Domestic offshoring: A city-by-city analysis
May 23, 2023
Throughout history, economic and political power has concentrated in key cities, hubs of business, technology, ideas, and influence that thrive as command-and-control centers of the broader economy.
Now a transformation is underway. Soaring housing costs and declining affordability are increasingly preventing low-wage earners from living in some of those cities, forcing them to find new places to live and work, and forcing companies to think harder about where work is performed.
This phenomenon, which we dub domestic offshoring and explore in a companion research note, follows a path laid by the liberalization of global trade. As barriers to trade fell, national economic advantages and disadvantages were thrown into sharp relief. Low-skilled jobs were exported and economies grew more specialized.
Now, put simply, jobs that can’t pay enough to cover the cost of housing in key U.S. cities are being moved to more affordable parts of the country while value-intensive work remains in the command-and-control cities, with pivotal executives, policymakers, and other decision-makers remaining within arm’s reach of each other.1
The increased viability of telecommuting in recent years — especially since the COVID-19 pandemic — is likely further facilitating this shift. A large number of jobs that once were anchored to an employer’s location have been rendered footloose, and many of them are now being domestically offshored to offices and homes around the country.
The result: command-and-control cities are becoming home to an increasingly distilled workforce, one focused narrowly on decision-makers and the highly paid people that surround them.
For those cities, the workforce is becoming increasingly devoid of lower-paid people who can do their work from a distance.
The transformation has socio-economic implications. Inasmuch as socio-economic status depends on living in the right place at the right time — that is, on being among people who embody opportunity at school, baseball practice, work, and happy hour, not just on Zoom — the increasingly distilled nature of America’s command-and-control cities denies opportunity to people who can’t afford to live in them.
Top executives and customer-service reps
In this report, the ADP Research Institute introduces an intuitive measure of the workforce distillation that domestic offshoring leaves behind. In a given community, we calculate the ratio of C-suite decision-makers to customer-facing workers who take orders, answer questions, and respond to complaints.2
The work of both top executives and their call center employees is remote-friendly and therefore viable virtually anywhere in the United States. But while customer-service representatives rarely make key decisions and are paid modestly — they earned a median of $45,130 in 2022 — the executives are pivotal to the organization and are paid handsomely.3 Median C-suite pay was an estimated $201,622 in 2022.4
For this study, ADPRI obtained the ratio of top executives to customer-service representatives for the nation as a whole and for 56 metros with more than 1 million residents from 2005 to 2021.5 The national ratio was normalized to 100 every year, and each metro’s ratio was reported relative to the nation’s. For example, a metro with a normalized ratio of 120 has 20 percent more top executives per customer service worker than the nation as a whole.
As of the latest reading, 25 metros scored above the national level of 100, including Washington, D.C., and New York. That means their workforces were more distilled than the nation’s, with a higher number of executives, policymakers and other top-level decision makers per customer service representative.
Thirty-one metros scored below the national level.
Most revealing, however, is the surging ratio in places that have large tech industries and have seen rapid housing price appreciation, like the San Francisco, Austin and Denver metro areas. As housing prices rose, lower-wage jobs moved elsewhere, and high-earning top executives stayed put while becoming more isolated from lower-paying roles.
A portrait of workforce distillation in America
Below we present results for individual U.S. metros. The data cover the 16-year period from 2005 to 2021, but for clarity they are presented using a 5-year trailing average. The thickness of each metro’s line reflects its sheer number of top executives.
Scroll through to see how different U.S. metros compare.
The takeaway
One might argue that in an age when anyone can access anyone else, anywhere else, opportunity is everywhere. But to the extent that opportunity still depends heavily on people and the kind of relationships that are forged in person, it still very much matters where one works and lives.
The highly distilled workforce in America’s command and control cities means that for those living elsewhere, opportunity is harder to come by.
Footnotes
1 Roles can be located somewhere more affordable as long as they produce tradable goods or services; otherwise they just become more difficult to fill.
2 The labels “C-suite executives”, “top executives” and “chief executives” correspond to Standard Occupational Classification (SOC) codes beginning with 1110, which include legislators, chief executives and managers. “Customer service representatives”, “call center employees” and the like correspond to SOC occupation code 434051.
3 According to ADP payroll data.
4 Estimates limited to employment spells that spanned 2022 in its entirety.
5 Recall that the chief executive occupation includes legislators as well as all C-suite roles, not just chief executive officers (CEOs).
