"When Chris Koerner's 12-year-old son struggled with algebra this spring, the Dallas business owner posted an ad for a math tutor on the jobs website Upwork.
Minutes later, he and his son were on a video call with a Ph.D. mathematician in Pakistan, who asked for $4 an hour for her services.
Koerner's experience reflects a trend that has accelerated since the Covid-19 pandemic: increasing international trade in digital services. Global exports of music and video streaming, remote learning and financial and similar digital services rose 37% from 2019 to 2022, the World Trade Organization estimates. Other services exports declined 5%.
The U.S. has long been the world leader in exports of services, including Hollywood movies, computer software and spending by foreigners at American resorts and restaurants. Still, its share of global exports of digitally delivered services fell to 16.5% in 2022 from 17.4% in 2019, the WTO said. Ireland, India, China and Singapore grabbed a larger slice.
The trend means a different type of American worker faces overseas competition. While factory workers have seen U.S. jobs move overseas for decades, many types of service workers were more protected because, until recently, the jobs were done in person.
For Koerner, hiring a math tutor from Pakistan paid off.
"Within an hour, I had found, interviewed and hired someone, and they were already in their first lesson," he said.
While the pay was a bargain compared with the $24 average U.S. rate estimated by jobs site ZipRecruiter, it exceeded Pakistan's minimum wage of under $1 an hour.
And his son "ended up getting a great grade" on the test, he said.
Hiring remote services workers overseas comes with challenges including language differences, data protection, tax compliance and regulatory and labor standards.
For some parents, however, another benefit is the availability of a qualified job candidate in a tight labor market.
The option of outsourcing could help the U.S. economy by alleviating domestic-worker shortages, said Scott Lincicome, a trade expert at the Cato Institute, a libertarian think tank. The U.S. unemployment rate was 3.5% in July, near a half-century low, the Labor Department reported Friday. In June, there were 3.6 million more open jobs in the U.S. than unemployed Americans seeking work.
At the same time, the availability of services delivered from overseas puts pressure on Americans to generate new domestic jobs to provide services that are more advanced and of higher value.
"The key is, the world is getting more competitive and that's really good as long as we keep our own house in order and keep competitive here," said Claude Barfield, senior fellow at the American Enterprise Institute, a conservative think tank.
The economic pie is growing, creating space for expansion in the U.S. and abroad. The global market for business services is expected to grow 9% this year to $681 billion, according to consulting firm Kearney.
American companies have hired workers in countries with lower labor costs for decades. Textile and manufacturing jobs moved from the U.S. to Asia and Latin America in the 1970s and 1980s, followed by call-center, financial and tech jobs that went abroad in the 1990s and 2000s. While individual U.S. workers and communities suffered from such shifts, the national unemployment rate has returned to levels recorded in the 1950s and '60s. Americans found jobs in other growing fields, such as healthcare and e-commerce.
Now, online marketplaces for freelancers, higher educational attainment overseas, current technology and employers' increasing comfort with remote work mean individuals and smaller companies can import labor from abroad, too. A national shortage of accountants prompted small and midsize firms to hire overseas for the first time as they seek workers to audit U.S. companies' books and prepare Americans' tax returns.
"Covid forced a march that put us 5 to 10 years down the road, essentially globalizing services" and shifting production to lower-cost locations, said Richard Baldwin, a senior fellow at the Peterson Institute for International Economics.
He noted services being outsourced range widely in pay, including writing financial reports, legal work, virtual assistants and data entry.
Travel-clothing company Scottevest primarily relies on overseas labor, for a fraction of the cost of its former U.S. staff.
The company previously had 20 employees at its Ketchum, Idaho, headquarters doing marketing, accounting and customer service starting at $40,000 a year plus benefits, said Chief Executive Scott Jordan. Pandemic attrition and the high cost of living locally whittled employees in the Sun Valley area down to two: Jordan and his wife, the company president.
"I live in a ski resort, so it's hard to employ people here," Jordan said.
Scottevest uses coders and graphic designers in Ukraine, customer-service agents in Albania and Macedonia, and an order-processing worker in India. It has one marketing contractor in the U.S., employed remotely.
Before the pandemic, "I never would have trusted a remote worker in my life," Jordan said. "We had a mentality that if you weren't willing to make a commitment to move to Sun Valley, I'm not willing to hire you."" [1]
1. U.S. News --- THE OUTLOOK: Services Go Global in Modern Economy. Torry, Harriet. Wall Street Journal, Eastern edition; New York, N.Y.. 07 Aug 2023: A.2.
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