Some employers do that, but I believe recent changes (2003 I think) mandated that an H1B must perform a high percentage of their work at the sponsoring employer's location and not off site. This change was set in place to stop what you describe. And as other posters have said, most engineers (I'm not talking software here) get comparable wages to Americans.
Not familiar with the change you're talking about. I'm talking about on-site personnel, though, working alongside contractors from American companies. I am talking about software engineers-- although, I wouldn't think there would be a difference-- I could be wrong.
I'm talking about the last three large multi-state corporations I've contracted to as the end-client, dealing with major non-American contracting houses (one of which serves two of the clients).
The non-American contracting houses are employing strictly Indian consultants-- and these consultants are making considerably less than consultants from other, mixed contracting houses, and the employees from the end-client corporation. The corporations have moved these non-American contracting houses to their top of their "short list" of labor suppliers. They are charging lower bill-rates, they are getting the contracts. The percentage of their consultants vs. the rest of us is raising significantly.
Now I don't understand all the legalities of the H1B Visa program, but what I do know is this: these are major corporations, dealing with major non-American consulting companies, and they're increasingly doing business with only them. That's the trend.
I'm either lying, or I'm telling the truth-- I challenge those who doubt this anecdotal evidence, who doubt what the observable trends are saying, who discount this as not "real facts" to do the research yourselves. American employees and American contractors are getting shafted because people with a lower standard/cost of living are able to undercut our workforce.