- Ron Favali
The Distributed Professional’s Potential Impact on Minimum Wage Legislation
As the US Congress enters the home stretch of passing a $1.9 trillion COVID-relief stimulus package, one key progressive element left out of the bill is raising the minimum wage in the US to $15 per hour.
Left out for now, but the minimum wage debate will continue for at least the next 20 months while the Democrats control the House, Senate, and Presidency.
While there are many, one primary argument against universally raising the minimum wage for everyone is geography. It costs more to live and work in New York City compared to Peoria. The argument isn’t used to increase the pay of minimum wage workers in Peoria to New York City levels. It’s used to keep wages lower.
As the debate around minimum wages continues, elected officials aren’t accounting for fundamental shifts in employment models. Previous models centralized high paying jobs in specific cities or sections of the country, which raised the cost of living for everyone living in those specific cities. Given this, it’s ok to have a higher minimum wage in New York, and the people of Peoria will be just fine with a lower minimum wage.
What’s happening in reality and will continue over time is that distributed professionals will decentralize wealth in this country.
This is a seismic shift will change the employment landscape and how it impacts local economies compared to the traditional view of employment. Consider that for much of the latter half of the previous century, professionals at one of the country’s most venerable employers had a secondary use of the company acronym. I’ve Been Moved. Of course, this is a reference to IBM. When highly skilled business and technical professionals at IBM succeeded, they were rewarded with promotions. More times than not, the promotion required professionals (and their families) to move to the city where the new job was located. There was nothing wrong with this model. Nearly every company replicated it.
The ramifications of this model was that wealth created by high-paying jobs shifted to specific geographic areas.
Outside of movement within a specific company, employers offered highly sought-after prospects generous relocation packages to incentivize them to move and accept the job in times of tight labor markets. Again, this shifted the concentration of wealth to the same areas. With more money in pockets, cities with higher incomes became more expensive.
Relocation packages essentially dried up during the 2008 financial crisis. Just before that, another trend emerged. The rise of remote workers. Supported by the broad availability of reliable mobile technologies, professionals could now work anywhere and almost at any time. The trend allowed employers to let some professionals work remotely.
Within the past several years, both employers and professionals have successfully tested another trend—the emergence of the distributed professional. The significant difference between Distributed and Remote is that remote employees have similar roles and typically receive the same compensation and benefits as their office-based counterparts. Distributed Professionals are more like highly skilled free agents. Rather than work for a single company in a traditional role, Distributed Professionals prefer to use their skills and talent to work on various projects with many different companies.
Geography comes into play only in that distributed professionals dictate where they live and work, not the other way around.
Distributed professionals are compensated based on the value provided. Engagements are structured by an agreed-upon rate for a specified output. Geography, both of the employer and professional, doesn’t play a role in formulating an engagement.
The popularity, both with employers and professionals, is growing exponentially. Employers get the best skills available to them. With the ability to live anywhere, the income gap for a professional in a major city compared to a smaller city will shrink over time.
The lagging indicator confirming this trend will be when companies like Facebook walk back hastily assembled plans to differentiate compensation for professionals in the same role based on location.
While the cost of living and wage expectations for New York and Peoria will never reach parity, the gap will close. Significant gaps that exist today will become insignificant over time. And when this happens, wages across the board, including the minimum wage and cost of living will become more standardized across the country. Not equal, but not nearly the delta that exists today.
As wealth becomes decentralized, it will lift up economies outside of major cities, leading to little difference in cost of living in cities and suburbs across the country.
We already see plenty of examples of consistent pricing of products and services that don’t vary based on geography, especially in newer economy companies. Apple’s iphone, a Tesla, and software or web services like Neftlix all cost the same regardless of the city or state where they are purchased. More national pricing strategies will certainly follow.
Unfortunately, our elected officials tend to look backward and don’t understand larger macro-level trends. If they did, an affordable living wage wouldn’t be based on geography. It would be based on a solid understanding of seismic shifts in the employment market already underway led by distributed professionals.