The winners of remote work

There are already examples of how gains are captured by the few and not the many

By Dror Poleg,

Who wins and who loses when companies can hire from anywhere?

Some employees and freelancers who can work remotely will have vastly expanded opportunities and the possibility of significant increases in pay, but remote workers in general figure to face more competition and have a higher dependence on luck.

One thing that seems unavoidable, research suggests, is an intensification of inequality.

In his 1981 paper, “The Economics of Superstars,” Sherwin Rosen described the impact of recording and broadcasting on the incomes of athletes and entertainers. As technology enabled individuals with specialised skills to reach a giant market — one hour of work in a single location could suddenly reach many people across the country — fewer stars captured more of the rewards.

Rosen expected that over time many other professions would follow a similar pattern. A teacher’s income, for example, was traditionally limited by the number of students who could fit into one classroom. But today on Udemy, an online learning platform, teachers like Chris Haroun have earned millions from courses they created, especially after Covid-19 lockdown pushed enrollments on the platform up by 425%. The vast majority of teachers on Udemy don’t come close to Haroun’s earnings, however, resulting in an extremely unequal distribution of income between superstar teachers and everybody else.

A meaningful shift in the distribution of income can also be seen in platforms where remote instruction is more similar to traditional teaching. On Outschool, an online marketplace for virtual classes for children, hundreds of teachers earn more than $100,000 a year, and dozens earn over $230,000. But most Outschool teachers earn far less, partly because they treat online teaching as a hobby or side hustle, and partly because they haven’t yet figured out how to attract students.

The adoption of remote work is also affecting more traditional institutions. Scott Galloway, a professor at New York University’s Stern School of Business, told me in April, “Because all my classes are remote now, the school asked me, ‘Can you go from 160 — dictated by the size of Stern’s largest classroom — to 280?’ That’s 120 fewer seats for the other marketing professors to fight over.”

Similar dynamics can be seen in professions that were assumed to be inherently “in-person.” During the lockdowns, most fitness instructors were out of work. But a handful were thriving — especially those who worked for Peloton. By the end of 2020, Peloton had about 4 million members — equal to the number of gym patrons in New York state. Unlike New York’s fitness industry, Peloton did not employ 86,000 people in a single state.

Instead, the company’s millions of members were served by several dozen instructors who could live anywhere they liked. While most fitness instructors could not work at all, some Peloton instructors earned more than $500,000 — more than 12 times the median salary of their peers.

When a market expands, the benefits tend not to accrue equally to all participants, a dynamic true in fields beyond teaching and instruction. As early as 1995, economists Robert Frank and Philip Cook observed that payoff structures previously common in entertainment were becoming more prevalent in a variety of other professions. Some lawyers, doctors, consultants, bankers and managers were making more than ever, while fewer of their colleagues occupied middle-income jobs.

The two economists attributed these changes to “the revolution in information processing and transmission,” which provides “increasing leverage for the talents of those who occupy top positions and correspondingly less room for others.”

This trend continued into the 21st century. According to a 2020 study by economists David Autor, Claudia Goldin and Lawrence Katz, most of the increase in income inequality over the past two decades occurred “within, rather than between, education groups.” Some college-educated employees — particularly those with advanced degrees — earned more than ever while most of their peers stood in place or retreated. Technology contributed to this increase by enabling companies to produce more and reach more customers while depending on fewer but more specialised employees.

Significant as it was, technology’s impact on many professions was constrained by geography. When most companies hired only employees who lived within commuting distance of the office, the size of the labour market was capped. This put a ceiling on the employment options and earning capacity of employees with the most specialised, in-demand skills. It also put a floor beneath other professionals who enjoyed a decent salary and relative job security by virtue of living within commuting distance to a central business district or office park.

The constraints of geography are loosened now that Silicon Valley and other industries are embracing remote work — gradually, then suddenly. The Economist recently analysed job listings on Hacker News, a site popular with programmers. It found the share of jobs mentioning “remote” reached 75% in 2021, up from 35% pre-Covid-19 and 13% a decade earlier.

Also read: Google again delays return to office due to Covid-19

How will this affect the average tech worker?

There are some early indications. In June, Google told rank-and-file employees it would reduce the pay of those who choose to work remotely or move farther from the office. Avoiding the office saves employees money — in commuting costs, for example — but as economist Austan Goolsbee recently wrote for The New York Times, companies in the last 40 years have usually found a way to claw back any potential gains for workers.

For most tech workers, remote work means competing in a much larger pool of equally qualified candidates, many of whom are based in lower-income cities and countries.

Should this worry the most in-demand engineers and product management? Probably not. For them, working remotely means competing for the highest-paying jobs from a larger number of companies.

But even many highly qualified and specialised employees have something to worry about.

As Enrico Moretti pointed out in “The New Geography of Jobs,” hiring “is very similar to dating.” Access to more potential candidates in a bigger pool of people increases the chance of finding an ideal match. Matching specialised talent to specific jobs is a major reason that innovation, productivity and salaries are higher in large cities.

But the biggest markets don’t just offer the biggest rewards. They also tend to distribute these rewards unevenly and, often, unpredictably. Income inequality grows with city size.

And while access to more candidates increases the odds of an ideal match, it also introduces more “noise” into the selection process, leaving a bigger role for chance events in determining which candidates end up earning more throughout their career. The same dynamics figure to intensify as employees join a remote labour market that is orders of magnitude larger than any city on Earth.

During the deep and sudden recession last year brought about by lockdowns, those who could work remotely kept their jobs or quickly found new ones. A job that could be done from anywhere was a source of comfort and security.

But in the long term, remote work’s promise is more ambivalent. It offers more flexibility, accommodating people who would otherwise give up office work altogether. For many, it offers access to better economic opportunities, regardless of location. But for some it will also introduce more competition. Ultimately, remote work ushers some freelancers and employees into a global arena that seems to promise a higher ceiling, but a lower floor as well.