It basically states, the employee must be paid the prevailing wage or higher. There are probably employers who flout this rule, but it isn't legal. When used legitimately, H1-B does increase the supply of talent in the valley.
1. The ostensible reason for the H-1B program is a shortage of technical know-how, yet most H-1Bs are under 30 and most unemployed Americans are over 35. Wages comparison is moot when you pit junior jobs against senior jobs - again, in view of experience being the supposed goal of the program.
2. Wages do not account for working hours. If you work 12-hour days, your salary is effectively significantly lower than if you work 8-hour days.
3. Wages do not account for the downward pressure on market competition. If you are handcuffed into your job per your visa conditions, you can't shop for better offers elsewhere.
Better explanation here:
For example, labor certification (to determine that there is a labor shortage that requires outside talent) is very easy to game: they can run 2 Sunday newspaper ads in the local newspaper to satisfy the primary labor cert requirement: http://tinyurl.com/czhop2f
How many people have newspaper subscriptions anymore, and how many tech workers look for jobs in the newspaper?
It's also easy to game prevailing wage requirements by conducting surveys yourself or playing with the subjective terms of the law regarding 'comparable skillsets' etc