Consider This Before You Move Offshore

Consider these new statistics before choosing your offshore destination

As an economics undergrad, learning the “laws” that supposedly determine how everything works, I was keenly aware that there’s more to life than markets where buyers and sellers interact. Although I understood why economists “abstract” away from society, politics and history, I was always frustrated that the discipline I was studying left so much unexplained.

Nowhere is that more true than in labor markets. Theoretically, everyone tries to earn the highest monetary return for their working time, down to the day and hour. If we can earn more somewhere else, we move on.

But that hardly explains the way people behave in real life.

For example, people often accept a lower salary if the job offer is permanent, rather than part-time or temporary. The reason is obvious, even if economic theory can’t really explain it: Certainty has value, and constant insecurity about one’s future earnings is worth avoiding — sometimes even at the cost of lower wages.

That’s why recent news from international labor markets should be so disturbing … especially to people who want to move offshore.

Bad News for Global Labor

The International Labor Organization (ILO) recently released “World Employment and Social Outlook 2015,” its annual survey of the global workforce. It reported a shocking fact: About 75% of all workers in the world are employed on temporary or short-term contracts, in informal jobs without any contract, engaging in informal small enterprise, or doing unpaid work within their household.

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Of course, informal employment is the norm in many developing countries. But the standard argument has always been that as economies grow and strengthen, labor markets settle down and people begin to enjoy stable jobs that allow them to become regular consumers — as well as contented citizens.

The problem for the theorists of progress is that advanced economies — most notably the U.S. — are experiencing a rapid conversion of stable, long-term employment into insecure short-term and irregular work. The notion that economic development and social progress go hand in hand in an ever-upward arc increasingly looks false.

That’s not a good thing, even for those of us with steady jobs or businesses. We’re surrounded by unhappy people who don’t know where next month’s income is going to come from. They work such irregular hours that normal life processes such as child-rearing are impossible. They can’t plan for their own or their children’s educations. Their stake in our societies is evaporating … which means there is less reason over time for them to play by the rules.

Employment and income instability is compounded by the fact that as jobs become more unstable across the developing world, poverty and inequality is increasing. In fact, the two processes are closely linked. As ILO Director-General Guy Ryder puts it, “The shift we’re seeing from the traditional employment relationship to more non-standard forms of employment is in many cases associated with the rise in inequality and poverty rates in many countries.”

Expats Need to Pay Attention, Too

The ILO report got me thinking about choosing a place to move offshore. So often, overseas-lifestyle merchants tout current conditions as the reason to make a move. But what about the trajectory a country is on? Will today’s tropical paradise be as secure and welcoming in five or 10 years?

Take Mexico, for example. Long touted as the perfect haven to move offshore, especially for Americans, the country’s informal sector has risen to constitute almost 55% of the economy. In critical sectors such as construction, transport and general trade, up to 80% of employees have no job security. Tens of millions of households live day-to-day, not knowing where tomorrow’s meals will come from. That’s one of the big drivers of illegal migration to the U.S.

But job insecurity isn’t just a problem for expats in developing countries. European countries such as Spain, Italy, and of course, Greece, have seen dramatic increases in part-time employment, both among new entrants to the labor market and for people who lost good jobs during the financial crisis of 2008. That’s one reason for the electoral success of radical parties like Syriza (Greece) and Podemos (Spain). That has expat property owners, especially from Britain, deeply worried.

By contrast, countries such as Uruguay have seen gradual increases in the proportion of formally-employed workers. According to the ILO, since 2002, the number of contributors to the Uruguayan national pension scheme — an index of job formality since the contributions are payroll-deducted — has almost doubled. That’s one reason why Uruguay is an island of stability and peace in South America — a top destination to consider when choosing where to move offshore.

Take a Deeper Dive Before You Fly

In my Plan B Club, I provide a range of tools you can use to assess potential destinations to move offshore. Although not everyone has to be an economist or statistician to plan a life overseas, it’s increasingly clear that long-term personal planning requires paying attention to a country’s prospects as well as its current attractions. I’m currently working on simple ways to address this for Plan B Club members.

When and if you decide to move offshore, look beyond the pamphlets and websites with pretty white beaches and palm trees.

Make sure you consult the experts who know what lies behind those idyllic scenes as well.

Kind regards,
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Ted Baumann
Offshore and Asset Protection Editor