Wage-Based H-1B Reform: A Policy Shift That Risks Leaving Small Businesses and Emerging Talent Behind

The H-1B visa program—long marketed as a gateway for highly skilled foreign professionals—has come under renewed scrutiny. On the same day the administration advanced a proposal to replace the program’s lottery system with a wage-weighted selection process, the Heritage Foundation released a data-driven report detailing what it calls the program’s “structural failures” and offering a reform blueprint that mirrors the government’s direction.

The Heritage Foundation’s report frames the H-1B visa program as falling short of its intended purpose—but its analysis and recommendations reflect a narrow, wage-driven view that could further entrench inequities. While the program was designed to help U.S. employers fill critical skill gaps with global talent, the report emphasizes:

• Wage gaps undermine the “high-skill” premise: Only about one in six H-1B workers are paid at the highest prevailing wage level. Many are compensated below the median for their occupation, raising questions about whether the program is truly attracting the “best and brightest.”

• Concentration among large firms and outsourcing companies: The majority of H-1B visas go to a narrow band of employers, particularly large tech and outsourcing firms, leaving smaller businesses with limited access.

• Lottery system misalignment: The random selection process prioritizes neither skill nor economic need, making it poorly suited to meet strategic labor market demands.

Taken together, these points reveal a reform narrative that favors the highest-paying, largest employers while sidelining smaller businesses, start-ups, and the next generation of skilled professionals.

Heritage’s Reform Proposal

To address these concerns, the Heritage Foundation calls for a wage-based ranking system for allocating H-1B visas. Instead of relying on a lottery, petitions offering the highest wages—an indicator of specialized skill and market demand—would receive priority. If demand still exceeded the annual cap at a given wage level, a lottery would occur only within that tier.

This approach, the report argues, would:

• Better align the program with its stated purpose.

• Incentivize employers to pay competitive wages.

• Reduce the potential for wage suppression in U.S. labor markets.

  
  

Administration’s Proposal Echoes the Research

In a notable policy alignment, the same day the Heritage report was released, the Department of Homeland Security submitted a proposed rule to the Office of Management and Budget titled “Weighted Selection Process for Registrants and Petitioners Seeking To File Cap-Subject H-1B Petitions.”

Like the Heritage recommendation, the proposal would replace the random lottery with a wage-weighted selection process. While specific regulatory text has yet to be published, early indications suggest it will closely resemble a January 2021 rule—later withdrawn—that prioritized visas for the highest prevailing wage levels first.

Once cleared by OMB, the proposed rule will be published in the Federal Register, triggering a public comment period before any final action is taken.

Potential Impact

If enacted, this change could significantly shift H-1B selection patterns:

• Higher-wage employers—often those hiring for advanced technical or leadership roles—would have an advantage.

• Lower-wage positions, including many entry-level roles common among international graduates, could face steeper odds.

• Small businesses may need to adjust hiring strategies to remain competitive in the selection process.

Supporters argue the reform would strengthen the integrity of the program, curb abuses by low-wage outsourcing, and ensure that visas go to roles with demonstrably high skill requirements. Critics warn it could narrow opportunities for emerging talent and concentrate access further among the largest, highest-paying employers.

A Closer Look at the Policy Direction

From a business immigration perspective, the proposed shift is deeply concerning. While framed as a way to target “top talent,” a wage-based selection model risks shutting out small businesses and start-ups that cannot match the salaries of multinational corporations. It also leaves little room for early-career professionals whose potential value cannot be measured solely by current wage levels. The Heritage Foundation, a staunchly conservative policy institution, has historically shaped immigration positions adopted by Republican administrations. Its alignment with this proposal suggests that the change is as much about advancing a restrictive immigration philosophy as it is about improving the H-1B program. If implemented, the rule could fundamentally alter the accessibility and diversity of the U.S. high-skilled labor market.