I have been contemplating changes in the work environment. Barron's and Apple News shared my interest in the topic and published my latest blog on the weekend to their readers.
One of the readers of Barron's commented that outsourcing overseas skilled professionals was slow in coming—a good point. I can only think that there is a slow pickup that will become significant over time........
As we pass through the dog days of summer, one can ponder the apparent changes in the physical relationship to work. Many observers suspect that the changes we have seen, post-Covid, are permanent. Do office staff really want, or need, to go downtown? Last month, WeWork said that there is “substantial doubt” it can stay in business.
A convergence of differentiated technologies enables business life to exist beyond the city core. Where once it was necessary to meet in person, society has adjusted to the reality that “virtual” works, although perhaps less well.
It is difficult, maybe impossible, to measure the difference in productivity from working in person or virtually, unless you are producing widgets. So much of the measurement is subjective. Some of the touted benefits of in-person are merely best guesses. Do younger staff really get mentored in an office setting? Does the corporate spirit become engrained by onsite osmosis? Skepticism abounds.
We could solve a lot of issues by moving away from a work structure established during the industrial revolution. It could benefit employees and employers. But these changes will be disruptive.
Some of the changes will be felt in city life if population density falls. It will be difficult to improve the quality of public education. Less density means reduced entertainment opportunities such as sports and theater and weakened social dynamics. Medical care and medical specialization reside in our leading cities. The vibrancy of a dynamic city is difficult to recapture once it starts to slip.
But there are trade-offs. Among them are worries about drug use and homelessness. Effective transportation is difficult and the threat of violence is a concern in city life. Compound these difficulties with outrageous rents and unaffordable house pricing. Is there a happy medium that benefits employees and employers?
A hybrid model of employee work location should allow corporations to substantially decrease their office space needs. This ongoing reduction in downtown office space has already led to vacancy rates near 20% in some major U.S. cities. Office vacancy in Canada has risen to 14%, up from around 8% in 2020, Collier Canada reports.
It just makes sense that corporations will reduce their office square footage. Let employees “hotel” at the office on their 2-3 days of physical presence. It could be a win- win for both parties. Companies save on rent, and employees reduce their commute.
But be careful what you wish for, because the reward of working at home seems to favor the company. If your employees work remotely, why limit your employees to those available domestically?
The median annual salary for a software developer in the U.S. in 2021 was $120,730, according to the Bureau of Labor Statistics. In Bangalore, India, the average annual salary for a software engineer is around $16,000, if you convert Glassdoor analyzed salaries from rupees.
Professionals based in India, depending on their profession and other factors, can earn up to $1,700 per month. This compares with $11,680 per month for a typical U.S. professional salary.
The combination of potentially less expensive labor and savings from reduced office space, is a strong tailwind for corporate America. Don’t forget the cost savings from generative AI.
The current upheaval in workplace dynamics and technology will make for continued societal disruption. Exciting times.
regards, Tim
Tim Morton, CFA is a retired portfolio manager with 45 years of experience working with private clients and is the editor of mortonir.com and a contributor to Barron's. My comments are not to be taken as investment recommendations. They are purely for discussion purposes. Please see your registered advisor for investment advice.
It will be interesting to see how the dynamics within businesses evolve with hybrid working arrangements. In my industry, public accounting, it's difficult to imagine how a newly-graduated university student could receive hands-on, practical training in a variety of industries, and develop the necessary analytical skills, unless they have daily in-person interaction with their peers and clients.