Is Hiring a Virtual Assistant Ethical?

posted in: Entrepreneurship | 2
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I would like thank all my weekly readers for faithfully following my blog over the past year. I will be taking a one month hiatus from writing in order to focus on some new developments in my business but will resume writing mid-April.

In the middle of the First World War, Ford Motor Company began construction of its River Rouge Complex which would grow to become the largest integrated factory complex in the world. After completion in 1928, the 93 buildings that made up the Rouge Complex boasted of their own power station, steel mill, parts fabrication, assembly line, and docks. The factory had the incredible ability to turn raw materials into finished cars and it represented the pinnacle in the prevailing business strategy of its time, vertical-integration.

As the business strategy winds shifted, manufacturers realized that other companies could actually perform certain jobs better, faster and cheaper. Why manufacture parts in-house when another firm could do the job just as well at a fraction of the cost? Why worry about managing teams of security guards, janitors and other “non-essential” workers when someone else could carry the burden? The trend in outsourcing started with ancillary needs and continued to include more and more value-added parts of the business. While companies initially outsourced to American providers, the large wage gap between developed and developing countries lured some to engage in global labor arbitrage by offshoring work to subsidiaries or local suppliers. Companies followed one another like lemmings and the law of supply and demand prevailed. Increased demand for low cost workers raised salaries negating much of the projected savings. A 2014 Boston Consulting Group report finds that manufacturing costs in China and the US are now virtually on par with one another. Now more and more companies are relocating facilities and contracting suppliers closer to their home markets (reshoring) so they react more quickly to market demands.

Solopreneurs

A condensed version of this one hundred year offshoring tale in manufacturing is playing out right now with thousands of solopreneurs across the globe. The ubiquity of technology combined with corporations’ increased demand for contract labor has birthed legions of freelancers. Research firm Edelman Berland estimates that 53MM Americans are doing some form of freelance work. That number is projected to grow from its current level at 34% of the total workforce to 50% in five short years.

Solopreneurs are one-person businesses in which the entrepreneur must manage everything from advertising to research & development. Like Ford’s famous Rouge Complex, most solopreneurs start out being vertically integrated, but increasingly they are tapping into the freelance economy themselves to free up time. Having grown up in the digital age, solopreneurs turn to technology to solve the time crunch. Sites like Zirtual.com offer US-based virtual assistants for discrete blocks of time starting at about $25/hr. In contrast, solopreneurs can find overseas virtual assistants for $2.50/hr.

Ethics & Overseas Virtual Assistants

Is it ethical to hire an overseas worker for $2.50/hr? For the answer, we will break down the question into three components: 1) Is it ethical to hire an overseas worker? 2) Is it ethical to pay a worker less than the minimum wage? 3) Is it ethical to pay a worker so little for the amount of productivity generated?

Is it ethical to hire an overseas worker?
While citizenship is on the decline, I believe that as members of our local communities, we bear a responsibility to support those communities through our time, talent and treasure. The reality is that our local communities cannot compete with the world’s ability to produce an amazing array of products and services that generally benefit society. In this globalized world, millions of Americans work for foreign companies and millions of foreigners work for American companies. I do not believe there is anything inherently wrong with hiring an overseas worker.

Is it ethical to pay a worker less than minimum wage?
Not only is it unethical to pay a worker less than minimum wage, but it is also against the law. While the federal minimum wage in the US is $7.25/hr it is $1.21/hr (P429/day) in the Philippines. $1.21/hr might seem unconscionably low by American standards, but the reality remains that the cost of living in the Philippines is much lower than in the US. Plenty of solopreneurs pay their Filipino workers around $2.50/hr, but the best workers command between $4.00-5.75/hr. As we saw with offshoring in the manufacturing sector, salaries are bound to increase, steadily eroding the opportunity for global labor arbitrage.

Is it ethical to pay a worker so little for the amount of productivity generated?
There are numerous stories on the Internet of solopreneurs who have built incredibly profitable businesses on the backs of virtual assistants. They may pay their workers in-country market rate or even pay them considerably more on a relative basis, yet there is still something that just doesn’t feel right when an entrepreneur is the only one to benefit from the profits of the business. The virtual assistants in most solopreneur businesses lack ownership in the company. Progressive corporations issue ownership in the form of stock options, but solopreneurs could issue profit sharing for their permanent virtual staff, thereby blessing them above and beyond what they have earned on an hourly basis.

I believe lopsided business models that extract value from one or more stakeholders to the benefit of a select few are by nature unethical. As more and more solopreneurs contract virtual assistants overseas, they have a tremendous opportunity to build a profitable business that benefits multiple stakeholders instead of hoarding profits exclusively for themselves.

Photo Credit: reynermedia

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2 Responses

  1. Tim Weinhold
    | Reply

    Hi Joel. I agree with your observations. But I think the questions you’ve posed are the relatively easy ones. I would love your opinion on these two harder questions: 1) Is it ethical to pay workers less than a ‘livable wage,’ regardless of the mandated minimum wage, and 2) Is it ethical for companies to fire U.S. workers so they can replace their jobs with cheaper foreign workers? Which raises, as well, this larger question: What obligations does a company have to the communities and society whose benefits — good infrastructure, services, laws, educated workers, and the like — have been critical to its success?

    • Joel
      | Reply

      Tim, thanks so much for your comment. In regards to your first question, I do not believe it is ethical for companies to pay workers less than a “livable wage.” There are two big problems that come with that statement. Firstly, what is a livable wage and secondly, can the business model operate by paying workers said wage. The first point is a matter of intense debate as you know. I don’t think it is a fixed number as the cost of living in the North East is significantly different than it is in places like the South East. Employers should be aware of the challenges their workers are facing and make accommodations to ensure they are taken care of. The second point is much more complex. On March 3, 2015 Oakland, CA raised it’s minimum wage from $9.00/hr to $12.25/hr. While I am all for workers getting paid more, it has caused a number of businesses to shut their doors. In America, we like our products and services as cheap as possible, which means that many businesses operate on razor thin margins. In many ways, it’s the customers who are to blame for demanding such cheap prices. Personally, I have no interest in operating in such industries as I believe so strongly in the importance of taking care of my workers.

      In regards to your second question concerning outsourcing work abroad, I believe that when a company sets up operations in a community (whether domestic or foreign) it has a responsibility to that community. I don’t believe it is ethical for companies to jump from community to community courting tax breaks and cheaper laborers. The reality is that we live in an incredibly competitive global market. Sometimes the health of the entire company will require relocations or shifting work from some locations to others. I don’t believe these types of decisions should be taken lightly and if a company does decide to exit a community, I believe that they should make sure they are taking care of their workers as best as they can to ensure they land on their feet.

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