Wage Deflation Is Coming For Your Job

A key part of the digital transformation that I’m following closely is the idea of the “digital age income”. Think of digital age incomes as the compensation you can get for work done online &/or remotely. It’s an income level that is increasingly established by global economic forces that are separate from local economies and the challenges they face.

In short, as more work can be done online, it’ll open up income generating opportunities to remote regions of the world. Areas with people that are eager to compete for higher income work. In the long run, this competitive pressure will drive down the compensation for many jobs. ie: an increase in supply of workers to fill the current supply of jobs will cause wage deflation.

I’m now gonna explain why this concept matters regardless of whether you work remotely and how it’ll impact what jobs and productivity are valued at moving forward.

As more work is done online and remote work becomes a norm, the entire population of people that can connect to the internet will compete for the available jobs online. That means that instead of competing with other knowledge workers within 25 miles of your home city or town, “1st world” workers will now compete with the billions of people that can apply for jobs from anywhere in the world.

As a result, competitive pressure will drive down wages towards a new equilibrium (deflation). This wage pressure is made more extreme by the tantalizing choice companies will now face between paying someone a living wage for life in New York vs paying someone a living wage for a small town USA or a city like Delhi.

The point is: a person with valuable skills and a hunger to earn a digital age income that far exceeds what they can make locally will outcompete first world workers on compensation. And they’ll do this while improving their quality of life.

Cost of living arbitrage is real.

It’s going to have a massive impact on wage deflation as more jobs shift towards remote models. Yes, there are many companies that will still push for back to work policies. But there are now many more reasons to push for remote work - especially as more tools and formalized processes emerge to manage remote teams. Even more important, as layoffs continue from economic turmoil and spread to the broader areas of the global economy, there will be a new incentive for businesses to adapt work models that help to reduce costs in human capital.

Said more plainly: If a business needs to cut costs but doesn’t want to completely downsize their operations, they’re much more likely to layoff their expensive American team and hire in Asia for 50% of the cost.

As I said above, this is a topic I watch closely. Especially with how it impacts communities around the world. For example, you see the influence of digital age income shifts causing radical changes in housing & migration trends, you see it in corporate real estate defaults, and you see it in city budget challenges manifesting in crime and infrastructure decay.

Looking at how these changes are occurring at a high level it becomes clear that location independent people have the upper hand at the moment vs location dependent people that are left to figure out how to adapt their local communities to the digital age model.

These trends will continue to have significant impacts on society and we’ll continue to see “strange” downstream impacts bubble to the surface over the next few years.

With all that said, the recent excitement around AI’s like ChatGPT and Copilot have convinced me that we’ll see AI force other society-wide changes & combine with these other trends on a short timeline.

In short, if you watch the development of AI over the past 2 years, you’ve seen how quickly its become “useful”. And it doesn’t take a rocket scientist to see that it’s becoming increasingly more useful at a rapid rate. Given the mechanics of wage deflation caused by remote work, when you layer in AI related tools to the workforce you’ll see that even more downward wage pressure is on the horizon. This additional layer of pressure will be agnostic to the forming social class divide between remote workers and location dependent people.

As an example: imagine a worker from Delhi or a rural community taking advantage of cost of living arbitrage. This person is able to use AI to do 2 to 3x the work of a person that doesn’t use AI and that also lives on a New York salary. Can you see how that might radically change the shape of global society? A company looking to cut human resources costs but maintain productivity will have a much easier decision to make.

Realistically I see these trends (the digital age income arbitrage gap closing & AI as a real productivity tool) accelerating and converging over the next 2 to 3 years. Slow enough to seem like it’s nothing to imminently worry about but fast enough to cause you to look up one day and realize you’re significantly behind the trends of the digital age.

When you realize that neither remote work nor AI will lose momentum, you’ll realize that it’s worth your time to A) learn about these trends but more importantly B) adapt to them immediately.

Said in plain English, get a remote job with a good salary, strongly consider relocating to a lower cost of living location and investing the excess income, and lean into learning to use AI tools to become a more productive worker. You’re goal: to become as competitive a worker as possible not just in your local job market but in the global, digitally connected market.

I expect these issues to continue to converge and create additional “digital fault lines” in government and policy arenas.

Expect AI and remote work advocates to find themselves on similar policy sides. Expect people that are against them to find themselves in agreement. These “sides” will shape the new political party lines of the digital age.

These topics and the policies for and against them reinforce the emergent social class divide and the truth that this is the decade where “left vs right” politics will evolve to become a fight between the late industrial age and the digital age control of governments. Nationalism and protectionist movements will take on new shapes and perspectives. In some cases governments will be for location independent policies and in others they’ll be for location dependent policies.

I had expected to see this play out in the 2024 US Presidential election cycle but at this point I’m not so sure we’ll see it as a set of main battleground issues. (I’ll be watching)

A final comment: pay attention to digital age incomes and how they influence your decision. Pay attention to how these types of decisions at large scale bubble to the surface of society. And watch how these changes are enhanced by AI’s utility in the workforce. This is the digital transformation and it will cause Future Shock.

Rapid Fire

• Are Return to Office Mandates Working? - An article on how companies could measure the success of return to office policies. Of note- it emphasizes that hybrid policies are overwhelmingly common and likely to be permanent.

• Global Gentrification - An interesting essay that distinguishes between digital nomads and digital settlers as well as why those distinctions matter especially from a policy standpoint.

• The Original PDF Hustler - Just goes to show that working to generate a little income on the side through “side hustles” is lindy.

• Things Are Getting Really Weird In The Housing Market - It’s really simple, people are relocating for a variety of reasons. The mistake many economists and pundits are making is that they’re not looking at these types of trends from the perspective of remote work and the evolving social class landscape.

• The Office Is Killing You - “The office experience was always supposed to be about the work product, a meritocracy. Over time it devolved into a bureaucratic lust for power.”

• Why I Let Go of My US Citizenship - “To prevent myself from falling off the wagon, I strap myself to the mast.”

• Central Banks Load Up On Gold - This article includes data from a poll conducted with Central Bankers around the world. They mostly expect their peers to continue loading up on gold. Here’s one of the important parts of the article from our perspective: “the sanctions against Russia’s central bank had “caused many non-aligned central banks to reconsider where they should hold their international reserves”. ie: outside money has increased value.

Extras

• Where can I get one?