Here’s What It Looks Like When Americans Retire Overseas

Many Americans dream of retiring overseas, and more are packing their bags.

Whether seeking adventure, self-reinvention, or just a lower cost of living, international retirees face a unique set of money and life challenges. And paperwork.

It is unclear how many Americans actually retire abroad, but where people collect their Social Security checks provides a ballpark figure. Nearly 450,000 people received their benefits outside the U.S. at the end of 2021, up from 307,000 in 2008, according to the Social Security Administration, which says nearly half are U.S. citizens.

Once a fringe idea, retiring abroad has gone mainstream, said Kathleen Peddicord, founder of Live and Invest Overseas, which provides information on subjects including healthcare quality and the cost of living in various countries. Because many Americans living overseas have their Social Security checks deposited into U.S. bank accounts, government data likely understates the trend, she said.

The strong dollar has made many countries seem affordable, said Peddicord. Many countries have visas designed for retirees. Typically, they require applicants to disclose income and assets to prove they won’t become a financial burden. Other hurdles include leaving children and grandchildren, she added.

We spoke in depth with six retirees who relocated to France, Portugal, Spain and Costa Rica. With savings ranging from $70,000 to $1.8 million, they prove that an overseas move doesn’t require a massive nest egg. They shared insights about their spending and routines, the challenges of building a new life, and what has given them joy or anxiety along the way.

Retiring abroad took Rick Jones and Ellen Bryson two tries.

The couple moved to Buenos Aires in 2006 after realising during a vacation that they could afford to retire there despite being in their 50s at the time. They sold their Washington, D.C., apartment for about $900,000 and bought a sprawling place in Buenos Aires, where parrots perched in the trees outside their windows.

Yet the novelty eventually wore off, and while Bryson, 73 years old, was writing a novel, “I didn’t have a purpose for getting out of bed in the morning,” said Jones, now 71 and a retired Navy SEAL officer.

They returned to the U.S., but in 2016 Bryson came home from a French class with a new destination in mind: Paris.

The couple, who have no children, took two years to plan the move, selling their Norfolk, Va., home.

They joined the Association of Americans Resident Overseas and other expatriate organisations to learn about things including applying for French visas and renting an apartment. The social ties they forged “provided a support system during the pandemic,” said Bryson.

Jones sets annual goals that give him a sense of purpose. He took up the flute and regularly engages in conversation exchanges with native French speakers. To explore Paris, he and a friend walked the routes of the city’s many Metro lines, finishing each one in a day.

Bryson takes Pilates and French and is writing her third novel.

The two enjoy their local food market: the butchers who specialise in organ meats and wild game and a dairy farmer who sells unpasteurised milk that tastes like ice cream, said Jones.

Recently, he became president of WICE, a Paris-based group that connects English- and French-speaking communities. He volunteers a couple hours a day for the organisation.

The downside to living in France? Paperwork, said Jones, who reserves time every morning for forms, from tax returns to applications for driver’s licenses.

“To rent an apartment we had to put together a giant stack of forms going back years,” he said.

The couple have long-stay visas they renew annually, requiring them to show they have enough income to support themselves and to promise they won’t work for pay in France. Next year, they will qualify to apply for a visa that’s valid for 10 years.

Each month, they receive $4,300 from Social Security, about $5,000 from Jones’s military pension, and about $4,000 from a retirement account. They have no debt.

Their two-bedroom apartment with views of the Eiffel Tower costs about $3,100 a month. Under France’s national health insurance system, they pay a percentage of the cost of services. They receive supplementary coverage from the U.S. military.

Food costs about $1,100 a month, including two or three restaurant meals. Each month, they spend $375 for Bryson’s Pilates, $350 for Jones’s flute lessons and $230 for French lessons. They have budgeted around $6,500 for trips this year to Ireland and Marseille.

Jones said if either were to be diagnosed with dementia, they might move back to the U.S. to be near relatives. “We’d like to live out our days here,” he said.

Susan Wojcik, 62, fell in love with Costa Rica in 2001 on a vacation arranged by her housecleaner, a native of the country.

Wojcik and her former husband hiked near the Arenal volcano and stayed in the historic city of Alajuela. They were especially taken with a small Pacific coast beach town called Samara.

“They call Samara the black hole of happiness,” said Wojcik, a former resident of Southampton, N.Y. “If you come here and feel it, you never want to leave. I felt it.”

The couple divorced in 2015. She moved to Samara soon after, spending $235,000 of her $400,000 nest egg to buy land and build a small bed & breakfast with a pool surrounded by Hibiscus trees. She enjoyed chatting with guests over the tropical-fruit compote and cinnamon pancakes she cooked.

In 2019, Wojcik reconnected with a high school friend living in Atlanta. The two married in March 2020, just as lockdowns forced Wojcik to temporarily shut her B&B.

She was devastated when her husband, who had multiple sclerosis, died in November, 2020. In 2021, she sold the B&B and briefly moved to the U.S. to care for her ailing mother, who died that fall.

“I was just haemorrhaging money,” said Wojcik. “It was a traumatic time, but I am a resilient person. You have a choice: You can either be like, ‘Oh poor me,’ or you can think about the fact that ‘The sun rose today, my dogs are happy and we had a lovely walk on the beach.’”

Wojcik returned to Costa Rica and put the money from the sale of her business in the bank, where it earns 6% to 8% annually in interest. Her goal is to use the $70,000 that remains for emergencies.

While prices have risen, Wojcik says the $1,421 a month she receives from Social Security covers her expenses.

“I am very comfortable,” said Wojcik, who pays $700 a month for rent and utilities on a one-bedroom home and about $150 a month for food.

During tourist season, Wojcik often meets friends to listen to live music at local restaurants that charge about $15 for a meal.

Gas costs about $5.75 a gallon, but she doesn’t drive much. Wojcik recently obtained a residence permit and pays $90 a month to the public healthcare system for insurance.

Five friends from the U.S. live nearby but Wojcik has also become friends with locals. Her Spanish, at an eighth-grade level when she arrived, is now close to fluent.

Most days, she walks her dogs on the beach at dawn. She produces plays with a community theatre group she started in 2016.

The downside to living in Costa Rica is the inefficiency that can mean long lines at the bank and requirements to pay bills in person.

“If you can tolerate the red tape it’s paradise,” Wojcik said.

Matthew Coe, 60, moved to Barcelona about 13 years ago after working and traveling abroad. The former corporate lawyer worked remotely from Spain as a legal consultant, invested in local real estate, and last year started his own business.

His business, which helps international buyers find and redo homes around Barcelona, takes about 20 hours a week, on average, though some weeks he doesn’t work at all and that is the way he likes it. The job, which he expects to generate $50,000 in income this year, taps into his passion for design and brings him closer to the local community.

“I plan on never fully retiring,” he said.

He spends about $3,000 a month on food, utilities, public transportation, and other living expenses. His roughly 900-square-foot condo cost $400,000, and he pays about $1,000 a year for a private health insurance policy that he keeps in addition to the public insurance he receives through the regional Catalan government. He has no debt.

Coe, who is single with no children, grew up in eastern Washington state. His mother, who is in her 80s, and siblings still live in the U.S. Distance from family and some close friends is the part of living abroad that he finds most difficult. While video calls have made things easier, a big slice of his budget is allocated to travel—about $20,000—so he can maintain those relationships and take vacations.

If he was living in Seattle, Coe estimates his monthly expenses would be closer to $6,500 including travel and healthcare. He’d worry that the roughly $1.8 million he’s saved wouldn’t go as far, he said.

“My stress level in Spain is much lower as a result of the lower cost of living and an overall higher quality of life,” he said.

Still, he takes a conservative approach with his savings. About half of his $1.8 million is invested in certificates of deposit, short-term T-bills, money-market funds and cash. The rest is allocated to exchange-traded funds and individual company stocks.

Coe’s typical day might start with catching up on the news, then a pool swim followed by an open-air session with a personal trainer. He might head to a furniture workshop for interior design inspiration. A leisurely lunch with a friend at a neighbourhood public market, apartment viewings and a late afternoon walk might follow.

Although Coe could hold casual conversations in Spanish with local shopkeepers after six months, it took about two years before he became sufficiently fluent in Spanish to feel comfortable conducting a business negotiation. He’s currently learning Catalan.

About six years ago, Halisi Vinson and Ricardo Crawley realised their financial life needed a major change.

The wake-up call came in part after meeting with a financial adviser who told them they’d likely struggle in retirement if they didn’t boost their savings.

Vinson, now 58, and Crawley, now 67, had about $25,000 in credit-card debt and less than $50,000 saved in total for retirement at the time.

The Denver couple, who married about 20 years ago, blamed their excessive spending. They had a television in every room of their home and spent about $1,000 a month on meals out.

They thought they were doing well financially but when Vinson downloaded about three months of their credit-card statements, the couple was shocked they were spending more than they made.

They agreed to drastically cut back.

“I didn’t want to die in poverty,” said Vinson, the retired executive director of the Colorado Democratic Party.

They started buying more groceries, eating out far less and tracked their spending. They checked with each other before spending more than $100. They socked away about 60% of their income.

They eventually paid their credit-card debt and managed to increase their retirement savings to about $300,000—all in about six years.

They have six adult children between them and since most of them have moved away from Denver, the couple no longer felt anchored there.

Ricardo Crawley and Halisi Vinson in their studio, where they record their YouTube channel. Since moving to Lisbon, they say they’ve cut their spending and enjoyed a slower pace of life. MATILDE VIEGAS FOR THE WALL STREET JOURNAL

After speaking to other Americans who had moved abroad and a one-month visit, the couple decided to move to Portugal. They enjoyed its slower pace and the 75-cent espresso, Crawley said.

They rented their Denver home to two of their adult children, making a profit of about $100 a month. They break even on the Los Angeles apartment they purchased about two years ago and rent to Vinson’s mother.

They have roughly $600,000 in mortgage debt. They eventually plan to rent both residences out at market rent, which will net them about $1,000 a month in total.

Crawley receives about $2,700 in Social Security. Vinson plans to take Social Security as soon as she’s able.

Living in Lisbon has helped them further trim spending. Expenses including rent and dining out run about $2,600 a month, about half what they’d expect to spend in the U.S.

They both feel at peace no longer constantly worrying about money. They enjoy hours-long, low-cost meals at local cafes with new friends, exploring Portugal or creating videos for their YouTube channel, which encourages other Black Americans to move abroad for a lower cost of living.

—Design by Andrew Levinson.

The property unicorn in south western Sydney

In a city like Sydney, finding the right property is about more than the price tag. For extended families looking to accommodate multiple generations under one roof, there’s a list of criteria that need to be met, from the number of bedrooms and car spaces to accessibility to the city.

This property at 29 Nicoll Street in Roselands makes it look easy.

Set over three levels, including a basement with parking for six cars, the five-bedroom, three-bathroom house is positioned on a 565sqm block. Carefully crafted to draw in northern light through both floors while maintaining privacy from the neighbours, the house has an internal courtyard at its heart, as well as a built-in saltwater pool with party lighting at the rear.

Four bedrooms, including a spacious parents’ retreat, are spread across the upper floor, while a fifth secondary master suite near the front door on the ground floor is ideal for in-law accommodation or adult children. Hybrid workers will love the spacious bedroom on the upper floor with a view of the street that could easily be converted to a home office.

Everything about this home has been considered, from the well-appointed kitchen with walk-in pantry in the open plan living area to the integrated lighting on the staircase. Finishes are stylish but neutral, making it ideal for would-be buyers to put their own stamp on.

While the house sits on a tree-lined street, it is well connected to the main thoroughfares of King Georges and Canterbury Roads. The recently upgraded Roselands Shopping Centre is also nearby, as well as Canterbury and Bexley golf clubs.

 

Address: 29 Nicoll Street, Roselands

Auction: Saturday June 10, 9.30am

Price guide: $2.7 million

Next inspection: Saturday May 20, 12.30pm-1pm

Agent: Danny Hassen, The Agency, dannyhassen@theagency.com.au 0458858588

Why Employees Hate Hot-Desking

Hot-desking has some issues to work out.

With nearly half of the pre pandemic office population in some major U.S. cities working remotely on any given day, hot-desking—where employees don’t have assigned desks but grab an empty one on days they come into the office—seems like a cost-saving no-brainer. The Gensler Research Institute’s 2022 U.S. Workplace Survey found that 19% of the office workers who responded had unassigned workspaces, compared with 10% in 2020.

There’s just one problem: Many employees hate it. They complain about the nuisance of having to hunt for a workspace every day they’re in the office, not being able to find a station that suits their needs, and no longer having a permanent space that they can personalise. Collaboration is harder, they say, and they feel less connected to their colleagues.

“The recurring labor, anxiety and rootlessness associated with hot-desking were emotionally and physically exhausting,” Manju Adikesavan, a Ph.D. candidate in environmental psychology at the City University of New York Graduate Center, wrote in a recently published paper. “Carrying work materials from place to place in campus buildings that were my workplaces made me feel like a visitor rather than a member of an academic community.”

The good news for companies is that it doesn’t have to be this way. For one thing, some people appreciate the opportunity to use a variety of workspaces and to engage with a broader range of colleagues. And research reveals that there are ways to minimise, and even eliminate, the negatives of hot-desking.

“It’s important for leaders and workers to understand that this style of working is a mind-set, that if done right, it can offer a lot of freedom,” says Christhina Candido, an associate professor of environmental and sustainable design at the University of Melbourne and a researcher of high-performance workplaces.

Feeling adrift

Unfortunately, in the rush to cope with the rise of remote work, many companies have implemented hot-desking without a lot of thought.

On one level, the problems with hot-desking are logistical. A review of 23 papers that looked at hot-desking in the past two decades was published in March in the Journal of Environmental Psychology. It observed that employees often found it impossible to locate the right kind of workstation for their needs—a cubicle with two monitors, perhaps, or a quiet standing desk, or a huddle room with a whiteboard, says Jennifer Veitch, a principal research officer at the National Research Council of Canada’s Construction Research Centre and co-author of the study.

Issues like these are more than just a personal annoyance, the study showed. Hot-deskers also often had difficulty finding colleagues with whom they wanted to collaborate, Dr. Veitch says. And managers often found it more difficult to manage their team because they weren’t always close to one another.

“The evidence does not show that more collaboration takes place when you throw people together in a soup of random desks,” Dr. Veitch says. “Yes, a lot of conversation might happen, but not all of that is helpful to the organisation.”

The lack of control was also an issue for some employees in the study—the inability to control social interactions and to always find the quiet spaces that workers needed to concentrate, Dr. Veitch says.

Then there is the difficulty of adjusting your workspace to suit your preferences when you’re not rooted in a given spot. “The challenge is that we are territorial people,” says Dr. Candido. “We like to have our photos up, our coffee mug out.”

Some workers have sought to reclaim that sense of personal space—undermining the whole concept of hot-desking in the process. David Courpasson, a professor of sociology and ethnography at Emlyon Business School in Lyon, France, recently researched a Belgian organisation whose workers practiced what he calls “objectal resistance” by unofficially strategizing collective ways to preserve a sense of ownership of their hot desks.

“We observed that many had decided to reappropriate desks by leaving personal items out—photos, stickers, bags, even crumbs from previous lunches,” Dr. Courpasson says of the research he conducted with Laurent Taskin, a professor of human resources and organisation studies at the Louvain School of Management in Belgium. The resistance wasn’t organized, he says, but it was discussed among employees. “Dissatisfaction was shared here and there, in corridor chats or during lunches and breaks,” he says.

There was similar resistance higher in the ranks as well. “Even leaders weren’t following the strict guidelines of the flex office process,” Dr. Courpasson says. Eventually, some team leaders gave in and allowed a bit of personalisation of shared workspaces, an approach the entire organisation now tolerates, says the professor.

A longer workday

Some hot-deskers complain about the time wasted seeking a workspace that suits their needs, and say the ways they address that problem have altered their work schedules and eaten into their personal time.

In her 2022 study, Ms. Adikesavan, the Ph.D. candidate, looked at doctoral students hot-desking on a U.S. university campus. She found that they often arrived early or worked late, when their office was less crowded, to avoid competing with colleagues for suitable workspaces. They also often wound up working well outside of the usual 9-to-5 hours in subscription-based co-working spaces, for which they weren’t reimbursed, as they tried to meet research or presentation deadlines, Ms. Adikesavan says.

Eva Bergsten, who has a doctorate in environmental and occupational medicine and is a research specialist at the University of Gavlë in Sweden, found similar problems in a study she recently published of companies that switched to hot-desking. Some employees she surveyed said that setup time stole precious work hours. “Not being able to change workplaces within the office smoothly—due to the wrong computer equipment or when the technology did not work optimally—was also a concern and very annoying,” and it made employees’ in-office time less productive, she says.

As with other logistical issues, these problems aren’t just personal irritations. A 2019 study by Annu Haapakangas, a chief researcher at the Finnish Institute of Occupational Health, found that the difficulty of locating colleagues in a hot-desking office damaged communication and the formation of communities.

The move to hot-desking, Dr. Haapakangas says, “may also increase perceived work demands, at least in the short term,” because less contact with colleagues and a weaker sense of community could create stress that leads people to feel that their work is more demanding than they previously thought.

All these problems for workers can become serious issues for their employers. Dr. Candido says dissatisfied workers who don’t feel supported in the office are more likely to leave an organization, and the costs of replacing talent can outweigh the cost-saving measures that hot-desking can provide.

Dr. Veitch says that kind of cost calculation isn’t always clear to a company’s leaders. “There is definitely a challenge between the human-resources people and the facilities-management people,” she says. “They may both report to the CFO, but the CFO might not be seeing the relationship between the cost to the building and the cost to the people in it. You can wind up with a real recruitment and retention problem.”

Making it work

However, research also suggests that hot-desking doesn’t have to be a disaster for employees. Some companies have adapted the basic model of hot-desking in ways that employees find attractive.

“I have seen success stories,” says Dr. Veitch. “The introduction of ‘neighbourhoods’ where people still have to move around but they become ‘natives’ to a home base area, as opposed to a desk, can work.”

So-called hoteling is another common solution that takes some of the day-to-day stress out of having to find a workspace: Employees book a specific space ahead of time, making it more likely that they can find the properly equipped workstation they need and eliminating the wasted time of searching for a spot upon arrival at the office.

Research also has found benefits from providing a mix of spaces with different ambiences, including some with privacy. Leroy Gonsalves, an assistant professor of management and organisations at the Questrom School of Business at Boston University, studied a big company that went from assigned cubicles to a mix of workspaces—quiet areas with high partitions, noisier open cafes, spaces for small meetings and conference rooms, in addition to hot desks. Workers’ control over their interactions with each other substantially increased, which they liked, the study found.

“People in our survey said that, if they sit with their team, colleagues come up to them constantly,” Dr. Gonsalves says. “But in an environment with hot desks and other variations—a library, a cafe-like setting, little cubicles—you can be social or you can intentionally hide away.”

“It gave employees agency to avoid unwanted interruptions while balancing individual tasks with professional obligations,” he says. “Employees felt that their productivity was judged less by time spent being seen, and more on their work outputs in the new office space. It seemed to work well.”

Carlos Martinez, a principal in Gensler’s New York office and creative director of the architectural firm’s Northeast region, says that nearly every corporate project he is working on incorporates hoteling and a mix of workspaces similar to the variety at the company Dr. Gonsalves studied. Cubicles for private phone calls, spaces for quiet concentration, large socialising areas and even outdoor space are common, he says. It’s important for these design elements to be specific to the needs of employees at each company, not based on a preset pattern, he says. “For a long time, the workplace was homogeneous,” Mr. Martinez says. “Now it’s very specific. One size does not fit all.”

Other research suggests the importance of setting up office rules around touchy issues such as cleanliness and quiet areas. Ms. Adikesavan’s research notes the value of providing lockers for employees to store items essential to their work where clean-desk policies are in place.

Management’s role

To get employees to buy into such a setup and come into the office with enthusiasm, companies need to first listen to workers and get their input on creating offices that fit their needs, says Dr. Bergsten of the University of Gavlë. Her 2021 study found that the more workers participated in activities that explained the change process, the higher their overall satisfaction.

Managers’ attitudes also are important, Dr. Bergsten says. In another recent study, she found that workers who perceived their leadership to be change-oriented and supportive of their employees during the transition to hot-desking were more productive after the change than those who didn’t feel that was the case. “Managers should be positive promoters” of this new way of working, she says.

Dr. Candido’s research similarly suggests the importance of company leadership in making hot-desking work. “You can’t be talking about sharing a space and then the manager is always working from the conference room,” the researcher says. “Top to bottom must embrace and engage or it just feels like a cost-saving exercise, which workers will notice.”

What she sees in the research on the topic, she says, is that if unassigned space is well designed and well managed, people will naturally organise at a group level and create a successful workplace. “If you want quiet, go there. If you want to have a coffee with colleagues, go there, etc.,” she says. “It becomes part of the office culture.”

Why Wealthy Homebuyers Are Flocking to Puerto Rico

In the weeks before real-estate agent Wanda Ithier’s client bought a $40 million house on the Caribbean island of Puerto Rico in March 2022, the sale price was a moving target.

The 13,560-square-foot custom home—located in the Dorado Beach Resort, about 25 miles west of Puerto Rico’s 500-year-old capital city of San Juan—first hit the market for $29.95 million in November 2021, according to Zillow. Amid a market run-up, the price jumped to $34.5 million a few weeks later, and Ithier said it rose higher still during the negotiations that followed. She said her client ultimately agreed to pay $40 million the following March, more than 33% above the original asking price, setting a record for the island.

The deal reflects the fevered pitch of Puerto Rico’s luxury housing market, where favourable tax policies and a Covid era second-home frenzy have opened the floodgates for wealthy home buyers. The buyer of the $40 million home was Wright Wesley Thurston, a crypto entrepreneur, and the seller was investor Jason Moore, records show. “He wanted it,” said Ithier, who represented Thurston with Betty Martinez of Betty Martinez Real Estate. “It was a unique property.” Set on about 1.4 acres, the house has an interior courtyard, an 85-foot-long pool and a 30,000-gallon koi pond, according to marketing materials. Neither Thurston nor Moore responded to requests for comment.

Despite a brief market correction at the end of 2022, Puerto Rico’s luxury housing market is booming, and investors and developers are rushing to capitalise on the desire for high-end homes. Located about 2½ hours southeast of Miami by air, Puerto Rico is known for year-round warm weather and historic areas like Old San Juan, along with beaches, mountains and rainforests. For years, the U.S. territory has also grappled with population decline, a weak economy and infrastructure woes. But wealthy home buyers have been flocking to the island since Covid, boosting sales volume and prices, local real-estate agents said.

In Dorado Beach, a wealthy enclave on the north shore of the island, the median sale price for homes priced above $1 million nearly doubled to $6.2 million in 2022, up from $3.4 million in 2021, according to Sotheby’s International Realty. Prices are also up in other areas, including Condado, an oceanfront neighbourhood of San Juan, Bahia Beach, on the island’s northeast coast, and Palmas del Mar in the southeast.

Local real-estate agents said much of the market surge is rooted in tax incentives, known as Act 60, that are available to individuals and corporations that relocate to Puerto Rico. Individuals who make their primary residence in Puerto Rico by spending at least 183 days a year on the island don’t pay federal income taxes on income sourced in Puerto Rico, according to the tax code. Since 2019, there has also been a requirement that anyone receiving the tax incentives must own a home on the island, which local agents said caused the buyer pool to swell. During Covid, Puerto Rico’s warm climate coupled with the adoption of remote work and Puerto Rico’s low cost of living accelerated the trend of wealthy individuals buying primary and vacation homes on the island.

At the top end of the market, the island’s real-estate growth spurt has played out in a series of mega deals, including Thurston’s $40 million purchase. In December 2022, hedge-funder Glen Scheinberg paid $37 million for a 10,250-square-foot home in the East Beach area of Dorado Beach Resort, two years after the home sold for $18.995 million, according to the local MLS and property records. It couldn’t be determined if Thurston or Scheinberg have been granted the tax-exempt status. Scheinberg declined to comment.

In March 2021, Sean Lonergan, founder and CEO of PruGen Pharmaceuticals, and his wife, Michelle Lonergan, sold a custom-built home in East Beach for $30 million, according to the local MLS. The buyer was Dan Morehead, founder of Pantera Capital, according to records and people familiar with the deal. It couldn’t be determined if Morehead has been granted the tax-exempt status. He and the Lonergans—who did claim the benefit, records show—didn’t respond to requests for comment.

The deals aren’t an anomaly, said Oriana Juvelier of Sotheby’s International Realty, who was involved in the $18.995 million sale in 2020. She said that following Hurricane Maria in 2017, opportunistic investors snapped up distressed properties in Puerto Rico. Momentum in the housing market was building when Covid hit, and the luxury sector “just exploded.”

Tax incentives introduced by Puerto Rico in 2012 were designed to spur economic growth. With a population of approximately 3.2 million as of July 2022, some 40% of Puerto Rico’s residents live in poverty and the median income is just under $22,000, according to the U.S. Census Bureau. Eleven years ago when the incentives were approved, 44.9% of Puerto Rico’s residents lived in poverty, when the median household income was $19,429, census data show.

Under Act 60, the name given to the incentive programs in 2019, eligible businesses pay a 4% corporate tax on services exported from Puerto Rico, said Raul Vidal y Sepulveda, an attorney who advises individuals and companies on tax incentives. Companies with revenue of $3 million or more must employ at least one full-time employee locally, he said. Individuals granted Act 60 benefits don’t pay federal income tax on income sourced in Puerto Rico and they also are exempt from paying Puerto Rico income taxes on interest, dividend income and certain capital gains. To qualify, individuals must live primarily in Puerto Rico, they must own a home there within two years of being granted tax-exempt status, and they must annually donate at least $10,000 to local charity.

After several years of steady growth, the number of individuals granted tax-exempt status under Act 60 jumped from 514 in 2019 to 714 in 2020 and 1,238 in 2021, according to data from Puerto Rico’s Department of Economic Development and Commerce. The number dropped to 721 in 2022, which Vidal y Sepulveda attributes largely to a crash in the crypto market. Cryto entrepreneurs and investors, he said, flocked to the island for Act 60 capital gains benefits when the virtual currency was hitting its peak.

Peter Bazeli, a principal at Weitzman, a residential and hospitality development consulting firm, said Puerto Rico’s tax benefits transformed it from a place people wanted to visit to a destination for wealthy home buyers with the flexibility to move their businesses, including hedge-funders, crypto investors, and other entrepreneurs. He said the movement began in 2012 and was a “slow burn” that skyrocketed in 2020 thanks to Covid and massive wealth generated in the stock market.

“Part of the appeal was you could move to Puerto Rico, save on taxes, have an incredible lifestyle and generally spend less than what you’d spend on a comparable place in Miami or other resort destinations,” he said. “It created this almost club of high-net worth households that have chosen to establish residence in Puerto Rico.”

Crypto investor Michael Terpin was an early mover. He relocated to Puerto Rico from Nevada in 2016 to take advantage of the tax benefits. “I look at this as a 20-year play,” he said. “How much in taxes will I save over 20 years?”

Gil Stose for The Wall Street Journal

Terpin said since he arrived, a crypto community has formed in Puerto Rico, and he has more friends there than he does in Nevada or Florida, where he also owns homes. In Puerto Rico, he’s fixed up two properties, a condo in San Juan’s Miramar neighbourhood and a house in the Beverly Hills district of Guaynabo, a suburb of San Juan. He said he paid $280,000 for the condo, which is now worth $2.5 million. He paid $700,000 for the house, which is now worth $6 million to $7 million.

Christian Mickelsen, a business coach, author and investor who moved to Puerto Rico from San Diego, Calif., in 2018, didn’t expect to like living on the island as much as he does. He came for the tax benefits, but said he found ample networking and business opportunities along with tropical weather, restaurants, nightlife and water sports. He lives in the Dorado Beach Resort, where he drives around on a golf cart and can order room service.

“Living in California, and paying more than half the money I make in taxes, that was pretty rough,” he said.

Mickelsen also began investing in real estate as the housing market shot up. After buying a five-bedroom home for $3.375 million in 2018, he sold the property for $5 million in 2020. He later purchased two three-bedroom condos in Dorado Beach for $3.6 million and $6.9 million. Both are on the market, for $10.997 million and $15.997 million, respectively, and Mickelsen said he’ll keep whichever doesn’t sell first.

Other aspirational sellers are testing the waters. In February, entrepreneur Christopher Harding listed a 5,600-square-foot house at the Dorado Beach Ritz-Carlton Reserve for $44.95 million. Harding bought the four-bedroom home, with covered patios and an outdoor kitchen, for $10 million in 2020, records show.

Tip Powers, who sold a real-estate company in Virginia and moved full time to Puerto Rico in 2015, has listed a newly-built home in the Dorado Beach Resort for $35.9 million. Powers said he bought the property for $1.6 million in 2018 and demolished an existing home on the site before building a roughly 14,700-square-foot house for himself. Construction took several years and was complete in 2022, by which time Powers said two of his children graduated college and no longer lived at home and two others were halfway done with high school in Puerto Rico. Powers, who lives near Condado, said he plans to stay in Puerto Rico but it no longer makes sense to have a large home in the Dorado area.

Based on other homes on the market, Powers said his home, which has panoramic views of the ocean, is a relative bargain. He also said the appetite for finished homes in Puerto Rico is high. “In this price range, they don’t want a fixer-upper,” he said.

Following a long development drought, Juvelier of Sotheby’s said local builders and some from the mainland U.S. are racing to construct new homes, which are selling at price points Puerto Rico never experienced previously. In San Juan, for example, she estimated there are more than a dozen condominium projects in various stages of development. “The last construction boom here was in the 1970s and 1980s and the real estate reflects that,” she said.

Blanca Hebé López-Pierluisi of Corcoran Puerto Rico said she is marketing several new condos, including the Vanderbilt Residences in San Juan’s Condado neighborhood. The 66-unit oceanfront condominium has 25,000 square feet of amenity space and is being developed by Paulson & Co., hedge-funder John Paulson’s family office.

Prices at the 250-foot tower start at $4 million for residences with city views and $6.2 million for homes with ocean views, López-Pierluisi said, and a roughly 7,380-square-foot oceanfront residence with a nearly 4,200-square-foot terrace is available for $12.5 million. She said the building is over 55% committed without advertising beyond a whisper campaign to friends and family. Closings are set to begin in December 2024.

López-Pierluisi said she is marketing The Icon, also in Condado, a 30-unit boutique condominium with prices ranging from $1.2 million for a two-bedroom to $8 million for a four-bedroom penthouse. The developer is RioBlanco Capital, a Puerto Rico-based private-equity firm.

Local real-estate agents said the priciest homes are still found in the Dorado Beach Resort, a 1,400-acre master-planned community on the north side of the island that was originally developed by Laurance Rockefeller, son of John D. Rockefeller Jr. Laurance Rockefeller was an active conservationist who purchased land throughout the U.S. Virgin Islands. In the 1950s, he bought about 5,000 acres on St. John, and turned it over to the U.S. government to create a national park, according to the National Park Service.

In Puerto Rico, Rockefeller’s resort opened in 1958, according to the resort’s website. The community is anchored by a Ritz-Carlton Reserve hotel that opened in 2012, and it has a clubhouse, multiple golf courses, nature trails, restaurants and Ritz-branded residences.

Sales within the resort jumped from $334 million in 2020 to $568 million in 2021 before falling to $497 million in 2022, said Federico Stubbe, Jr., CEO of PRISA Group, the resort’s co-owner and developer. Despite the 2022 dip, he said PRISA has a robust list of people waiting for new homes in development. PRISA has 29 units for sale out of 169 homes in various stages of construction and development. One project in the pipeline is La Cala, a collection of 14 single-family beachfront homes with prices starting around $30 million. PRISA’s West Point III condominium is a new Ritz-branded building with 10 units, priced between $9 million and $18 million. Stubbe said PRISA launched sales in March and currently has five units under contract.

“I wouldn’t say it’s happened overnight,” said Stubbe, whose family has been developing in Puerto Rico for over 35 years. “The pandemic certainly fast-tracked it a little bit. But this has been a long time coming.”

Still, luxury home-building comes with challenges on an island where construction materials must be imported and labor is in short supply. The island’s electrical system was decimated in Hurricane Maria in 2017 and despite the privatisation of the power grid, there have been persistent outages.

Stubbe said PRISA has invested heavily in infrastructure in and around the resort, including a 107-bed hospital that opened last year as well as backup generators and a water system to compensate for the island’s inconsistent utilities. Luxury homes are generally being built today like bunkers with hurricane-rated windows, generators and cisterns.

Nonetheless, the contrast between the have and have-nots and the influx of wealthy newcomers has fostered resentment among locals, especially those who oppose the tax break, said Nicole Alvarez, an organiser of Abolish Act 60, a grass-roots campaign. Alvarez said the tax break inherently penalises hardworking Puerto Ricans. “While they get infinite tax breaks, we’re handed the shorter end of the stick,” she said, adding that few individuals who relocate to Puerto Rico and claim Act 60 benefits hire local employees.

State Sen. María de Lourdes Santiago Negrón, who proposed legislation in 2021 to repeal the tax incentive for individuals, said the policy has led to gentrification in Puerto Rico. One example is in Puerta de Tierra in San Juan, where investors have purchased about 30 buildings, she said. “It has become an Airbnb corridor,” she said. Santiago Negrón said the benefits of the tax incentive don’t outweigh the negatives. “Some things you just can’t put a price on, like the disappearance of decent housing for Puerto Ricans,” she said.

Mickelsen, the business coach and author, said when he first moved to Puerto Rico, he was worried about locals resenting his presence, but said his fears were unfounded among those he’s met. “Most people are really friendly,” he said.

In recent months, local real-estate agents said the pace of deals has slowed compared with 2022 not only because of economic problems, including interest rates, inflation, stock volatility and lower crypto values, but also because there is a lack of inventory. Meanwhile, agents say the appetite for luxury homes is still strong.

“We’re catching up to demand,” said Stubbe, who said there has been no slowdown with regard to new home sales.

López-Pierluisi of Corcoran said the spring market is stronger than she anticipated, likely because many people who moved to Puerto Rico to take advantage of the tax incentives are coming up on the deadline to purchase real estate.

Despite fluctuations in the market for properties between $2 million to $8 million, there is scant inventory for ultraluxury homes, said real-estate agent Karla Barrera-Morstad of Island&Key, the listing agent for the $40 million home last year. “There’s still a scarcity of big turn-key new construction homes,” she said. “When you start talking about homes with over 10,000 square feet or an ocean view, there’s really not much.”

Tourism Recovery Helps Japan Grow in First Quarter

TOKYO—Japan’s economy showed a bigger-than-expected upswing in the first quarter, helped by a recovery in tourism that offset sluggishness in some leading economies.

Japan has just begun to benefit from post pandemic pent-up demand of the kind the U.S. experienced more than a year ago. Tokyo waited until last October to remove border controls for overseas tourists and lifted restrictions on big events earlier this year.

The world’s third-largest economy after the U.S. and China expanded 0.4% in the three months to March from the previous quarter, government data showed Wednesday, slightly above forecasts.

The Japanese economy grew at an annualised rate of 1.6%, outpacing 1.1% growth for the same quarter in the U.S., where high inflation and rising interest rates hit consumers. In China, another top market for Japanese-made goods, recent economic indicators such as the youth unemployment rate and retail sales have pointed to a sluggish recovery.

Economists say the main growth driver in Japan remains domestic demand. Spending is likely to pick up further after recent wage negotiations resulted in the biggest pay increase in three decades. The pace of inflation has slowed recently thanks to the government’s measures to ease the impact of higher energy prices and declines in import prices.

Overall consumer prices in Japan rose 3.2% from a year earlier in March, compared with 4.9% inflation in the U.S. in April.

In the January-March period, private consumption in Japan increased 0.6% from the previous quarter. Government travel subsidies boosted spending on hotels and restaurants.

Economy Minister Shigeyuki Goto said the economy would likely continue a modest recovery, supported by higher wages and corporate investment.

“We will realise sustainable economic growth led by private demand,” he said.

In another positive sign, the number of foreign tourists is quickly approaching the pre pandemic level, and those tourists are spending more than they did before the pandemic.

Spending per international visitor in the January-March quarter was ¥212,000, equivalent to $1,553. That was 44% more than the average visitor spent in the same period in 2019, according to the Japan Tourism Agency.

While domestic spending is likely to stay healthy this summer, the risk of slower growth in the U.S., China and elsewhere looms over the Japanese economy.

“Goods exports and production will struggle so long as the global economy flirts with recession,” said Stefan Angrick, an economist at Moody’s Analytics.

Japan’s exports dropped 4.2% in the first quarter from the one before it due to slowing growth abroad triggered by monetary tightening in the U.S. and other countries as well as weaker chip demand.

Venice Biennale to Spotlight Architects from Africa and the African Diaspora

The 18th edition of Venice Biennale di Architettura, dubbed The Laboratory of the Future, is set to kick off Saturday in the Italian city. This year, for the first time, the event will showcase sustainable designs from architects from Africa and the African diaspora.

Titled Guests of the Future, the exhibition’s theme is decolonization and decarbonization, and will highlight projects that have found architectural solutions for issues ranging from sustainable materials to housing issues to erased histories, according to the Ford Foundation, which, along with Bloomberg Philanthropies, is supporting the architects’ international travel to the event.

“As is the case with many elite gatherings and institutions, access to entry has been high, leaving a diverse pool of talent from displaying their expertise, and we’re hoping this will help open doors for other innovators in architecture and design from all backgrounds well into the future,” the Ford Foundation said in a statement.

This year’s Biennale, which runs through November, is curated by Ghanaian-Scottish architect, professor and novelist Lesley Lokko, who is also the founder of the African Futures Institute, established in Accra, Ghana.

“New technologies continuously appear and disappear giving us unfiltered glimpses of life in parts of the globe we will likely never visit, much less understand,” Lokko said in a statement on the event’s website. “In Europe we speak of minorities and diversity, but the truth is that the West’s minorities are the global majority; diversity is our norm. There is one place on this planet where all these questions of equity, race, hope and fear converge and coalesce. Africa.”

More than 20 projects were selected from across the continent, as well as locations from France to Fez, Morocco—the majority of which were developed by an individual or a team with five people or fewer, according to organizers.

That includes Nzinga Biegueng Mboup, a Senegalese-based architect who worked with Adjaye Associates for three years. She is now collaborating with Elementerre, a construction company specializing in local and 100% recyclable building materials, such raw earth and plants, that require less energy to create and are more suitable for hot climates.

Or the woman-owned, New York City-based Riff Studio. Its three-person team combines backgrounds outside of traditional design practice: building construction, historical research, and architectural pedagogy, respectively. “Our designs are riffs produced from dialogues between these distinct realms, as we contemplate the future of housing,” according to the firm’s website.

There’s also MOE + Art Architecture: a Nigerian firm “that is emerging as one of the leading design houses in Africa for their work to redefine African modernism,” and Cartografia Negra, “a collective based in Brazil that is working to reposition places in Sao Paolo that were used for the execution, sale, torture, and execution of enslaved people,” according to the Ford Foundation.

What it takes to be considered wealthy in Australia

The amount of money needed to be among Australia’s top one percent has doubled over the past two years, a new report has revealed.

The Wealth Report 2023 released by Knight Frank today shows that to be amongst those in the country’s high net worth individuals in 2023, Australians require a minimum of US$5.5m, up from US$2.8m in 2021. The findings place Australia in third place, beyond Monaco and Switzerland in terms of the money required to be considered among the wealthiest in the country, up from seventh position just two years ago.

Based on current trends, that figure is set to rise significantly over the next five years, the report said, with the number of high net worth individuals set to rise by 71.1 percent and ultra high net worth individuals increasing by 40.9 percent.

To be counted among ultra high net worth individuals, according to Knight Frank, would require net wealth exceeding US$30m.

Knight Frank’s head of residential research Australia, Michelle Ciesielski property was a key driver of wealth in Australia.

“A large contributor to the top one percent wealth level doubling in Australia over the past two years has been prime residential property performance recording an upward trajectory, resilient despite the rising cost of finance, as we know 49 percent of this cohort tend to be cash buyers,” she said.  “On average, the (ultra high net worth) UHNW population in Australia owns 2.9 homes, or equivalent to 36 percent of their total wealth is in primary and secondary homes.”

Ms Ciesielski cautioned that with more Australians struggling to get a foot on the property ladder and increasing attention on sustainability, assets held by high net worth individuals may come under greater scrutiny.

“It’s notable that the ongoing inequality of global wealth could see a greater focus on this group – particularly in terms of greater taxation on assets to support government spending throughout the pandemic, and even emissions as countries seek to develop sustainable strategies for the environment and society.” 

Travel is still on the table, despite cost of living pressures

Australians are prioritising spending on travel and accommodation despite cost of living pressures, a new report from CommBank iQ has just found.

The Cost of Living Insights Report reveals that Australians are prepared to cut back on everyday expenditure to direct their available funds to experiences that they missed out on during COVID.

Author of the report and head of innovation and analytics at CommBank iQ, Wade Tubman, said the results were a little surprising.

“Putting our expenditure under the microscope shows we’re responding to the increased cost of living in diverse and sometimes unexpected ways” Mr Tubman said. 

“What we’re seeing is a continued COVID rebound effect, with consumers catching up on the experiences that they missed out on during the pandemic. 

“It seems counter-intuitive that at a time of increased cost of living pressures, consumers are choosing to boost their discretionary spending.”

CommBank iQ is a joint venture between Commonwealth Bank of Australia and data science and artificial intelligence company Quantium, which uses aggregated and de-identified payments data from seven million CBA customers – Australia’s largest consumer payments data set – to track spending trends.

The report found cost of living playing out differently across age groups, with spending among Australians over the age of 35 almost double that of those under that age. Cost of living pressures were also most acutely felt by renters, rather than homeowners and mortgage holders.

“Our Cost of Living Pressure Indicator shows renters are experiencing more pressure than homeowners in general,” Mr Tubman said. “Despite the increased financial burden on some mortgage holders, a little under half of all homeowners are mortgage-free and a third of those with a mortgage have savings buffers of two years or more.”

Prestige house values fall in regional centres

Properties on the NSW far north coast have lost almost half the value they gained during the pandemic, CoreLogic results show.

The property data provider’s Regional Market Update has revealed a fall of -24.2 percent in the Richmond-Tweed region, which takes in regional prestige markets including Byron Bay, Bangalow and Brunswick Heads, over the year to April. During COVID, prices in the region rose by 51 percent. The Richmond-Tweed also saw the greatest rates of vendor discounting at -7.9 percent and the biggest fall in annual sales activity at -39.9 percent.

CoreLogic noted that following the surge in values during the pandemic, where working remotely became normalised and buyers sought refuge in regional areas, the area had experienced severe flooding, as well as the impacts of rising costs of living.

Southern regions of NSW also took a hit, with house values falling in the Southern Highlands by -16 percent and the Illawarra by -13.7 percent. The Southern Highlands also recorded the longest time to sell on the market at a median of 79 days.

CoreLogic Australia economist Kaytlin Ezzy said the results were not surprising.

 “Over the past year, premium lifestyle markets have been hardest hit by softer market conditions and rate increases,” she said. 

“These markets were among the largest beneficiaries of regional migration through the COVID-induced upswing and, as a result, became significantly more sensitive to the rising cost of debt and the normalisation in regional migration trends.” 

However, not all regional prestige markets experienced the same downturn in values. The south east region in South Australia, including Kangaroo Island, the Fleurieu Peninsula and the Limestone Coast saw values increase by 10.8 percent over the year to April.

There was less volatility recorded in more affordable regional areas, with mild declines recorded.

“Despite two interest rate rises over the first few months of the year, these markets offer relative affordability, have low listing levels, increased regional migration inflows and strong economic activity off the back of mining, agriculture and tourism. This has all helped support mild value growth,” Ms Ezzy said. 

“Values are influenced by more than just interest rates, such as stock levels, migration, local economic factors and an improvement in consumer sentiment, which are helping to stabilise values across some regional markets.” 

 

Why Remote Work Could Lead to Less Innovation

Do chance encounters among employees of different Silicon Valley companies in coffee shops, restaurants and other public places lead to innovation? The answer is yes, say researchers who examined such “knowledge spillovers” in a study that may have implications for today’s work-from-home culture.

The researchers—Keith Chen of the University of California, Los Angeles, and David Atkin and Anton Popov of the Massachusetts Institute of Technology—tracked the locations of 425,000 phones using commercially available cellphone-location data. Though the data is anonymous and linked only to the unique ID number of each phone, the researchers surmised where the phone owners worked by looking at where the phones spent large parts of the workday, using a map of buildings occupied by Silicon Valley companies that have filed patents.

Examining instances where phone owners went outside the office and ended up near someone from another Silicon Valley company, they found 218 million episodes in which two workers from different companies were in the same place between September 2016 and November 2017.

For their study, they considered only situations in which both people were near each other for at least a half-hour, and used a probability technique to eliminate meetings that might have been arranged in advance. They also assumed that many of these people bumped into someone they already knew, such as a former colleague.

Sharing knowledge

Such chance meetings “may spark a conversation that leads to a transfer of knowledge or a collaboration,” the researchers wrote.

Next, the research team pulled up patent applications filed by the companies of the employees. Such applications list relevant patents from other companies in so-called patent citations. Patent citations are “one measure of which firms are influencing each other and how firms are sharing ideas,” says Prof. Chen, who studies behavioral economics and strategy at UCLA’s Anderson School of Management.

The researchers then worked backward in time. They looked for places where employees of a patent-filing company may have crossed paths with workers from companies cited in the patent application.

“We rewind the clock to a year before when they would have been developing this technology,” says Prof. Chen. “What school were they dropping their kids off at, what mall were they shopping at, what bar do they frequent. And you infer who was at that bar when they were there,” based on the phone-location data.

The goal, Prof. Chen says, is “to connect workers of the firm that is going to file the patent, at the establishment where we infer that patent was innovated, with what other workers they were interacting with.”

Next, the researchers calculated the overall number of such citations that appear to have been linked to unplanned encounters. The upshot: The researchers say that without these encounters, there would have been about 8% fewer cross-firm patent citations in the period covered by the phone-location data.

“There is a tremendous correlation between my workers’ meeting a lot with your workers, and my workers’ citing your workers’ patent,” says Prof. Chen.

The innovation boost from the encounters, by the team’s calculations, is about twice as large as a similar effect found by other research that looked for knowledge transfer based on whether two companies’ offices are near each other, Prof. Chen says.

Their study comes with some caveats. The researchers don’t know whether these employees actually spoke when they were in the same location, or, if they spoke, what they talked about. And they don’t know whether the workers’ jobs would have facilitated a tech discussion—they might have involved a Google HR staffer and an Apple maintenance person.

Still, the report shines a light on what some experts have long suspected: that random conversations involving people in similar industries can increase innovation.

Enrico Moretti, an economics professor at the University of California, Berkeley, says the study “significantly advances our understanding of knowledge spillovers and how they shape the geography of innovation.” Prof. Moretti, who says he has been working on the topic for 25 years, says, “I find this paper to be one of the most direct and convincing pieces of evidence on this question. It provides important insights into why Silicon Valley-style clusters of innovation exist.”

Remote work’s impact

Though the study involved cellphone data from before Covid, the researchers say it has implications for an era when many people work all or part of the time from home.

The researchers looked at people who occasionally worked from home in the study period, based on where their phones were located during daytime hours, and then at how that affected their probability of attending planned or serendipitous meetings with someone from another company who didn’t work from home, Prof. Chen says.

Looking at two hypothetical companies, the researchers extrapolated that if one-half of employees at each business work from home, their meetings of all types—serendipitous and planned—would fall 35% and patent citations between the companies would decline almost 12%.

“We think this means information exchange between firms is decreasing,” Prof. Chen says. “It is worrying. These businesses co-locate for a reason. If they can’t learn from each other, we think that is a big deal.”

“Presumably,” he adds, “an even bigger effect is the harm that it does to serendipity and flow of information and innovation within the firm.”

What Everyone—Except the US—Has Learned About Immigration

Migration to affluent countries is at record highs, and some nations short of workers are overcoming political opposition to open their borders even wider, hoping to fill jobs and ease inflation.

Government actions to attract foreign nationals for skilled and unskilled jobs have spread from Germany to Japan and include countries with longtime immigration restrictions and some with a populist antipathy to streams of foreign workers.

The U.S. remains an outlier. Hundreds of thousands of migrant workers have arrived through back channels, but the country isn’t openly welcoming more legal workers, despite the tight labor market. That hesitancy carries economic costs, including persistent worker shortages and wage inflation, according to economists and some U.S. officials.

Unemployment is at a record low 4.8% across the 38 largely affluent countries that make up the Organization for Economic Cooperation and Development. These and other nations report a long list of open positions from truck drivers to baggage handlers to miners.

Beyond being needed to fill pandemic-driven labor shortages, migrant workers are in demand to fill the gap left by retiring baby boomers and declining populations, economists and Western officials say. “The labor forces of richer countries are hollowing out,” said Michael A. Clemens, an economics professor at George Mason University.

Governments across affluent countries are balancing the economic need for more workers with the political reality that very few electorates are enthusiastic about high levels of immigration.

In Europe and North America, the working-age population is expected to decline from 730 million to 680 million over the next two decades, according to United Nations estimates. Such places as South Korea and Taiwan stand to lose more than half their workforce over the coming decades. The working-age population in sub-Saharan Africa, meanwhile, will increase by 700 million by 2050, according to U.N. projections; in Latin America and the Caribbean, the U.N. estimated an increase of 40 million by midcentury.

For many wealthier countries, labor surpluses abroad are hard to resist. The global labor imbalance, in effect, is driving foreign workers into the open arms of nations that need them.

Around five million more people moved to affluent countries last year than left them, up 80% from pre pandemic levels, according to a Wall Street Journal data analysis. The Journal examined 10 countries that received most of the migration, including the U.S., Germany, the U.K., Canada, Australia and Spain. Migration experts say it is the highest number ever reported. That total includes about two million refugees from Ukraine. Even excluding that surge, net migration was significantly higher than 2019 levels, according to the data.

Germany is rewriting immigration laws to bring in more college graduates as well as blue-collar workers under a new points-based system. Points will be awarded based on age—younger people receive more—educational qualifications, work experience and German-language competency. Canada announced plans late last year to take in nearly 1.5 million more migrants by 2025. Western Australia recently sent a delegation to the U.K. and Ireland to recruit tens of thousands of workers, including police, mechanics and plumbers.

South Korea plans to admit 110,000 low-skill foreign workers this year to work in industries such as farming and manufacturing, up nearly 60% from last year’s quota. Japan, which is opening new visa paths for high-skilled foreign workers, announced in April plans to offer blue-collar workers—including those at factories and farms—a chance to extend their stay and even bring their families. Both countries have been longtime skeptics of immigration.

Spain amended its laws last year to allow more foreign workers from outside the European Union to fill blue-collar jobs left open by a shrinking working-age population. José Luis Escrivá Belmonte, Spain’s minister of inclusion, social security and migration, estimated that his country will need to add 300,000 foreign workers a year to keep the economy running and support the national pension system.

Spain’s unemployment rate is 13% and has been around that level or higher for 15 years. Mr. Escrivá said unemployed Spaniards tended to be age 50 or older and not necessarily suited to fill open jobs needed in sectors such as agriculture, construction or film production.

José Antonio Moreno Díaz, an official at Spain’s Trade Union Confederation of Workers’ Commissions, which represents over a million workers, including migrants, said training opportunities for higher-paying jobs should be offered to citizens. “We are not against bringing in real needed foreign workers,” he said. “But let’s pay attention to unemployed people in the Spanish labor market.”

Opponents in various countries warn of citizens losing jobs to outsiders willing to work for less money. Some say the cost of providing newcomers with healthcare, education and other public services outweighs the economic benefits, especially for low-skill workers who pay little in taxes.

Others argue that such immigration is a quick fix that slows economies in the long term.

“Labor shortages are very healthy,” said Mikal Skuterud, an economics professor at University of Waterloo in Ontario, Canada. “They force employers to use existing workers more efficiently and invest in technology, that’s all good stuff.”

Finland and Greece are building hundreds of miles of new land barriers to prevent illegal migrant crossings. In Italy and Sweden, voters recently elected governments with a more restrictive approach to immigration, and both are planning reforms to slow both legal and illegal migrant arrivals.

More jobs, higher pay

The U.S. hasn’t made any significant immigration reforms in 33 years, and the last serious attempt in Congress dates back a decade or more. Few issues are so politically divisive in Washington, making any chance of a policy overhaul seem unlikely, according to immigration experts.

Despite restrictive immigration policies, migrants seeking work in the U.S. are finding jobs more quickly and at higher pay than at any time in recent memory. Tens of thousands of people crossed into the U.S. from Mexico illegally and were arrested over the past 10 days, while some 20,000 were detected by various forms of surveillance but not caught, the U.S. Border Patrol chief wrote on Twitter.

In the U.S., the limit on H-1B visas available for highly skilled workers has changed little since 1990. Presidential administrations over the past 15 years have clamped down on illegal border crossings without creating new legal immigration pathways, prompting more urgent discussions about immigration policy and the labor shortage, said Giovanni Peri, chairman of the economics department at the University of California, Davis where he directs the Global Migration Center, whose recent research favours more immigration.

U.S. Border Patrol agents made a record 2.2 million arrests along the Mexican border in the 2022 fiscal year, up from 1.65 million arrests in 2021. The migrant crossings were driven, in part, “because the U.S. economy is screaming out for their labor,” said Mr. Clemens, the economist.

New channels have recently opened. More than 300,000 Ukrainian refugees entered the U.S. since Russia invaded Ukraine last year, many through a Biden administration program called Uniting for Ukraine. That number is more than the total number of refugees admitted into the U.S. through legal channels over the previous seven years. In North Dakota, energy companies are tapping Ukrainians to fill jobs in the Bakken oil fields.

Around 450,000 migrant refugee workers—largely from Afghanistan, Ukraine, and Latin America—entered the U.S. legally in 2021 and 2022 and are working under temporary government protections in industries with labor shortages, according to an April report by FWD.us, a pro-immigration think tank. Those workers are estimated to have filled about a quarter of total job openings this year in such industries as construction, food services and manufacturing, the report said.

The labor shortage is pushing inflation in affluent countries where employers, competing for workers, are raising wages to hire and keep them. “I do think more migrant workers would reduce the inflation rate,” said Spencer Cox, the Republican governor of Utah, which has a 2.4% unemployment rate, slimmer than even the U.S. rate of 3.4%.

Gov. Cox and Republican Gov. Eric Holcomb of Indiana, which is also short of workers, want to rally other governors in a long-shot proposal for Congress to give states a measure of authority over legal immigration.

The U.S. and other countries are divided about how to limit illegal immigration while keeping a pathway for a flow of potential employees for various industries. A plurality of Americans think the U.S. should admit fewer migrants, according to recent Gallup polls.

To gather bipartisan support for increased legal immigration, especially for skilled workers, Utah Gov. Cox said the government needs to demonstrate better control over the U.S.-Mexico border. “Scenes of tens of thousands of migrants streaming across the border in a way that could threaten national security,” he said, “make it harder to have that higher-level conversation.”

Learning the ropes

Mathias Senn, a butcher in Germany’s wealthy Black Forest region, posted job ads in newspapers and online, seeking to replace four of 10 employees who were preparing to retire. “There were no interested people,” he said. “Nothing at all.”

Last year, Mr. Senn hired an apprentice from India, taking advantage of a new law that allowed businesses to hire unskilled people from outside the EU. Local business associations are helping hundreds more workers arrive from India. India’s unemployment rate is around 8%, compared with about 3% in Germany.

Mr. Senn’s 22-year-old apprentice, Rajakumar Bheemappa Lamani, makes about 940 euros a month, around $1,020, while learning the ropes. Mr. Lamani said it was difficult to save money because of the high cost of living, but he hoped to stay.

Mathias Senn, right, a butcher in southwest Germany, and his apprentice Rajakumar Bheemappa Lamani from India. PHOTO: DOMINIC NAHR FOR THE WALL STREET JOURNAL

Germany needs to add around half a million immigrants a year in the next decades as the baby boomer era draws to a close, said Herbert Brücker, head of migration research at the Institute for Employment Research, a federal agency. “We have in Germany about two million vacancies, an absolute peak historically,” he said.

Young people in Germany aren’t interested in manual work, said Joachim Lederer, a butcher in Weil am Rhein, a town of 30,000 by Germany’s borders with France and Switzerland. His son, who studied and worked at the University of California, Berkeley, and Cornell, is a professor of mathematical statistics.

Mr. Lederer recently hired an apprentice from India who had studied computer science, and he has anointed a young Italian immigrant to take over the butcher shop when the time comes.

The U.K. added a record half-million new migrants in the year ended June 2022, even after exiting the EU, which made it more difficult for EU citizens to obtain visas.

Alan Manning, former chair of the U.K. Migration Advisory Committee, which consults government officials on immigration policy, said people accepted the idea of allowing foreign workers if their skills are needed. But some “get anxious about immigration when they perceive it to be out of control,” he said.

Amjed Nizam, a Sri Lankan design engineer trained in Hong Kong, looked for an exit overseas when Sri Lanka’s economy imploded last year. The 29-year-old discovered a new U.K. program that grants two-year work visas to recent graduates of top universities, even without a job offer.

U.K. authorities approved Mr. Nizam’s online application within three weeks, he said. He arrived late last year, found a job with a broadcasting company and now lives in London with his wife and daughter.

Paul Papalia, a government minister in Western Australia, said the region desperately needs workers in both public and private sectors to serve the mining industry, which is booming from global demand for battery-powered vehicles that rely on locally mined lithium, cobalt and nickel.

Mr. Papalia led a delegation in March to pubs and other spots in the U.K. to try to lure as many as 30,000 British workers with the prospect of better salaries and sunny weather. Nearly 70,000 job seekers expressed interest so far, including 1,100 applications to join the police force, he said.

Only about a fifth of Australians supported more immigration, according to a poll last year by the Lowy Institute, a nonpartisan think tank in Sydney. Mr. Papalia said voters in his state nonetheless support his recruitment efforts. “They ask, ‘Where are the people who are going to help us build our house?’ ”

Simon Cohen’s guide to buying prestige Sydney real estate

Since bursting onto our screens with Amazon Prime’s Luxe Listings Sydney, prestige buyer’s agent Simon Cohen has become a household name. The co-founder of agents Cohen Handler and brand ambassador for H&R Block has been selling some of Sydney’s priciest properties for more than a decade now and  is now considered the highest grossing real estate agent in the country.

He spoke to Kanebridge News about the challenges and triumphs of working in the Sydney market.

What in your view is the best real estate market to invest in right now?

Without question, Sydney. It’s the market that increases the most and has the least drop when things go bad.

What is the best way to manage a luxury property portfolio in a market where both prices and interest rates are increasing?

Don’t freak out! Always know that if you’re in the right city, the right suburb and in a blue-chip location, that your property and investment will always be safe. Stay strong, stay believing in your asset and ride the wave.

 

Simon Cohen attends the premiere of Luxe Listings Sydney Season 2 on March 31, 2022 in Sydney, Australia. (Photo by Saverio Marfia/WireImage)

How realistic is Luxe listings? What has surprised you about working on the show?

It’s certainly a reality TV show, so it’s very realistic. All the deals and properties are real. What surprised me the most, is how much love and enjoyment people and viewers have got out of it from all around the world.

Where does an agent with your reputation and experience choose to live?

I currently live in Elizabeth Bay and I’m currently building one suburb away, in Potts Point.

What services can a buyer’s agent provide?

Sourcing every property that exists out in the marketplace, doing the due diligence and valuations and being able to help negotiate the lowest price possible for the purchaser.

Simon Cohen has specialised in selling in Sydney’s eastern suburbs

What’s your advice for people looking to make their first investment in the residential property market?

“First time property investment can be complex and overwhelming, so seeking advice from experts. (Look for) a team that can provide the guidance and work with you every step of the way to advise on what tax deductions to consider (i.e. stamp duty, capital gains, and land tax) when considering your first investment property. Don’t get emotional. Buy where (you are) going to have the best capital growth and the greatest yield. Look for properties in the best blue-chip locations as you can afford and as close to major cities as you can afford, because they are always the ones that are going to have the best return.

How can a buyer’s agent assist overseas buyers interested in the Australian market?

A buyer’s agent is especially useful for overseas buyers because we’re giving them the in-depth understanding of what’s happening in the marketplace in which they are looking to buy in. We’re able to give them access to off-market properties and also point out things that they’re not able to see such as the warts, the problems  the things that the shiny, beautiful photos might not show. Investing in an overseas property can be a lucrative opportunity for many buyers, but it can also come with its own set of challenges and complexities, especially when it comes to navigating the tax implications of such a purchase. This is where partnering with a H&R Block tax experts can be extremely valuable.”

Coca-Cola Trials Turning Hard-to-Recycle Plastic Into Bottles

Coca-Cola is trialing technology in Europethat turns hard-to-recycle plastic into new bottles, as part of its effort to meet its sustainability goals.

The company’s biggest European bottler, Coca-Cola Europacific Partnersis funding a startup in the Netherlands that will produce food-grade recycled plastic from plastics that usually get sent to landfill or are incinerated—such as films, trays, clothing and colored packaging. It will create an additional source of recycled material. Current supplies of recycled plastic are costly and limited, which is keeping companies hooked on abundant and cheaper oil as a key ingredient in the production of packaging.

“This new technology is critical to improve access to recycled material for bottles,” said Wouter Vermeulen, Coca-Cola’s senior director of sustainability and public policy in Europe. “The Coca-Cola system is committed to reducing our dependency on oil for producing virgin packaging materials and promoting recycling.”

Coca-Cola is aiming to boost the proportion of recycled materials that make up its packaging to 50% by 2030. The soft-drinks group has achieved around 25% so far.

The company needs its bottlers to use more recycled materials to meet its own sustainability goals“We simply do not have the necessary levels [of recycled plastic],” said Joe Franses, vice president of sustainability at Coca-Cola Europacific Partners.

The new process from startup CuRe Technology cleanses and partially breaks down plastics for reassembly into recycled material. Its so-called partial depolymerization method removes color from polyester, turning it into clear polyethylene terephthalate—or PET—pellets.A study commission by CuRe said its process results in roughly 65% lower greenhouse-gas emissions than oil-based new plastic production. Coca-Cola Europacific Partners invested in CuRe in 2020 and again this year.

CuRe has been sending samples to Coca-Cola in Atlanta for testing and, if it continues to meet quality standards, it is possible the recycled plastic could make its way to other markets.

“We are currently focused on scaling CuRe’s technology in the right way for use in Europe as a first priority, before looking at how this could benefit other markets,” Coca-Cola’s Mr. Vermeulen said.

By 2025, a plant is expected to produce around 25,000 metric tons of recycled plastic a year. Coca-Cola Europacific Partners will get a significant amount of that output but it will represent a fraction of its feedstock, currently around 200,000 metric tons of polyester a year in Europe. If the factory meets expectations, the bottler will build a larger plant before the end of the decade.

Packaging represents around 40% of Coca-Cola Europacific Partners’ carbon footprint, largely because of its use of oil-based virgin plastic. It aims to stop using oil to produce plastic bottles by 2030. Last year, almost half of its bottles were made from recycled plastic and bioplastics.

By the turn of the next decade, Mr. Franses at Coca-Cola Europacific Partners envisions technology such as CuRe’s supplying around 25% of the bottling company’s needs while traditional recycling methods will satisfy about 70%. He hopes recycled plastic supplied by CuRe’s method to be on par or not significantly more expensive than current recycled plastic, which can be 50% more costly than plastic made from oil.

“I’m not going to stand here in 2023 and say we’ve got a full road map that is going to take us there,” Mr. Franses said. “What I am really confident on is that the business has made the right investments.”

The Disappearing White-Collar Job

For generations of Americans, a corporate job was a path to stable prosperity. No more.

The jobs lost in a months long cascade of white-collar layoffs triggered by over hiring and rising interest rates might never return, corporate executives and economists say. Companies are rethinking the value of many white-collar roles, in what some experts anticipate will be a permanent shift in labor demand that will disrupt the work life of millions of Americans whose jobs will be lost, diminished or revamped partly through the use of artificial intelligence.

“We may be at the peak of the need for knowledge workers,” said Atif Rafiq, a former chief digital officer at McDonald’s and Volvo. “We just need fewer people to do the same thing.”

Long after robots began taking manufacturing jobs, artificial intelligence is now coming for the higher-ups—accountants, software programmers, human-resources specialists and lawyers—and converging with unyielding pressure on companies to operate more efficiently.

Meta Platforms CEO Mark Zuckerberg told employees after the Facebook parent’s latest round of layoffs that many jobs aren’t coming back because new technologies will allow the company to operate more efficiently. International Business Machines CEO Arvind Krishna recently said the company could pause some hiring to see what kind of back-office work can be done with AI. Leaders in many industries say they expect the new technology will augment some existing roles, changing what people do on the job. AI could allow employees to better contribute to their companies by doing more meaningful work, said Mr. Rafiq, author of a new book on management.

For the year ended in March, the number of unemployed white-collar workers rose by roughly 150,000, according to an analysis from Employ America, a nonpartisan research group. That included workers in professional services, management, computer occupations, engineering, and scientists.

“I can’t think of any job where it’s like AI by itself,” said Rodney McMullen, chief executive of grocery chain Kroger, which has about 430,000 employees. “I can think of a lot of jobs that are being affected by AI.”

That underlying dynamic has been accelerated by the binge hiring of recent years. Company leaders say they have become saddled with bloated managerial layers that slow decision making. The retailer Gap said in April that its new round of corporate job cuts would trim what has become an inefficient corporate bureaucracy.

Lyft’s new CEO, David Risher, told investors this month that the ride-sharing company had cut the number of management layers from eight to five. Lyft said in April it would eliminate roughly 1,000 white-collar jobs in its latest round of layoffs. The flattened corporate structure means that Lyft “can innovate faster,” Mr. Risher said.

Jobs go through boom-and-bust cycles. In previous downturns, executives pledged to make streamlining efforts stick, only to replenish or grow their corporate ranks when business conditions improved. Many executives say the forces now at play suggest this time is different.

During past periods when higher interest rates pitched the U.S. economy into recession, job losses were often led by industries most sensitive to rate changes, such as manufacturing and construction. “It seems like we’re not seeing that right now. It could be the structure of the economy has changed,” said Preston Mui, an economist at Employ America, who has been studying white-collar job losses.

“A real question is: The Fed raises rates and softens the economy, where is that going to show up?” he said. The evidence is pointing to white-collar jobs, he said.

After 14 months of interest-rate increases by the Federal Reserve, job openings dropped to their lowest level in nearly two years in March, the most recent month of Labor Department data. Layoffs in the information sector were up 88% in March from a year earlier and up 55% in finance and insurance, the data show. For manufacturing, they were up 25% over the same period.

Companies are for the moment focused on keeping blue-collar employees—restaurant servers, warehouse workers, drivers and the like—who remain in short supply, according to economists and human-resources specialists. For C-suite executives under pressure from investors, that exposes middle managers and other white-collar workers to layoffs.

Whole Foods and Walt Disney announced layoffs in recent weeks that largely hit corporate staff while sparing such customer-service jobs as grocery clerk and hourly theme-park attendant. Retail workers, including salespeople and cashiers, were among the most in-demand roles in the first quarter of the year, according to the jobs site LinkedIn, along with nurses and drivers.

Checkout lines at the Kroger grocery store in Cincinnati, Ohio. PHOTO: ASA FEATHERSTONE, IV FOR THE WALL STREET JOURNAL

“Companies realise they over-hired in the middle,” said Nick Bunker, an economist at jobs site Indeed. “They’re paring things back.”

The number of employees working and the number of hours they worked in white-collar sectors such as professional services and medical and veterinary roles contracted in late April compared with January, according to data from Homebase, which provides software services to small businesses for scheduling hourly workers.

Sudden fall

Colton Pace, chief executive of Ownwell, a property-tax analysis company based in Austin, Texas, said he was filling more open roles with temporary contractors to give the startup flexibility in an uncertain economy. He also sees technology soon doing more company tasks.

“I want to be a little more cautious in how we hire,” Mr. Pace said. “In addition to that, it makes more sense because we’re not sure. Some of these roles will be automated away.”

A year ago, roughly 15% of the company was made up of contractors or seasonal workers. Those workers now make up a quarter of Ownwell’s roughly 85-person workforce. Mr. Pace said he could see AI and other tools eventually shouldering a greater share of the work in customer support, operations and sales.

There is no firm definition of white-collar employee in government data. The term broadly applies to people who work in offices and have higher education, such as a bachelor’s degree or some college. In recent decades, hiring in management and professional jobs rapidly outpaced other categories. The number of employees in management and professional occupations increased nearly 150% in the past 40 years, and nearly 36% since the end of the 2007-09 recession, according to Labor Department data. By comparison, service occupations such as barbers, child care workers and casino employees have risen 72% since 1983, the earliest available data, and 3.5% since June 2009.

Over the years, higher demand for skilled workers and higher pay for college-educated workers widened the economic gap with blue-collar workers. Yet following the height of the Covid-19 pandemic, wages rose fastest among low-earners, reducing the college wage premium and reversing about a quarter of the rise in wage inequality since 1980, according to a study by economists including David Autor of the Massachusetts Institute of Technology.

Payroll data from more than 300,000 small- and medium-size businesses showed that wages for new hires had generally declined in April from a year ago but fell most rapidly in white-collar professions, such as finance and insurance, according to Gusto, a payroll, benefits and human-resource management software maker. They rose most quickly in such services and blue-collar industries as tourism, construction and recreation, Gusto found.

Digital smarts

As companies look to cut costs, some employers have said middle managers will have to give up their teams and return to being just another worker. Others, including McDonald’s, have asked staffers to accept reduced compensation if they want to stay at the company.

Artificial intelligence also is expected to eliminate some positions entirely. Mr. Krishna, of IBM, has said in recent weeks that he could see 30% of IBM’s roughly 26,000 non-customer-facing roles being replaced by automation or AI over a five-year period.

An IBM spokesman said the company was still hiring for thousands of positions. “There is no blanket hiring ‘pause’ in place,” he said. “IBM is being deliberate and thoughtful in our hiring.”

The Labor Department projects that of the 20 occupations that will create the most jobs through 2031, about two-thirds will be blue-collar jobs that pay around $32,000 a year, including home-health and personal-care aides, restaurant cooks, fast-food workers, wait staff and freight movers.

The professions with the best prospects for growth that require a college degree include software developers, operations managers and registered nurses. Those jobs pay around $100,000 a year and are forecast to be better protected than other white-collar work from AI displacement.

Some employers are already figuring out exactly how many fewer white-collar workers they will need in the future. The business- and government-consulting firm Guidehouse in McLean, Va., which employs about 16,500 people, had expected to triple its head count in the coming years to reach its goal of roughly tripling its revenue to $10 billion, said CEO Scott McIntyre. Not anymore, he said.

Mr. McIntyre expects that with the help of AI and increased automation, Guidehouse may need to hire 40,000 people instead of 50,000 to reach its growth target. “The smarter you are with enabling technology and technology that creates productivity, the smarter you can be about hiring,” he said.

How AI Will Change the Workplace

Artificial intelligence has been affecting how we work for some time—helping to craft job postings and evaluate applications, judging how efficiently we complete jobs and, for gig workers, determining assignments and pay.

But in the past year, and especially the past six months, generative AI has supercharged the potential of technology to help, hinder or reorient how we work. Visual tools like DALL·E 2 and Midjourney may drastically change graphic design. Large language-model text generation, beginning in earnest with the release of ChatGPT, promises to affect every activity that involves touching a keyboard.

To learn more about how the worlds of work and AI will interact, we spoke with experts in computer science, human resources, recruiting, corporate leadership, psychology and more. Here are some of their predictions.

Automating ideas

AI will continue the current process of automating parts of workers’ jobs. But while today’s automation is often described as applying to dull, dirty and dangerous tasks such as moving parts in a factory or warehouse, generative AI brings a new dynamic: Primarily, it supports knowledge work by providing the ability to create first drafts of documents, emails, presentations, images, video, product designs, etc.

So, knowledge workers might spend more time editing than creating, particularly as generative AI is embedded into all the software products they use today. For instance, instead of an email system just typing ahead a few words, it could draft several paragraphs. Customer-relationship-management software could suggest topics to discuss with a sales prospect and even a script to follow. And a salesperson could describe a presentation in natural language, and draft slides could be created, accessing corporate data and images to fill out details.

But there are some GenAI applications where the potential to have transformative impact really comes to the fore: For example, in research and development, some experiments using generative AI to support writing software code have shown very high levels of increasing productivity. But that doesn’t mean we’ll need a lot fewer software engineers, because the world needs more software. Generative AI also has the potential for improving the productivity of contact centres. There already were technologies that could automate interactions with customers; generative AI has the potential for making these interactions feel much more natural.

—Michael ChuipartnerMcKinsey Global Institute

Flatter organisations

Artificial intelligence is likely to flatten many organisations due to its ability to automate work activities. Right now, most organisations have entry-level people who perform routine tasks, midlevel individuals who supervise them and high-level employees who set the direction of the organisation.

That organisational structure will no longer be necessary. AI can automate many of the tasks performed by entry-level workers. Accounting features, purchase orders and job requisitions are already being automated, and workplaces no longer need people who manually compile or analyse information.

As generative AI becomes more widely deployed, even more tasks will be automated. In addition, job supervision and assessment won’t need as much human oversight. Customers can rate employees on how well they perform basic tasks and allow people to get the services they want. Using data analytics and AI, companies can use the responses to weed out low-performing workers and reward their top individuals. The end result will be fewer layers of management and a smaller number of employees overall in the organisation.

—Darrell Westsenior fellow, governance studiesBrookings Institution

How human are we? Machines will tell us

In the past, managers turned to software to judge workers on technical matters—counting keystrokes or time away from the screen. Now companies are using machines to judge how much empathy their employees show.

I was recently sent a “management tip of the day,” advice on how to prepare for a job interview conducted by an artificial intelligence—a process that is all too common these days. A good score required that I appear “natural” with the machine, defined as injecting “authenticity and humanity to the interview.” It seemed a through-the-looking-glass request. A machine would be judging me on qualities that only human beings can exhibit.

The AI judgments don’t end with interviews. It is increasingly common for corporations to use AI programs to monitor employee empathy on the job. For instance, in call centres, AI programs coach and score workers on an empathy scale to judge their performance with callers.

With the addition of ChatGPT to a full suite of office products, texts, emails and calls, there is no limit to the interactions that may be judged by pretend-empathy machines. They will pretend to understand jealousy, competition, depression and insecurity, all the messy human feelings that come up in the life of a firm.

When machines test us on how we respond to such human complexities, high scores may go to those who exhibit qualities that machines value most—consistency and a bias toward tidying up what seems messy. Those who don’t stack up may lose their jobs.

It is backward thinking: Technology redefines human empathy as what machines can understand. Having built the machines that will judge us, now we will train ourselves to please the machines.

—Sherry Turkleauthor and Abby Rockefeller Mauzé Professor of the Social Studies of Science and TechnologyMassachusetts Institute of Technology

A threat to ethics

We are already seeing the rise of digital assistants that speak with a human voice and can use human appearance and social intelligence to negotiate disputes, brainstorm business strategies or conduct interviews. But our research illustrates that people may act less ethically when collaborating via AI.

Traditionally, teammates establish emotional bonds, show concern for each other’s goals and call out their colleagues for transgressions. But these social checks on ethical behaviour weaken when people interact indirectly through virtual assistants. Instead, interactions become more transactional and self-interested.

For instance, in typical face-to-face negotiations, most people follow norms of fairness and politeness. They feel guilt when taking advantage of their partner. But the dynamic changes when people use an AI to craft responses and strategies: In these situations, we found, people are more likely to instruct an AI assistant to use deception and emotional manipulation to extract unfair deals when negotiating on their behalf.

Understanding these ethics risks will become an active focus of business policy and AI research.

—Jonathan Gratchprofessor of computer scienceUniversity of Southern California

An edge for the aged

AI will enable older workers to be seen, even by those with ageist eyes, as young again.

Younger adults tend to excel at work that uses fluid intelligence that involves analysis and solving discrete problems quickly. Older workers are thought to exhibit greater crystallised intelligence—the capacity to leverage experience and knowledge gained over years to quickly see patterns, nuance and emotional insights, and the capacity to determine which problems should be addressed and which are just noise.

AI is likely to provide a kind of augmented intelligence to older workers, enabling experienced professionals to fully leverage their talent and skills.

For example, AI will be an invaluable collaborator with physicians, speeding the collection and organisation of critical information such as patient symptom history, genetic profiles, medication interactions, as well as past successful treatment plans for similar conditions, etc. These systems will enable physicians of all ages to gather information quickly, but older doctors will be better equipped to apply their years of experience and knowledge to validate AI diagnoses and treatment recommendations.

AI will be more than a collaborative assistant to older workers. It will also be a valuable coach. The sheer growth and velocity of knowledge and technology is making training and upskilling essential. Unfortunately, many employers don’t invest in older-worker education. Now AI applications are being deployed in workplace education to address individual learning and knowledge gaps, helping older workers remain current and competitive.

—Joseph F. Coughlindirector of AgeLabMassachusetts Institute of Technology

Navigating new tech

Today, most organisations suffer from a “digital dexterity gap,” where the workforce is largely unable to keep pace with fast-changing technology. Organisations have more technology than their employees are comfortable using, creating barriers to efficiency and productivity growth.

AI services strip away complexity. By using conversational interfaces and natural-language processing, AI removes the need for workers to master complex computer functions and menus. People simply describe what is needed, in nontechnical language, and refine their requests to get better output.

An employee, for example, could give an AI historical data and say, “Find and rank all the variables that will determine the market potential for this new product.” Before conversational interfaces were developed, getting the information would require a lengthy and complex series of interactions.

—Matt Cainvice president and distinguished analystGartner

An opportunity for building talent

As AI takes over routine tasks, there will be a temptation to cut the whole tier of entry-level employees: Summarising documents, answering routine emails, writing basic computer code and solving simple logistical challenges are all tasks that AIs can do about as well as an inexperienced human, and at much lower cost.

But employers still need an on ramp for new hires. If you stop hiring entry-level employees, you’ll have to do all your midlevel hiring from outside the organisation. And if every organization pares back on entry-level hires, it will get harder and harder to find experienced midcareer talent anywhere.

That’s why it pays to cultivate your own long-term talent pool by hiring green employees, but rethinking how they are tasked and trained. Instead of piling your juniors with grunt work and trusting that they’ll learn through observation, assign them more challenging tasks, like drafting reports instead of just summarising them—the explosion in AI research and writing tools means that kind of work is now well within the grasp of inexperienced hires. With more active coaching and mentoring, these green employees can grow into valuable colleagues, much more quickly.

—Alexandra Samueldigital-workplace speaker and co-author of “Remote, Inc.”

The danger of following blindly

So many jobs involve writing standard responses—thank-you notes to customers, responses to job applicants and unfortunately term papers—that AI is instantly and easily used in almost every white-collar role.

The concern isn’t that the responses produced aren’t original or creative. How creative does a performance appraisal need to be? It is that if ChatGPT writes the report, the “author” hasn’t thought about it, hasn’t weighed the arguments and then come to their own conclusions in the text. They cannot explain to someone why the report says what it does, but they now have to live with its conclusions.

What happens when the ChatGPT report fails to include proprietary information that you could have found if you searched yourself, and it changes the conclusions? How do we explain to a subordinate why the appraisal written by ChatGPT gave them a lower score compared with last year, even though their performance seemed to be the same? The temptation to use it without thinking through the arguments and explanations could lead to big mistakes.

—Peter Cappelli and Sonny Tambeprofessor and associate professorWharton School of the University of Pennsylvania

Big-picture thinking

Workers are already using ChatGPT to craft the perfect Facebook ad or tools like Descript to edit videos, but AI will get incorporated in more upstream work. AI will be in the boardroom, brainstorming sessions and planning meetings.

Imagine an AI system that runs global simulations and impact analyses for 5,000 different budget plans. Or an AI that proactively writes new code for you when it discovers that you have a bottleneck in your sales planning. Or a proxy AI trained on customer research that allows you to have simulated conversations with your target market. We’re moving from task-oriented AI to goal-oriented AI, and enterprises are looking to leverage it safely, securely and ethically.

—Allie K. MillerAI entrepreneur, adviser and investor

Money management and the human touch

Many asset-management companies are now offering hybrid advisory services—involving both human advisers and algorithms—to their clients. But these new services are unlikely to reduce the demand for human advisers.

Instead, automation is expanding the market for financial advisers by making it more cost effective to serve clients with lower levels of wealth. Human advisers can now cater to more clients, since certain tasks, such as addressing simple customer queries and constructing portfolios, can be automated. As a result, asset managers are now hiring more human advisers instead of laying them off.

In addition, the requirements for a financial adviser’s success are changing. As more portfolio management is turned over to algorithms, technical portfolio-allocation skills are becoming less significant. However, it is becoming more important for advisers to explain how algorithms operate and assist investors in navigating turbulent market conditions. Our research shows that human advisers are still essential for customer satisfaction and retention because of their ability to reduce clients’ discomfort from interacting with algorithms and reducing clients’ uncertainty regarding the algorithms’ performance.

—Alberto Rossifinance professor and director of the AI, Analytics and Future of Work InitiativeGeorgetown University

Navigating the corporate-benefits maze

AI-powered “concierge” systems will reduce or eliminate the frustrating search for answers that many employees endure today when seeking services from their employer. These systems will help employees make the most of their benefits, stay compliant with policies or simply find out information about their colleagues, organisation structure or customers that can sometimes be difficult to unearth in large organisations. When do my health benefits renew? What is my current deductible? What is the policy for meal expenses in New York?

What’s more, in the hybrid work environment, AI-driven concierge tools will book conference rooms, optimise the location of colleagues in the office so they can better collaborate, and help office managers manage capacity and services.

—Joe AtkinsonU.S. chief products and technology officerPwC

Don’t forget human judgment

At its best, AI will drive better collaboration and productivity. It will help employees turn notes into documents and documents into presentations. Yet human judgment is key to unlocking AI’s power. Our data reveals that only around half of employees believe they know when to question the results of automation or AI—the other half don’t think they have that skill. But generative AI is already known to hallucinate—make up false facts—and employees who blindly follow its outputs risk failing.

So, companies must equip employees with the skills and inclinations needed to successfully use AI. Rather than acting on the AI’s meeting summary alone, employees must understand that talking to human colleagues who attended the meeting isn’t optional. They must also learn to proofread AI-produced text, confirming cited facts with outside sources. And governance structures must ensure that AI-produced content always includes a human in the loop before it is used.

—J.P. Gowndervice president and principal analystForrester

Machines get into human resources

The emergence of AI tools and data analytics is transforming the way organisations discover, assess and select talent. If trained with the right data, AI models can also compare candidate profiles to a company’s most successful employees, identify professionals with a proven record and determine who is most likely to consider a job change.

For example, for certain roles, high performers’ profiles include a broad range of skills that are relevant to multiple roles, while for other functions, optimal skill sets are much more narrow and specific. Our data indicates that the comparison of a candidate’s skills to those of high performers produces the most predictive indicator of future success, particularly on contract jobs.

Also, AI models can be further enhanced by incorporating individual performance data for employees or contractors who have previous experience with an employer. There is a wealth of such data available to talent solutions firms that employ hundreds of thousands of contractors annually.

Ultimately, though, it is important to think of AI as a tool—not a substitute—for the human art of recruiting. Assessing and selecting talent requires insight about a candidate’s communication skills, attitude and determination level and what it takes to succeed.

—M. Keith Waddellpresident and CEORobert Half

A productivity boost

Early research suggests that while generative AI is likely to boost the productivity of all workers, it may benefit low-skilled workers more. A randomised field experiment by Microsoft reported that generative AI enabled a 55% decrease in average task-completion time for software developers, with the most benefit for older developers and those with less programming experience. Similarly, a study from MIT reports that ChatGPT’s use in professional writing raises average productivity and quality for low-ability workers more than their high-ability peers.

In an ongoing experimental study with M.B.A. students who were tasked with writing business reports, I found that ChatGPT’s availability not only increased productivity but also student satisfaction. More students expressed a desire to write when a tool like ChatGPT was available. In short, the impact of generative AI might not just be a general increase in productivity but also a narrowing of the productivity gap between low-skilled workers and high-skilled ones.

—Kartik HosanagarJohn C. Hower ProfessorWharton School of the University of Pennsylvania

A tool for hackers

It is the classic email scam: An employee receives a bogus note that appears to be from their manager, telling them to transfer funds to some account. For this to be convincing, the attacker needs to access the company’s computer systems to learn about the firm and the target, including their personal details.

AI makes this scamming much easier—and more dangerous.

By getting access to companies’ internal emails and nonpublic reports, hackers can use AI to generate very convincing messages. For example, the message might start with: “Fred, it was great to have dinner with you and your wife last Wednesday, we should do that again. Meanwhile, I need you to…”

Or how about a phone call or videoconference with your boss? Deep fakes make it possible to imitate the voice and even the image of your manager.

AI may also lead to smaller and smaller targets for scams. If it takes lots of manual labor to create customised spear-phishing emails, it is not worth it for hackers to cheat people out of $100. But if AI makes it trivial and cheap to create phoney emails, no one is too low on the totem pole to be ignored.

All this raises the level of skepticism that we must have substantially. Procedures will have to be put in place to validate the authenticity of who you are dealing with. In many cases, a phone call might be sufficient. A somewhat deeper approach might be a phone call to the boss’ administrative assistant, in addition to a boss—a bit like doing multifactor authentication on the computer. In extreme cases, a face-to-face meeting might be necessary.

—Stuart Madnickprofessor of information technologiesMIT Sloan School of Management

Spotting the skill gaps

AI helps organisations build for the future by automatically detecting employee, team and organisation wide skills—and identifying ways to address gaps before management is even aware of them.

For roles like nurses, software developers and marketers, necessary skills are constantly changing, and it can be tough for organisations to keep track of what is needed. Nurses, for instance, must become familiar with an ever-increasing number of tech platforms, as well as data analysis to help patient outcomes.

As these needs evolve, AI can help keep track of what skills organisations need and predict what they might need next. For instance, a business could use AI to scan job descriptions in its industry to look for trends. The AI might notice that lots of marketing jobs now require employees to understand new types of analytics—and your employees must understand them, too, or miss out on important strategic insights.

—Mahe BayireddiCEO and co-founderPhenom