What is the effect of labor displacement on management consultants?

Displacing labor off/near-shore has historically been the subject of many debates in the context of manufacturing firms. But it is not until recently that it has also started to be used as an instrument to improve competitivity in the realm of services. The management consulting industry is one of the many places where such transformation is underway. It is, however, common knowledge that off/near-shoring activities is difficult. Available benchmarks indeed state that only one out of two firms get some benefits out of the associated changes and it is known that one of the major derailleurs for this kind of evolution revolves around the willingness of their workers to embrace the change. For management consulting practices, the topic if very much on the table as they potentially can standardize and displace labor massively to reduce production costs (up to 50% of production activities can be done remotely). This therefore raises questions on the ability of such firms to provide incentives for their workers (i.e. what does it mean for one’s career? For one’s earnings? etc.). This paper therefore offers a career model that can be used by such firms to assess what off/near-shoring entails for local consultants. Once calibrated to US data, it notably shows that displacing labor simply delays consultants’ earnings until the final stage of their career (i.e. when they make it to partner) and also reduces the risk they bear when entering the industry (i.e. they become more likely to be promoted and therefore can yield higher revenue over time). The tradeoff is of course that if partners compensation increases up to 20%, consultants’ wages decrease by 200 to 500 US$ per year for every percent of work displaced. If the model shows how consultants can benefit from off/near-shoring, it also stresses that their compensation and career are primarily linked to the partnership structure of the firm they join. Consultants’ careers are indeed mainly about becoming the successor for an existing partner. Such that, for every percent of increase in succession chances, consultants’ wages decrease by 2–3 k$ per year. As a result, consultants’ career & compensation are much more impacted by the shape of the partnership one may join than by the partnership choices when it comes to off/near-shoring work. To the point, that under certain circumstances (i.e. firms where succession is very likely), the partnership structure even rules out competitive costs’ advantages presented by other geographies.