ean Baker: Will Remote Work Lead to International Competition for Professionals?

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Will Remote Work Lead to International Competition for Professionals? 

Contrary to the Washington Post, the Optimists Say Yes

The Washington Post ran a piece last week that raised the possibility that workers who are now working  remotely may see their jobs outsourced to countries with lower-cost  labor. It raised the possibility that this might lead to the same sort  of hit to jobs and wages that the rise in imports from China and  elsewhere gave to manufacturing workers.

The piece then tells readers:

“Many economists are optimistic that American workers will land on  their feet amid a gradual transition from a world in which they compete  with a few dozen locals for each new job to one in which they compete  with a few million professionals worldwide. But economists were  optimistic about Y2K-era globalization as well, and it seems wise to  keep a wary eye on the possible downside.”

While the second part of this paragraph is certainly true, most economists were very willing to ignore economics in arguing that massive imports from developing countries would not  reduce the pay of manufacturing workers, and less educated workers more  generally, the first sentence is a bit bizarre.

Exposing manufacturing workers to competition with their much  lower-paid counterparts in the developing world is a big part of the  upward redistribution of the last four decades. This had the effect of  both lowering the pay of less-educated workers, and reducing the cost in  the United States of a wide range of goods, from shoes and clothes, to  cars and steel.

More educated workers were the beneficiaries of this reduction in  costs. While their wages were not hurt by foreign competition, since  they were largely protected, their money went further since they could  now buy goods at a lower cost.

In this context, it is hard to imagine why anyone would consider it  “optimistic” that the pay of more educated workers, who are now working  remotely, will not be lowered by international competition. Such a  reduction in pay should mean that a wide range of services, such as  accounting, legal services, and medical services, can be provided at  lower costs. This will benefit the whole country, but especially those  workers who are not seeing their pay cut as a result of this  competition.

The reduction in pay for more highly educated workers should also  help reduce inflationary pressure in the economy. The highest 10 percent  of the population takes in almost 50 percent of personal income. If we can reduce this by just 5  percent, this would be equal to 2.5 percent of total income.

To understand the economic importance of this sort of hit to the  income of high-end earners, remember that many economists were going  hysterical about the inflationary impact of President Biden’s student  loan forgiveness program. By most estimates, loan forgiveness will  reduce the amount that people are paying on student loans by roughly 0.1  percent of GDP.

This means that a 5 percent reduction in the pay of high-end earners  would have 25 times as much impact in lowering inflation as the student  loan forgiveness had in raising inflation. If people think student loan  forgiveness is a big deal in raising inflation, then they should think  that the prospect of international competition for remote workers will  be an enormous deal in lowering inflation. Now, isn’t that optimistic?

Let me just add that I know that not all the people who will be hurt  by increased competition for remote workers are rich. But, as the old  saying goes, if you think you have a policy that does something useful,  without harming some people you don’t want to see harmed, you don’t  understand the policy. There is no way to lower incomes at the top  without hitting some people who are not at the top.

Having said that, we can and should also pursue policies that are more directly focused  on the very top, such as lowering CEO pay and eliminating the bloat in  the financial sector. But if you show me a policy whose impact will be  primarily to lower the pay of the top 20 percent of the workforce, I’m  an optimist and I’m for it. I’d love to hear from those economists who  say this is bad.