How support for remote freelancers and remote workers could revitalize heartland economies across the U.S.
By: Upwork’s Head of Global Public Policy, Michael McGeary
Upwork’s Chief Economist, Adam Ozimek
As the American economy builds back in the aftermath of the COVID-19 pandemic, a dramatic shift is underway as the workforce and business reimagine how and where work happens. From upheaval in local housing markets to the “Great Resignation”, it is increasingly clear that in some ways the next normal will be nothing like the old one. Remote work and remote freelancing are quickly growing post-pandemic, and policymakers are trying to figure out how to respond. In this brief paper, we will outline the potential gains of remote work and remote freelancing that economic policymakers should consider and the policies to best capitalize on such opportunities.
Most policymakers in struggling areas are aware of the benefits that accrue when more skilled people move there: tax revenues increase, housing markets are stimulated by new demand, and their consumption in the local economy creates employment elsewhere. This paper will begin by discussing the economic benefits of remote work, particularly remote freelancing, for struggling regions, that policymakers should be aware of. Then we will suggest areas for future policy research and close with more concrete policy suggestions.
Economic benefits of remote work and remote freelancing
As COVID-19 prompted businesses and workers to abandon their offices and shift to work from home, many realized the benefits that remote work offers. While this was apparent at an individual and business level, economists have also highlighted the potential that remote work could have for economies across the country. Importantly, remote work and remote freelancing create opportunities for both workers and businesses in struggling regions, which has the potential to create much-needed dynamism in these communities.
- Opportunity for Access to Jobs for Professionals
Over the past few decades, struggling regions of the country have suffered from demographic decline as residents moved out looking for greater opportunities. Although people have always tended to move towards opportunities, the challenges of outmigration have intensified in an era where overall population growth is now at an 80-year low. As a result, half of U.S. counties lose population every year.
The loss of population, particularly the working-age population, creates various negative spillovers for local economies. Tax revenues decline, local governments cut back on essential services, and residents suffer from a decline in quality of life. All of this is exacerbated by an aging population that requires additional local resources for retiree pensions. The result of these compositional changes in population leaves all aspects of the community to feel that pressure. School districts cut non-essential programs – like art and music – and housing markets weaken, leading to falling property prices and vacancies, which ultimately leads to blight and property crime. Finally, in the face of year-after-year shrinking customer bases and labor forces, businesses can not invest or expand, and many close up shop.
In communities dealing with a demographic decline or otherwise weak economy, the addition or retention of a skilled worker creates a variety of positive spillovers. First, the aforementioned adverse effects of population loss are pushed into reverse. Tax revenues, housing markets, and public services are given a boost. In addition, there is more consumption spending in the local economy.
These effects represent just a fraction of the benefits that remote work can have on struggling regions. The gains will be even more significant if the workers are more highly educated, which is more likely than not, given that remote work is strongly correlated with education level. Although the rapid growth of remote work post-COVID is still in its early stages, survey evidence suggests remote workers are looking to move to less dense, less expensive areas. This would disproportionately benefit struggling regions, and rural locations in particular. Even if few relocate to these regions due to remote work, the ability to access better jobs without moving away in the first place should help reduce outmigration.
- Opportunity for Businesses through Access for Talent
It is not just those working remotely who benefit, however. A growing body of empirical research shows that one of the biggest reasons that startups have declined in struggling areas is that they lack access to a growing pool of workers. An important benefit of remote work and remote freelancing is to lean against this trend by providing businesses with not only a large and growing pool of skilled workers, but also with scarce skills that will be lacking in many local labor markets.
For example, consider an entrepreneur in a small rural town with an innovative idea for a new consumer good that they want to make locally. The local labor market has lots of experienced manufacturing and production workers, such that finding people for the primary operations of the business, like shipping and production, is not a challenge. However, the entrepreneur will first need a product engineer, specialized engineers, and architects to fully spec out and design the manufacturing facility. Then she will need a web developer and Shopify experts to build the e-commerce operations out. Next, she will need a digital marketing strategist and a team of marketing specialists to raise awareness of the product and generate sales. Finally, she will need to quickly scale customer service and social media, potentially operating 24 hours a day.
As this hypothetical—as well as past research—shows, starting a business in any sector today typically requires engaging in a variety of professional services, many of which would be difficult or impossible to scale quickly in struggling regions. Remote freelancing gives these businesses access to talent that is scarce or non-existent in their local labor market, allowing employment in other parts of the business to exist.
Given the relationship between access to skilled workers and creating new companies, it is no surprise that the decline in entrepreneurship in recent decades has been sharpest in the parts of the country that are demographically struggling. These places need entrepreneurs and startups to create businesses that make the most of the available resources and workers. Remote work helps entrepreneurs find the skills that they need to fill in gaps in the local labor markets and to compliment the skills and capabilities that they do have locally.
Remote freelancing is especially powerful for helping to drive business creation in struggling regions. First, remote freelancers, like all freelancers, are themselves entrepreneurs. They are small business owners, and work marketplaces like Upwork help them find clients around the world, allowing them to effectively serve as an exporter.
On the other side of the platform, remote freelancing is important for many small and mid-sized businesses. For example, companies of this size make up 80% of the spending on Upwork. An important factor for these companies is that they often have fractional job needs. Smaller businesses may not need someone to do digital marketing strategy 40 hours a week all year long, or accounting, or website optimization, or lead generation. Instead, they often have occasional, variable, or temporary needs for these specialized services. Work marketplaces like Upwork thus become an input into small business formation and growth.
Another advantage of leveraging remote freelancers is they help businesses scale quickly, which is an important factor for rapidly growing startups. Finally, while remote work is growing in economic importance today, remote-freelancing platforms have existed for over two decades now, meaning they already have a deep and mature labor market for businesses to draw from.
In short, remote work of all kinds gives small businesses and startups in struggling regions access to scarce talent outside of their labor market. Remote freelancing, in particular, is helpful because it also provides a way for small businesses to export, fractional hiring for small and mid-sized businesses, and rapid scaling for growing startups.
Learnings from existing research on economic development relevant to the shift to remote work
Although research on economic development in light of remote work is limited, there is a litany of research on wider economic development incentives that is relevant. This research can help shed light on policy ideas and help inform a research agenda for remote work economic development.
To start, it is important to discuss the ways in which economic development with remote work is similar and different from traditional economic development in the context of the U.S. At the core, the goal of both traditional development and remote work development center around creating skilled jobs in struggling regions. As a result, the secondary impacts of both are thus similar: there is more spending in the local economy and local tax base increase, which ultimately stimulates housing markets.
A key difference, however, is in practice, traditional development tends to secure one or a few large firms that will hire many employees. In contrast, remote work development aims to secure many different remote workers. This means that remote work development can happen one person at a time. In this way, remote workers solve the development “chicken and egg” problem of how you lure in skilled workers without skilled employers, and, how do you lure in skilled employers without skilled workers. With remote work, skilled people can come with their own jobs in hand, one at a time.
In short, remote work leads to similar ends as traditional economic development but through different means. The goal remains the creation of skilled jobs. However, remote work alleviates the need to focus on big firms and large incentives in a winner-takes-all competition to lure those big firms.
Although limited, there are cities across the country that have adopted individual incentive programs for remote workers. These places serve as early case studies for cities that are embracing remote development policies. According to a database that tracks these offers, MakeMyMove, there are currently 40 communities across 14 states offering incentives of some kind to remote workers who locate there. While similar to traditional development incentives, there are consequential and positive differences that are useful for this discussion.
First, the full benefit of the marginal incentive goes to the worker and is not split between worker and firm. Second, the range of $5,000 to $20,000 for incentives is relatively low compared to how high per worker incentives for big businesses can get. According to a recent analysis, in North Carolina, the state with the biggest incentive program, the average cost per job was $40,368. Six of the top 20 states topped $30,000 and reach as high as $102,280 in Wisconsin.
Another advantage of these incentives over the usual policies is that there is no bargaining advantage created by business size. Typically, economic incentives are handed out to large companies making sizable investments, which gives them bargaining power over the communities they negotiate with. This leads to a race to the bottom, where communities offer greater and greater incentives. While this may help direct some economic activity to places with greater need, the general result is lower taxes for bigger companies than smaller companies, further hindering entrepreneurs’ ability to compete, and communities frequently over-paying for what they get.
While remote work incentives do not have many of the negative features of traditional incentives, that does not mean they should be embraced without pause. While typical incentives end up simply delivering lower taxes for bigger businesses, if more and more communities embrace them, remote work incentives would end up delivering a regressive transfer to skilled workers.
In addition, as with traditional economic incentives, it can be difficult to know whether the incentive actually spurred a location decision or if it was going to happen anyway. If a remote worker was going to move to a specific place anyway, but they still claim the incentive, that decreases the benefits of the program.
Remote incentives likely paid off for first movers like the city of Tulsa, Oklahoma, which gained a reputation as a remote worker destination by standing out early and signaling that they valued these types of residents. However, the more places embrace incentives, the less useful those places will find them, and the more problematic and regressive the general outcome is likely to be. In short, the lessons from the existing economic development literature about the dangers of economic incentives remain true in some important ways for remote work as well.
The literature also has lessons for what should be done. For manufacturing, research suggests customized business services can be effective. In the context of manufacturing, there are two types of services with quality evidence of efficacy: customized job training and extensive manufacturing services. There are other possible services that could help but for which is less evidence, for example small-business development centers and business incubators.
Customized job training traditionally aims to improve local labor supply for manufacturing by training workers with specific marketable skills. Manufacturing extension services are essentially free or low-cost consulting services for small and mid-sized manufacturers. They offer advice on adopting new technologies, reorganizing production, improving HR practices, identifying new markets, workplace organization, and sales. For manufacturers, the Hollings Manufacturing Extension Partnership is a national network of partially government funded centers. The federal government covers half the cost, while a combination of state, local, and private funding combined with fees covers the other half.
In both cases, information and training are provided with the goal of actually increasing productivity and output for a given level of inputs. This is in contrast to incentives, which present a more zero-sum deal at the national level.
A Policy Agenda to Support Remote and Independent Work
As America continues to emerge from the COVID-19 pandemic and millions of Americans are rethinking their work arrangements, the imperative to democratize and support remote and independent opportunities in the workforce has never been stronger. Millions of workers have already taken the initiative to build their careers outside the workforce’s normal frameworks and the policy infrastructure that guides it. But, as the research supports, there is more government at all levels can do to support that transition, helping America lead the world at the same time.
What follows are a set of [five] concrete examples the federal government can take to transform America’s competitiveness and strengthen the foundations needed to enable the remote transformation of the workforce already underway. These policy planks are guided by principles of growth and democratization of opportunity, coupled with the need to create positive-sum outcomes for all communities, and underlined by a drive for an equitable—and sustainable—future of work everywhere, for everyone.
While the federal government has a unique opportunity to take a quantum leap towards that democratization as they negotiate furtively on broad infrastructure investments to expand access to opportunity, we must also be mindful of the need for long-term, strategic investment and engagement of federal dollars into local communities across the country. These policy ideas, and others, will be essential to ensuring the long-term transition to remote and independent work is supported by the capital and regulatory environment needed for entrepreneurs to thrive:
- Significantly expand investment across the board in both wireline and R&D funding for wireless technologies to expand access: Make permanent the FCC’s emergency broadband subsidy, approve common standards of “high-speed broadband” at telehealth level needs or higher, provide federal funding to build out capacity at or above these levels, ensure that funding levels needed for existing and future technologies are an “all of the above” strategy, expand the FCC Lifeline program for low-income consumers to include LifelineJobs with access available for workers considering transition to independent work, provide state aid incentives to do the same.
- Jumpstart connection access and local entrepreneurship by allowing land grant and community colleges to apply for and rollout high-speed broadband and build innovation centers: Create a playbook for public access points geared towards entrepreneurs owned by existing public infrastructure; make funding and support available to any community, rural or urban, lacking high quality connectivity in local area; recruit anchor tenants of established businesses of any size generally (but not exclusively) based outside a local area willing to hire/contract with local skill workers and house them on a semi-permanent basis at these centers.
- Expand portfolio of local Workforce Investment Boards (WIBs) and/or create new entities aimed at resource development to drive remote and independent opportunities, address skill misalignment: Level up workforce investment to create access to professional and interpersonal skills necessary for workers to shift to a remote-first environment, using federal dollars to incentivize creation/expansion of local entities to support economic development geared towards talent to support: Local virtual job board & hiring fairs, remote work training for virtual professionals, change management training for business owners, continuing education and career development events, local hosts and ambassadors, coworking space as a home office alternative for local professionals
- Rewire tax incentives to benefit growth in independent opportunity: Allow independent workers who start a pass-through entity to file taxes yearly for first two years of incorporation by removing need for LLCs or other designated business entities compromising three or fewer people whose main business is geared towards digital delivery of services to file taxes at corporate rate on a yearly lookback like normal 1040 filing for two years; explore incentives for financial services products and providers to use independent income for verification on par with employment earnings.
- Create a White House Commission on remote and independent opportunity: Start a six-month task force out of the executive branch aimed at identifying further policy initiatives necessitated by the shift to remote work post-COVID; direct federal agencies to encourage both remote hiring and telework as well as subsidized apprenticeship opportunities in the remote environment in rural areas and among communities of color.
Call for further research
The economic development potential of remote work is clear, and the aforementioned policies can help at the state, local and federal levels. However, a complete understanding of the optimal set of policies remains elusive, given the limited research and case study examples.
An important issue for further study is what kind of customized business services would be most useful in increasing productivity for remote workers. Examples could include local colleges, economic development centers, coworking spaces, or other institutions helping people understand what skills are in demand for remote work. Further training could consist of skills necessary to become a remote entrepreneur, like finding clients, creating portfolios of work, and how to showcase their work with sites like Upwork and others.
In short, there is little to no research on optimal policies for remote work as an economic development tool. However, the extensive research on traditional economic development provides some insights and also suggestions for further research. Given the potential for remote work to help spur growth and development in struggling regions, it is urgent that policymakers and academics continue research in these areas.
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