Hi there. Been an engineer at Microsoft since 2000. Have interviewed hundreds of people at all skill levels.
Why do you assume that wages at Microsoft aren't increasing?
I understand the compensation model, and how it has changed in my 14 years. The comp packages we are offering to college grads these days are astoundingly lucrative. Every few years in my career, there has been a big compensation realignment based on market realities. Everytime something at work upsets me enough that I start talking to other companies, their comp packages (especially with cost of living factored in) aren't able to match what I'm getting now from Microsoft.
Lately, high comp packages are required to compete with Google, Facebook, Amazon, etc, who all have plenty of money, and, for younger developers, are often seen as cooler places to work than old stodgy Microsoft.
I just see no evidence that H1-Bs are a mechanism for the company to save money. Dealing with HB-1 hassles involves a lot of overhead and expense that are not applicable to domestic employees.
As I said earlier, I have interviewed many, many folks, for many positions. The hire rate is not as high as we would like it to be. It never feels good to have to turn someone down, and it is a waste of time for everyone when an interview doesn't go well. But the bottom line is, we talk to many more people than we can feel confident about making an offer to. There are lots of STEM graduates, foreign and domestic. But not all of them are someone we could feel comfortable hiring. I'm sure you've known people in your CS class who could get good grades but who couldn't code... those people count as "qualified STEM applicants" to people that are pushing the "H1B is evil" rhetoric, but we all know that just because someone has a degree doesn't mean they are employable in that field... and certainly not by the top organizations in that field.
I've also seen no evidence that Microsoft has a preference for hiring H1-Bs, or that there is any compensation disparity for H1-Bs. I have seen evidence that H1-Bs cost the company money that domestic employees do not. For example, the company has special lawyers and paperwork people that deal with H1-B and other immigrant-labor related problems. That's a cost. When H1-B engineers are dealing with this stuff (which is frustratingly often), they aren't writing code or analyzing tests. That's a hit to their productivity, which ultimately, is another cost.