The gloves-off global competition for labour

First-world countries are switching from trying to keep foreigners out to pleading with them to come on in

Photo by Jeffery Erhunse on Unsplash

I’ve spent the last month working on a report on the current state of the Australian tech industry. I’ve spoken to a lot of prominent tech-industry types and, to a man and woman, they were all monomaniacally focused on the skills shortage.

Sure, they had other concerns – Australia’s high company tax rate, its insufficiently business-friendly regulatory regime, the lack of capital available to early-stage startups, the market correction the tech industry is experiencing – but all these issues faded into insignificance compared to the problem of finding enough workers to do the work tech businesses currently need doing. Let alone getting enough ‘meat on seats’ to contemplate scaling up.

Bad news sells newspapers, so there’s been plenty of attention paid to the fact some mid-market tech companies have made some staff redundant in recent months, and some high-profile start-ups have collapsed.

What’s received less media attention is that the erstwhile employees of Airtasker, Banxa, Brighte, Envato, HealthMatch, Immutable, Klarna, Linktree, Mr Yum, Sendle and Swyftx haven’t been short of job offers. Or that many tech companies are conducting recruitment drives. Atlassian, which currently has a little under 9,000 employees, is determined to hire another 1,000 engineers this financial year and hopes to almost triple the size of its workforce to 25,000 in the next four years. (For reference, Telstra, Australia’s largest telecommunications company, employs 29,000 people.)  

Remote workers are a band-aid solution    
Just about every tech company founder or CEO I’ve spoken to in recent weeks has told me they’ve been making increasing use of workers based overseas in recent years.

In the recent past, outsourcing to remote workers based in the developing world has been an elegant solution to the developed world’s labour-shortage problems. A short-staffed Australian (or North American, or European, or Israeli, or Singaporean) tech business finding it impossible to employ a local software engineer could engage a contractor based in, for instance, Vietnam.

It may not be ideal to deal with someone with limited English language skills based in another time zone. But it’s much better than not having access to a software engineer at all. Plus, you can pay the Vietnamese software engineer significantly less than their first-world counterpart. They will still be happy because they are, more or less, earning a developed-world wage while only having developing-world living expenses.

But what happens if, say, a global pandemic massively accelerates the pace of digital transformation and there are suddenly lots of Australian, North American, European, Israeli and Singaporean businesses now trying to outsource work to software engineers in Vietnam? The first thing that happens is that Vietnamese software engineers start charging as much as their Western counterparts. That’s not necessarily a bad thing, at least for software engineers.

But the next thing to happen is that tech businesses – and, as the cliché goes, all businesses are now tech businesses – not only can’t employ local software engineers, they now can’t even find contractors in countries such as Vietnam to do all the work that needs to get done.        

The war for talent goes global
When I asked the CEO of a Melbourne-based tech company – one that has a workforce spread across Australia, New Zealand, Singapore, the US and the UK – if the market downturn had made it any easier for him to find and retain staff, he said it had made no difference at all. He told me many Australian digital workers were now charging more for their labour than their counterparts in nations such as the US. He also observed that at the same time as Australian CEOs were sending increasing amounts of work overseas, Australian coders and programmers were increasingly working for deep-pocketed clients based in the Middle East. After relaying this information, the CEO sighed and said, “I don’t think Australians understand just how fierce the war for global talent has become.”

I was reminded of that CEO when Ross Gittins recently relayed a story about the West Australian premier heading to Ireland to, among other things, encourage Irish nurses to work in WA’s understrength health system. The premier hoped to meet with the Irish health minister while he was in Dublin. That turned out to be impossible because the Irish health minister was in Perth trying to recruit Australian nurses to work in the understrength Irish health system.

Gittins observed:

It’s all very well for the nation’s employers to go to Canberra complaining about the desperate labour shortage and demanding that the government lift its target for how many visas for permanent immigrants it will issue this year. Albanese was persuaded to raise the target from 160,000 to 195,000. But when we’re short of skilled labour at the same time many other rich countries are also short, raising the target and achieving the target are two different things… though employers have used high levels of immigration to keep wages low and reduce the need for educating and training our own young people, I doubt they’ll be able to return to that lazy, second-rate world.

Gittins then quoted from a speech Grattan Institute CEO Danielle Wood made to the Jobs and Skills Summit:

When unemployment is low, it lowers the cost of leaving a bad job and finding a better one. This is good for productivity. Poor-performing businesses that survive, not on the strength of their products or services but off the back of exploiting their workers, are driven out. Investments and workers flow instead to better-run businesses. And when workers are harder to find, businesses have an incentive to invest in new equipment and processes, which ultimately boosts productivity and drives higher living standards. 

I imagine those business lobby types who bang on endlessly about the urgent need to raise productivity weren’t exactly cheering Wood to the rafters after she dropped that truth bomb.  

What happens if you throw open the borders and nobody shows up?
Developed countries aren’t just short of highly skilled workers such as software engineers and nurses. They are also short of shop assistants, bartenders, waiters, fruit pickers, truck drivers, construction labourers and forklift drivers. They are in dire need of people willing to do the modestly paid and often physically and emotionally draining job of looking after the elderly. That problem will worsen as the baby boomers head into their seventies and eighties.

Since World War II, rich nations have been able to be choosy about who they granted the gift of citizenship to. Asian countries such as Japan and South Korea never bought into the ‘diversity is our strength’ narrative and have shown little interest in importing foreign labour, even on a temporary basis. (Singapore is the partial exception that proves the rule.)

The Scandinavians, especially the Danes, have long been unenthusiastic about welcoming migrants. Eastern European nations are notoriously chauvinist. The situation with Western European nations such as Germany, France, Italy and Spain is complicated. But many of the migrants found in these countries are Gastarbeiter (and their descendants) who failed to return to the ancestral homeland or individuals who turned up on, shall we say, legally dubious grounds. The UK had a modest migrant intake until Blair showed up.  

With the arguable exception of the US, even migrant-friendly nations such as Australia, New Zealand, and Canada haven’t had anything approaching open borders in recent times. Famously, Australians have been determined to decide who comes to this country and the circumstances in which they come.

I relate all this not to make any argument for or against migration and multiculturalism. I merely make the point out that for the best part of eight decades, rich nations have been more concerned about keeping foreigners out rather than inviting them to turn up en masse and make themselves comfortable.

However, given they are rapidly running out of working-age citizens, wealthy countries are having to tear down the barriers and roll out the welcome mat.

Fancy relocating to Kyoto or Kuta?
Japan closed its borders for 220 years and only reopened them in 1852 due to American gunboat diplomacy. Long after it was apparent they were running out of workers and turning into a ‘super-aged society’ the Japanese were incredibly reluctant to welcome migrants, even ones who were ethnically Japanese.

Yet even the gaijin-fearing Japanese have now had to rethink their xenophobia. Granted, Japanese politicians still have to pretend the growing number of migrants they’ve been letting into the country in recent years aren’t actually migrants but rather guest workers. But everybody knows they are unlikely to be returning to their country of origin any time soon. Breaking the habits of countless lifetimes, the Japanese have now made it much easier for foreigners to get permanent residency and, in some cases, even apply for citizenship.

Tellingly, it’s not only countries that are feeling the chill of a demographic winter that are seeking to attract foreigners. Indonesia, the world’s fourth most populous nation, recently unveiled a ‘digital nomad’ visa that will allow non-Indonesians to live in places such as Bali without having to pay any tax. At present, the digital nomad visas are only good for six months but that may end up being extended to five years.

If I didn’t have two children in school, I’d be tempted to move to Ubud myself.

It’s unlikely to be business as usual for business owners
While few of them appreciated it at the time, life has been pretty sweet for business owners in first-world nations in recent decades.

Rather than, directly or indirectly, bear the expense of training up locals, they’ve often been able to simply import workers from less-fortunate nations. Or, thanks to a combination of neoliberal economic policies and technological advances, simply export work to modern-day coolies in less-fortune nations.

With Covid in the rear-view mirror and borders reopening, many business owners in countries such as Australia appear to be operating under the assumption they can now return to the pre-pandemic way of doing things.

I suspect they are about to get an unpleasant surprise.