Remote wages in the global labor market

The COVID-19 epidemic has dramatically accelerated the trend towards remote work. A growing number of US companies are shifting to a flexible work-anywhere model. In a PWC survey, 28% of employers responded that they plan to allow remote work in another country. These tectonic changes in the nature of the workplace can have profound effects on workers in the United States and around the world (Baldwin 2019, Baldwin and Forslid 2020). Will remote wages be consolidated across countries and regions? Is distant wages more sensitive to international shocks than distant wages? Which remote jobs are more likely to be offshore?

In a recent study (Brinatti et al. 2021), we came up with fancy data from a large web-based job platform to shed light on these questions. Web-based work platforms match employers and employees around the world that are provided online, providing a window into a globalized market for remote work. Such platforms are becoming increasingly popular; Their numbers have tripled in the last decade. By 2020, hundreds of web-based job platforms have facilitated millions of international transactions totaling মোট 50 billion (ILO 2021).

We use a new dataset collected online from one of the largest web-based work platforms on the market today. On the platform, workers are located around the world and compete for the same job, which can be done remotely. Jobs require little capital other than computers or mobile phones and cover a wide range of professions, from accountants to web developers. This makes the platform an ideal marketplace for studying the international value of remote work.

Distant wage differences across locations

Despite the global nature of the market, distant wages systematically vary between workers stationed in different locations. Figure 1 Average wages across plot locations. The figure shows the large wage gap between remote workers in different countries and remote workers in different states of the United States. For example, panel (a) shows that distant wages of Indian workers averaged one-third that of American workers. Indeed, distant wages are strongly correlated with per capita GDP: 1% higher GDP per capita in labor position is associated with 0.2% higher wages in both the country and the United States.

Figure 1 Remote wages and per capita income across locations

Comments: X-Axis reports relative GDP per capita in US dollars (log), taken from BEA on panel (a) and panel (b). The y-axis plots the average distance wage in each country compared to each U.S. state related to the U.S. (Panel A) or California (Panel B).

We show that this relationship is not responsible for the observable differences between employees and job characteristics, nor for differences in employers ‘positions, and for more than one-third of wage dispersions in workers’ country data – more than double the disparity between all other observable workers, employers and job characteristics. These results suggest that remote wages are partially determined by the circumstances in which workers encounter their local labor market, such as the per capita income proxy in the position.

Distance wages and foreign competition

The past wave of globalization faced foreign competition through international trade (Goldberg and Pavcnik 2007, Autor et al. 2013, 2016), offshoring (Feenstra and Hanson 2003, Hummels et al. 2011), or international migration (Borjas 2014, Card). ). Our paper sheds light on how the current wave of consolidation can affect the labor market due to the rise of remote work. Distance workers can be located in different countries, which means they may face international shocks that affect their foreign competitors.

Based on the standard model of exchange-rate pass-through (see references in Berstein and Gopinath 2015), we estimate how much a worker’s wages respond to a change in the cost of a worker’s dollar opportunity to work on the platform (proxy inflation and exchange in the worker’s country). Changes in rates), and changes in the average wages of competitors of a worker. To overcome the pregnancy problems, we use an instrumental variable method and change the materials in the competitors ‘wages with inflation and changes in the exchange rate in the competitors’ countries.

Our analysis reveals that when the dollar exchange rate rises by 1% (local currency devaluation), the dollar wage of a worker decreases by about 0.2%. This means that the wage exchange rate in the local currency is pass-through 80%, so that the remote wages expressed in the local currency go about one to one with the dollar exchange rate. We also show that a worker’s wage platform reacts strongly to changes in the wages of other workers. Since workers are located in different countries, this means that a worker faces international shocks that affect their foreign competitors.

Which remote work is easier to offshore?

Finally, we use our data to shed light on what kind of jobs or occupations are more likely to be offshore in the future. Existing arrangements are usually based on subjective judgment of the various features of a job, often based on whether a job can be done remotely. For example, Blinder and Krueger (2013) establish that a job is easier to offshore if it involves extensive use of computers / email, data entry, telephone conversations, or data analysis. Our data contains information about the location of both the employee and the employer for each job. In this way we can measure the offshoreability level of a job based on the frequency at which US employers assign contracts to foreign workers in a profession.

Table 1 reports, for selected occupations, the share of U.S. contracts where the worker is located outside the United States. This shows that whether a job can be performed remotely is an incomplete proxy for the possibility of the job being offshore. For example, only 30% of grant writer jobs are offshore in our data, although they are all performed remotely. In fact, there are considerable variations in the level of offshoreness across remote jobs: interior design jobs are three times more likely to be offshore than grant writers jobs. We also find that wages are less diffuse in occupations that are more easily offshore, proving that offshore eligibility can play a role in equalizing wages among distant workers.

Table 1 The highest and lowest offshoreable distant occupation

Comments: ‘Shares offshore’ refers to U.S. contract shares where the employee is located outside the United States.

The comment is final

Our research has had a profound effect on how the emergence of remote work could affect wages around the world. First, distance wages are more equal than local wages across the country, but wage gaps across locations are still large. Second, local currencies have higher pass-through wages than exchange rates in countries other than the United States. These two phenomena are strikingly similar to the results obtained in the literature which looks at the prices of tradable goods, suggesting that remote work could potentially consolidate the service market in the same way that commercialized goods markets tend to globalize. Finally, our offshoreability measurement highlights the fact that whether a task is performed remotely is an incomplete proxy for whether a task can be easily offshore. Future work on how to measure offshoreability should take this difference into account.

References

Autor, DH, D Dorn and GH Hanson (2013), “The China Syndrome: The Impact of Local Labor Markets on Import Competition in the US”, American Economic Review 103 (6): 2121–68.

Autor, DH, D Dorn, and GH Hanson (2016), “The China Shock: Learning for Big Changes in Trade from Labor Market Coordination”, Annual review of the economy 8: 205–40.

Baldwin, R. (2019), The Rise of Globotics: Globalization, Robotics and the Future of Jobs, Oxford University Press.

Baldwin, R, and R Forslid (2020), “Covid-19, globotics, and development”, VoxEU.org, 16 July.

Blinder, AS, and AB Krueger (2013), “Alternative Measures of Offshoreability: A Survey Method”, Journal of Labor Economics 31 (S1): 97-128.

Borjas, GJ (2014), Immigration economyHarvard University Press.

Brinatti, A, A Cavallo, J Cravino and A Drenik (2021), “International Value of Distance Work”, NBER Working Paper 29437.

Burstein, AT, and G Gopinath (2015), “International Prices and Exchange Rates”, K Rogoff, E Helpman and G Gopinath (eds.), Handbook of the International Economy, Volume. 4, Elsevier.

Card, D, and G. Perry (2016), “The Migration Economy: A Review Essay by George J. Borges”Journal of Economic Literature 54 (4): 1333–49.

Feenstra, RC, and GH Hanson (2003), “Global Product Sharing and Growing Inequality: A Survey of Trade and Wages”, in Handbook of international tradeJohn Wiley & Sons.

Goldberg, PK, and N Pavcnik (2007), “The Impact of Globalization Distribution in Developing Countries”, Journal of Economic Literature 45 (1): 39-82.

Hummels, D, R Jørgensen, J Munch and C Xiang (2011), “Offshoring, inequality, and the value of college degrees”, VoxEU.org, 10 December.

International Labor Organization (ILO) (2021), Global Employment and Social Vision 2021: The Role of Digital Labor Platform in Transforming the Work World.

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