The Coming Shock That Will Transform the U.S. Economy
(Bloomberg Opinion) -- The “China shock” was one of the most significant economic events of the last two decades in America. Most of the shock is now over — Chinese imports are competitive with much of the output of U.S. manufacturing, and China has already displaced many U.S. jobs — but there is a new and possibly larger shock on the horizon. Call it “the teleshock.”
The teleshock, or the rise in telecommuting, received a major impetus from the pandemic, when so many Americans were forced to work from home. As it turns out, many prefer this new arrangement. In any case, a fair amount of “work from a distance” is likely to persist, most of all in the technology industry, where the fundamental products are digital. Microsoft, for example, has announced that work from a distance will continue indefinitely.
Employers are only beginning to adjust to these new circumstances, however, so the full consequences of the teleshock are not yet clear. The key development will be this: To the extent that the work can be done online, companies can hire the best workers from around the world. This has long been the case in computer programming, where it is standard practice to hire talent from India. Similar trends will come to many more sectors, revolutionizing labor markets. A given job could go to someone from Nigeria, Sweden, the Philippines, Pakistan or many other locales.
Among the big losers will be the American upper middle class, especially those with jobs connected to information technology and those who can work from home. They will face much more competition in the labor market than before. They may have some natural advantages of education and cultural fluency, but they are not in general smarter or harder-working than much of the rest of the world.
In other words: If you have had a relatively comfortable job during the pandemic, it might now be time to worry.
The more culturally specific your knowledge and skills, however, the more protected you will be. Doing math and writing code are universal skills. But if you are a wedding consultant, even an online wedding consultant, you’re probably not going to lose business to a competitor from Zimbabwe, no matter how sharp. On the whole, more people will end up in jobs that feel very “American,” for lack of a better word. Legally protected sectors — law, medicine and other professions requiring occupational licenses — will also get more crowded.
Among the winners will be American managers, shareholders and consumers. Managers will be able to hire the world’s best talent, at least from the English-speaking world, while productivity gains will translate into more profitable companies and better and cheaper products.
Big business will likely benefit more than small business. The larger companies have the networks and the brand names to attract the best overseas talent. And if a worker overseas cannot perform all the functions of a particular job, a larger company can more easily fill in the gaps with other talent.
It will also be very good for American U.S. soft power. The U.S. has a lot of successful, well-known multinational corporations. Think of all the many people around the world who might like to work for Apple, for example. American culture also seems to produce highly talented managers, and U.S. business is used to working with people from many different cultures. (This is in contrast to, say, Japan, which will not benefit as much as the U.S. from the teleshock, while Anglophone-friendly countries such as Sweden and the Netherlands may do well.)
The teleshock is likely to continue for a considerable period of time, perhaps longer than the China shock. It is conventional wisdom that “software is eating the world.” As software and tech become larger and more important, more of their jobs can be outsourced. The process will have no natural end. Furthermore, more people in the world will learn English, including in low-wage countries, so the potential competitive supply of affordable workers will not be exhausted anytime soon.
It is unlikely there is any efficacious way to avoid the teleshock. If a company can have online meetings, it can hire employees through online interviews. And it won’t have to get them U.S. visas or work permits. Both companies and workers will get better at managing these arrangements, and more software will be created to handle hybrid work flows (part remote, part in person) for employees.
This new world will create a remarkable boost in both competitive pressures and opportunity. Like the China shock, the teleshock is likely to be one of the defining economic developments of 21st century America.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "Big Business: A Love Letter to an American Anti-Hero."
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