., in subcontractors that have been outsourced work and firms seeking to hire lower‐skilled workers).