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Small employers, regulation and a declining middle class

Small employers, regulation and a declining middle class?

A friend who runs an IT consultancy shared a story over the break. After reading a few stats and articles over the weekend, it really got me thinking. His company has been growing like crazy, and we were talking about his hiring plans. You know what? His first and preferred option was to look outside Australia.

I assumed he was referring to support staff for basic tasks, from somewhere like the Philippines. But no – he was talking about sales, business development and real technical support staff. These would be key members of his team, all highly trained and educated. He wasn’t looking to traditional countries to ‘offshore’ these tasks, but to New Zealand, of all places.

I could see the obvious benefits. Financially he gains a ~30% cost saving purely on the currency difference. New Zealand is close to Australia both culturally and geographically, with a highly educated workforce. His clients in Australia would have no problems with the Kiwi accent (if they could avoid talking about ‘micro-chups’). Disturbingly, these weren’t the driving factors in his decision.

He was simply trying to escape perceived increases in workforce regulation.

New health and safety obligations were passed onto employers on January 1 this year. Many commentators argue they were poorly considered, with widespread implications. Over the past few years, employers have had to comply with new Modern Awards. We also see reports and evidence of increasing union influence in the workplace and government.

I don’t want to comment on the detail or merits of these changes. What’s more important, is the perception among employers like my friend, and the types of decisions that result. We should think deeply about what it might mean for the Australian economy and future employment market.

A declining middle class?

Let’s think about this particular example. We have a small company of less than 10 people, on an aggressive growth path. They are looking to grow the team by maybe 50% in the next 12 months. However, these ’employment opportunities’ are lost to Australian job seekers. We’re not talking about a multinational with a global workforce. This is a small, growing Australian company. Historically, companies like this have been one of the biggest drivers of employment growth in the Australian ecomomy.

Losing this ‘engine’ of employment growth would have far reaching implications across our economy. A few stats published recently highlight the potential impact:

Barely a single job was created in Australia in 2011.
– The number of jobs held by 15- to 19-year-olds shrank by 92,200 between 2008-2011.

The New York Times published an excellent and detailed article over the weekend on a very similar topic. It focuses on the factors that led Apple to shift production of its iPhone to China, and what this means for jobs in the US.

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked (at a recent dinner).

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

The article goes on to describe the implications for middle class jobs in America:

Modernization has always caused some kinds of jobs to change or disappear. As the American economy transitioned from agriculture to manufacturing and then to other industries, farmers became steelworkers, and then salesmen and middle managers. These shifts have carried many economic benefits, and in general, with each progression, even unskilled workers received better wages and greater chances at upward mobility.

But in the last two decades, something more fundamental has changed, economists say. Midwage jobs started disappearing. Particularly among Americans without college degrees, today’s new jobs are disproportionately in service occupations — at restaurants or call centers, or as hospital attendants or temporary workers — that offer fewer opportunities for reaching the middle class.

…What remains unknown, however, is whether the United States will be able to leverage tomorrow’s innovations into millions of jobs.

This article is a must read for anyone interested in the changing nature of work, the decline of the middle class, and employment economics in developed countries like Australia.

The particularly disturbing aspect of this story – in my mind – is that we may be starting to see these trends trickle down from multinationals like Apple, to SMEs that are the heart and soul of most advanced economies. This could have implications that catch our policy-makers completely unaware, as they focus on the more ‘traditional’ workplace relations issues of the past 30 years.

Alternative employment options

Labour markets are now truly global. Where a company growing its team might have once looked only to the local classifieds or an online job board, employers of all sizes can now access services and teams in any country.

You don’t need to be a technical genius or have a global network of contacts. Small and startup companies are increasingly ‘outsourcing’ basic processes to freelancers, using online platforms such as Australian-owned or Elance. A few examples:

Want a personal assistant? Now you can hire a virtual assistant anywhere in the world.

Need some graphic design? Why use a local designer when a global pool of designers can compete for your business.

At the far extreme, we have small companies building entire support teams in places like Manila or Mumbai (not to mention Auckland), all managed and paid for online through global service marketplaces.

5 years ago, all of these opportunities would have resulted in casual, contract or full-time employment in the Australian economy. Local futurist and expert on crowdsourcing and the future of work, Ross Dawson, has written extensively on these topics. As he notes in a post on the global polarisation of work:

Many people in countries rich and poor are finding that their skills are commodities, and that employers feel that they can readily replace them. The alternative labor can be local, or increasingly sourced from anywhere around the world, sometimes from countries or regions where there are different ideas about what constitutes decent pay.

What can we do?

I’m not sure there’s a solution – at least not a simple one. Many people argue these are macro trends that cannot be stopped. But the first step to ‘solving’ an issue is understanding it (or actually, defining it). Policy makers are surely aware of these trends, but they need to connect the dots. Their decisions have long-term, structural implications. Employment issues can no longer be defined as ‘business’ vs ‘workers’, when one side can easily jump outside the system.

For employers like my friend, who will always act in their own (rather than the national) interest, we can only something starts to change their ‘perception’ of how easy and attractive it is to hire someone in a local position.

What’s your view?

As an employer, what’s your perception of how easy and attractive it is to hire someone locally? Have you considered or tried any of these global alternatives?


Cofounder and CEO at RecruitLoop. Previously with McKinsey. Passionate about startups, health and technology. Surf when I can; ride a bike most days. Follow me @mboverell.