When the geography of labour ceases to be an important part of production, attempts to keep foreign workers out of a country become counterproductive. Workers who stay remote will be subject to remote expenses. If those are lower, it’s harder to compete.
Say the cost of living in San Francisco is 100 and the cost of living in Prague is 50. You can thus pay a remote worker living in the latter city 70 and he will have as much disposable income as a local worker in the former earning 120 (both will have 20 in disposable income).
This is much lower than importing labour to San Francisco and “underpaying” them. Say you do that and only pay them a disposable sum of 10. Your labour cost is thus still 110. Not much of a comparable saving to that of going remote.
So if you’re a local worker, would you rather compete against imported labour that undercuts your rate by 10 or a remote worker that undercuts it by 50? That depends on the efficiency of that remote worker, of course. If being remote means they can only do half as good a job, no problem. If they do 90% as good of a job, big problem.
Another angle: What if you pay both the local and the remote workers the same, say, 120? In Prague, that would mean you can attract the same quality of talent that it would cost you 170 to attract in San Francisco (holding all other things equal, for the sake of argument).
As the world gets better at remote collaboration, this is only going to get worse—or better, depending on your perspective. Up until recent history, protectionists have been able to claim that having someone in a remote location is simply too inefficient. So the argument could stay about the process. (Pair programming and other co-location techniques are great fodder for these kinds of arguments).
When the process becomes a minor issue, it’ll have to become about the people, if you want to stay a protectionist. That is the claims will have to be about how the remote workers are worse workers. Not as smart, not as easy to talk to, not as proficient. I reckon those arguments are not going to have a long term future.
Likewise, I reckon that fighting to keep local supply of skilled labour down in areas of work that can be done remotely also does not have a long term future.
Matt Henderson
on 19 Nov 12The pace of technology has made it easy today to live in one country, operate a business in another, perform services for customers in a third, and work with staff in a forth, fifth and sixth.
Unfortunately, though, governments haven’t kept up and their slow pace of adaptation serves as a costly burden to those living/working at the frontiers (as I’ve learned through experience). Here are some examples:
If an American owns more than 50% of a foreign corporation, the US can tax the American on that corporation’s profits, whether or not the corporation distributes them. (This is called Sub-part F income). If a US company hires someone full-time contractor in Germany, the US government may claim the right to classify that person as an “employee”. Germany, however, may not accept the recognition of that person as an employee of the American company. Even different countries within Europe may disagree on the classification of things like capital gains and where taxes are withheld. The process of resolving conflicts between EU states can be long (years) and very expensive. Inter-EU-state invoicing has become particularly tricking with respect to VAT charging in the past couple of years. Although a multi-country organization can be operated by a single individual today, professional services (CPAs, lawyers, etc.) able to navigate the maze of international laws and taxation are still quite rare, and (naturally) charges relatively high rates.Hopefully this will all improve someday…
Matt Henderson
on 19 Nov 12That last comment was formatted as a bullet-list, but didn’t seem to render as one.
Garry
on 19 Nov 12Aren’t you missing one point of view here? I agree with most of the points, but maybe you’re forgetting one important expectation of the remote worker. It’s just not about money in some cases.
There is a ton of value in just living in a country which is technologically very advanced than your own. It can only broaden your horizons. And if the employee is growing better/faster by moving (as compared to staying remote), the company can only benefit from it.
It’s true that as an entrepreneur there is little sense in expecting to find the best people without looking beyond the boundaries of your own country. But I think it is totally worth it if you can move some of the best around the world to your HQ.
P.S. I work for one of the most innovative companies in the world, and had been working remotely for a long time before deciding to move.
DHH
on 19 Nov 12Garry, living in another country can be a great experience. But I don’t think “technologically very advanced” has anything to do with it. If you’re working in the software industry, your country is advanced enough if it has reliable internet connections and a market economy.
Simon
on 19 Nov 12In the end this is a great trigger to pull forward the under developed countries and push aside the over taxed and over regulated.
Thank you globalization.
Alexandre de Oliveira
on 19 Nov 12Garry, I don’t think your point is valid. There’s no such a thing as “technologically more advanced country” when it comes to software development, except in terms of internet connection quality, which nowadays is not a big issue anymore.
I live in a third world country and here’s my gear: MacBook Air, a 27” screen, iPhone, ADSL at home + 3G on the go, not to mention Kindle+iPad for acquiring knowledge. I don’t think there’s anything missing for me to be as productive as an american or european.
I could mention conferences (which isn’t even in a technological category), maybe? But even so, that’s not a big deal. I’ve attended them in Europe and Asia (I’m in South America). So?
Nathan Woodhull
on 19 Nov 12I’m living this.
I’m an American, living in Brooklyn. I work as the founder and executive director of a non-profit incorporated in Australia. The rest of my team is in Sydney, San Francisco and Xi’an, China.
They are an awesome team. Working this way is different than a traditional office, but it quickly teaches you that timezones matter way more than political or cultural borders.
I see China & Australia becoming one engineering talent marketplace while the US, Brazil and Chile do the same thing in this hemisphere.
Eran Medan
on 19 Nov 12Good points, worth doing further research on this, but still good points. Timezone is the biggest issue for me working with remote resources, not quality. But this is very good food for thought
Vanni
on 19 Nov 12Great post, David!
Small typo:
Gergely Buday
on 19 Nov 12David,
remote collaboration is not a matter of technology only. I had the luck to work in a project at another continent. There was a distance of an ocean and, what was worse, of two cultures. The remote partner was not keen on commincation but vaguely specified a problem and expected that I deliver the ready solution in time. Well, I didn’t. When I tried to negotiate a weekly skype call the partner did not understand that need. His perception was that I am simply not up to his standards.
So there is more to remote collaboration than just wages and a broadband connection.
Tom Ordonez
on 19 Nov 12You are not buying just skills but also culture. Many hispanic countries have like 40 holidays. Ask them to work on a holiday and see what happens. In some regions people are afraid they made a mistake so they say everything is not wrong. A lot is also lost in translation. When we can we improve the understanding of cultures, then we won’t mind having a remote workforce.
Kendall Buchanan
on 19 Nov 12This logic equally dispels the myth that trade deficits demand tariffs – in a free trade environment, both laborers and consumers get what they want at the prices they can afford.
Ansgar Berhorn
on 19 Nov 12I like the idea, but some problems stay: Who lives with the currency fluctuations? Employer or employee? Rental plans and other law/tax related things: How to offer benefits that fit the country of the employee?
Projects like the European Union (laws) and the Euro (currency fluctuation) help to make issues go away, but still it is hard to cross between Europe and the U.S.
Anonymous Coward
on 19 Nov 12In other words, a race to the bottom for wages.
Good of business owners, bad for everyone else.
(Might sound like it keeps the costs down, but that is little solace if you can’t afford things anyway because you are being undercut or driven out of work in the first place).
All in all, a great way to sidestep labor laws and basic protections. If businesses can get children or men working for 16 hours a day in some banana-republic country for pennies, they would use them in a heartbeat, in the same way Nike uses sweatshops and Coke maintains Latin American factories were workers demanding better pay/conditions get killed.
Angus
on 20 Nov 12Okay.. There has a been a recent blog post on pruning, another few on customer service, some more about twitter as a support tool, and a few on remote working, the sudden flow of new posts plus the topics all leads me to the prediction that 37s are about to launch:
a) Teleconferencing Tool for remote teams OR b) A help desk / customer service tool. OR c) A slippery slide in the office.
Sen Heng
on 20 Nov 12Many remote workers also aspire to live in the big city. They may accept a remote position initially, but there is always that urge to want to go where the bright lights are eventually, even if it means less disposable income.
hqklgkwr
on 20 Nov 121
dusoft
on 20 Nov 12Garry: Prague has probably higher speeds of internet available that you can dream of living in many of the cities in the US… E.g. in Central Europe you can get 100 Mbit down / 10 Mbit up for about $18 / month. Indeed, optical cables to your home, before you ask.
dstroma
on 21 Nov 12Disposable income is income after taxes. Income after taxes and living expenses is discretionary income.
Lincoln Russell
on 21 Nov 12While David’s example was international, the same holds true within the US. I work remotely from Detroit (a mile or two from the downtown district), where the cost of living is wonderfully low. Here, I live in an 1899 Queen Anne home that I’m restoring as a hobby. In the valley, I’d be sleeping on someone’s couch and eating Ramen. The upside of the media portraying your city as a terrible mess is it opens up tremendous opportunity.
This discussion is closed.