The remote revolution could lead to offshoring Armageddon

We’ve chronicled how remote work is reshaping America, but there’s been less focus on how the remote-work boom has removed one of the biggest barriers to outsourcing for small businesses. As the pandemic forced them to go digital and become adept at managing a distributed workforce, some bosses consider outsourcing to be the logical next step — especially as wages soar and workers remain scarce.

Companies already are turning increasingly to contractors vs. full-time employees. Relative to workforce size, the number of contractor payments in the United States skyrocketed 56 percent from 2019 to earlier this year, according to data provided exclusively to The Post by the payroll and benefits firm Gusto. By June, the 200,000-plus businesses on Gusto’s platform averaged almost two contractor payments for every employee they had on the payroll. In some industries, it’s even higher.

“The pandemic became a very volatile time, and lots of businesses needed to pivot on very quick timelines,” said Liz Wilke, principal economist at Gusto. “And they also needed skills and capabilities that they didn’t have before or could not get in the talent market. And that is the primary advantage of contractors.”

Brian Zielinski is riding square atop the outsourcing wave. He co-founded and runs ShapeConnect, which matches companies with vendors who can help outsource or automate certain jobs. They’re doing record business, matching more than 200 American small and midsize businesses with suppliers in the most recent quarter.

Since the pandemic, Zielinski has seen soaring interest from smaller construction and manufacturing businesses — companies that might have been doing their customer and project management on paper or in simple spreadsheets before the pandemic but are now scrambling to go fully digital.

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“I think people are looking for the flexibility now of outsourcing personnel versus hiring,” Zielinski said. He added that customers are reluctant to commit to full hires given the shakiness of the economy and the two-plus years of unprecedented uncertainty through which we’ve all just lived.

Zielinski said ShapeConnect doesn’t work with overseas providers, since most clients prefer contractors in the United States and Canada who share similar time zones, language and culture. But economists like Baldwin say those barriers are already breaking down as rapid technological improvements make it increasingly easier to cross time zones and language barriers.

“American companies can hire people all over the planet. And they will,” said Mark Zandi, podcaster and chief economist at Moody’s Analytics. “That’ll become increasingly more prevalent as technology improves and companies that form optimize around remote work. They’re not going to form around office cubes; they’re going to form around a remote work dynamic.”

Convincing businesses to decentralize their technology used to be like pulling teeth, said Adam Barney, president of Framework IT, a Chicago firm that helps businesses across the country outsource technology management and move their operations to the cloud. Many clients clung to offices stuffed with server racks, phone lines and other hardware — until the pandemic hit.

The transition to a cloud-based, remote-friendly operation is no longer in question. As clients race to catch up, Framework’s monthly recurring revenue is up 85 percent from pre-pandemic levels, and order sizes have soared more than 140 percent. Companies of all sizes are newly comfortable with workers clocking in from anywhere.

“We’re even seeing many organizations actually say, ‘We’re going to be a virtual-first organization moving forward. We are going to get rid of an office when our lease is up. We are never going to go back to that,’” Barney said.

Economists we spoke with all believe the white-collar job market will go global, but they differ greatly on whether the shift will be measured in years or in generations. That timetable matters: It’s the difference between a gradual transition and “American carnage.”

If we assume the change is imminent, and look at our best estimates of where the most easily remote-able jobs were just before the pandemic, we see the remote revolution would be almost the inverse of the China shock, which destroyed the careers of many less-educated factory workers. As a rule, the more a job pays, the easier it is to do remotely, according to a Washington Post analysis of Labor Department data on jobs that had to go remote during the pandemic.

The highest-paying industries, software and internet publishing (including search and social networking), also have the highest share of remote workers. A similar pattern holds throughout the income scale, with the lowest-paying jobs — in places such as gas stations — being least likely to be done remotely.

To understand which areas would suffer most if those jobs went overseas, we analyzed data from the economists at WFH Research, which allows us to look at all remote-capable jobs, not just those effected by the pandemic. It also allows us to exclude hybrid jobs, which presumably will be harder to do from overseas.

In this nightmare scenario, our analysis found that the nation’s richest urban centers would also be its most vulnerable. Cracks have already appeared in the gilded metropolises of New York and San Francisco, where the urban cores are losing population as remote and hybrid workers flee to more affordable and amenable outlying communities. The losses would compound if those jobs were to go overseas.

And while those jobs are concentrated in urban areas, many of them coastal, no industry or region would be untouched. As Zielinski points out, even blue-collar industries such as construction or manufacturing have plenty of white-collar roles that can be outsourced — think marketing, accounting, finance, sales and IT.

The nation’s white-collar jobs are more spread out than the manufacturing jobs concentrated in single-industry factory towns that lost everything to China, said the Massachusetts Institute of Technology’s David Autor, the slide-deck-slinging nerd superstar who first described the China shock with his collaborators David Dorn and Gordon Hanson.

And while Autor says he sees parallels between blue-collar workers eviscerated by the China shock and the white-collar workers who might soon be blindsided by global competition, he believes this will be more of a “little ripple or a little jolt rather than a shock,” since white-collar work simply isn’t a commodity that can be easily swapped across borders.

“If you move machinery between here and China, the machinery more or less works the same way,” Wilke said, “and that’s not necessarily true of knowledge-based industries. It’s too soon to tell.”

Indeed.com’s Nick Bunker pointed out that remote work seems to be going more local than global in the short term, as many “remote” jobs in the United States are quickly becoming hybrid, with workers coming in a few days each week. A recent Gallup poll found a sharp increase in hybrid work in 2022, with 49 percent of remote-eligible jobs being hybrid in June, up from 42 percent in February. In the long run, Gallup estimates, just 22 percent of remote-eligible jobs will be fully remote, while 55 percent will be hybrid.

Similarly, Barney, the IT firm president, says his clients typically bring up offshore outsourcing only to make sure he’s not doing it. With rising uncertainty around the coronavirus and the war in the Ukraine, clients are increasingly interested in cybersecurity and consider it unacceptably risky to expose critical business functions to the vagaries of geopolitics.

Autor, Zandi and other economists say those full-remote jobs could ultimately be a positive for American white-collar workers, liberating them from high-cost urban areas and revitalizing small communities.

“In global remote labor markets, U.S. workers earn a premium and are more likely to be hired,” said Adam Ozimek, who has extensively analyzed remote work as chief economist at Upwork and now the Economic Innovation Group. “Part of it, I believe, is that the U.S. is the most important consumer market in the world, and accessing workers who understand this market best is incredibly valuable.”

In areas beyond the reach of the U.S. market, though, economists are less confident that American workers will steal jobs from their more-affordable overseas peers.

“I don’t see highly talented U.S. workers competing for jobs in France or Singapore, unfortunately, because Americans are so resolutely monolingual. French and Singaporean workers will benefit more from remote access to U.S. jobs than will U.S. workers to remote access to jobs in Europe or Asia,” MIT’s Autor told us.

The China shock devastated such places as Dalton, Ga., in part because a high school-educated carpet factory worker had few other options once the biggest employer in the only hometown she’d ever known had closed down.

But white-collar workers who lose remote jobs to global competition will find themselves with more options, Ozimek and other economists said. Educated workers are already better at landing on their feet in the United States — they’re more mobile and more marketable. And the new remote-work market will make it even easier, allowing them to apply for jobs throughout the country.

Of course, that may do little good if we rapidly reach a place where most white-collar jobs can be done more cheaply overseas.

In the near term, there’s little evidence to suggest a sudden exodus of jobs offshore. In fact, companies have been moving blue-collar jobs back to the United States. But Baldwin, author of a recent book on the globalized and automated future of work, says there are already pockets of white-collar offshoring, and they could expand rapidly once technological advances wipe away linguistic and logistical barriers, since bits and bytes move freely and instantly across borders.

Stanford economist and remote-work prophet Nicholas Bloom said any wave of white-collar outsourcing in the service sector wouldn’t begin until the pandemic has abated and executives can freely travel abroad once more.

“Right now, that’s not so easy to do as if you want to outsource to say, Mexico. You need to take a few trips there first to scope the place out,” Bloom said. “But give it two or three years and we will be looking back at 2020 as the turning point for service-sector globalization.”

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