When big cities thrive as hubs of technology and innovation, skilled workers flock there for better opportunities—and better wages. Yet the smaller communities they leave behind grow stagnant as workers take their talent and income to bigger cities.
It’s apparent the tides are turning, however—driven largely by innovative companies building distributed workforces with remote talent. By seeking out freelancers in towns outside of major city centers, companies not only find more diverse talent, they reap the many benefits of remote work. In turn, freelancers living in smaller communities benefit from competitive, big-city rates with lower costs of living, giving them the ability to stretch their dollars—and spread them around.
It’s a positive side effect called “the multiplier effect,” and it has the potential to transform far-flung economies around the world.
What is the multiplier effect?
Whenever new income is injected into a community, it naturally leads to more local spending. This increased income, in turn, becomes someone else’s income—the local service professionals, retailers, restaurateurs, and business people operating in the community. More than just growing the economic health in regions outside big cities, this new income has another long-term effect: it creates more jobs in that area over time.
How freelancing impacts the multiplier effect
“Relocating is like an investment: You spend money up front — to cover the costs of a move and of living expenses until a job becomes available — in exchange for a better job later. But because of limited savings and access to credit, many low-skilled unemployed workers are unable to make this investment.” -Enrico Moretti, The New Geography of Jobs
When you ask talent to move to city centers, you’re taking the talent and their spending out of that town that may need it more. They leave behind local businesses and workers that rely on their income—those who are less likely to move to bigger, more expensive cities.
Instead of requiring them to move to a hub in order to find better economic opportunities, companies that hire remotely allow these individuals to stay put and earn a living—and distribute their income around their local economy. It’s like the opposite of relocation assistance because you’re virtually coming to them.
How do high-tech jobs in particular increase this effect?
“There are many people who’d welcome the higher rates a tech company could pay. Don’t be cheap, either: Offer San Francisco or New York rates, which won’t just feel generous to someone living in a less-expensive part of the country but can actually help jump-start those areas’ economies.” – Stefan Kasriel, We Need a Massive Remote Worker Hiring Spree in the American Heartland
Because high-tech incomes can be so competitive, more of it becomes dispensable. Well-paid tech professionals have the means to spend more locally with restaurants, shops, spas, fitness studios, Uber rides, and coffee shops—leading to even more prosperity in the community.
In his book The New Geography of Jobs, economist Enrico Moretti theorizes that high-paying tech jobs—those that drive innovation in society, and are difficult to phase out with automation—can create other jobs peripherally due to the multiplier effect. In fact, it’s estimated that for every direct high-tech job you fill, you could be creating up to 4.3 indirect jobs in that area.
“For each new high-tech job in a city, five additional jobs are ultimately created outside of the high-tech sector in that city, both in skilled occupations (lawyers, teachers, nurses) and in unskilled ones (waiters, hairdressers, carpenters).”
High-tech industries spur a high rate of economic activity that supports local jobs, but it’s not just limited to tech—any businesses that hire “outside of the hive” with freelancers can make an impact.
How hiring freelancers supports small, local economies around the world
“But if businesses really want to create jobs in struggling parts of America… the solution is simpler: Hire more people outside of big coastal cities. Just don’t ask them to move.” – Stefan Kasriel
It’s a win-win for everyone. You get diverse, skilled talent and have to compete less with other big companies to access quality talent. Freelancers have more flexibility in choosing where they want to live, and they get paid what they’re worth. And over time, there will be less disparity between the economies of thriving metropolises and those of growing cities.
*The Upwork SMB Survey was conducted online by Bredin, a research firm specializing in SMBs, from January 16-19, 2018, and polled 503 principals of U.S. businesses with 500 or fewer employees.
When you shift toward a distributed workforce, not only are you tapping into a huge global talent pool, you’re making a positive impact on economies around the world. Freelancing websites like Upwork give companies access to talent from states and countries across the globe—get started with your first job post today.