Global labor arbitrage is an economic phenomenon where, as a result of the removal of or disintegration of barriers to international trade, jobs move to nations where labor and the cost of doing business (such as environmental regulations) are inexpensive and/or impoverished labor moves to nations with higher paying jobs.[1]
Two common barriers to international trade are tariffs (politically imposed) and the costs of transporting goods across oceans. With the advent of the Internet, the decrease of the costs of telecommunications, and the possibility of near-instantaneous document transfer, the barriers to the trade of intellectual work product, which is, essentially, any kind of work that can be performed on a computer (such as computer programming) or that makes use of college education, have been greatly reduced.
Often, a prosperous nation (such as the United States) will remove its barriers to international trade, integrating its labor market with those of nations with a lower cost of labor (such as India, China, and Mexico), resulting in a shifting of jobs from the prosperous nation to the developing one. The end result is an increase in the supply of labor relative to the demand for labor, which means a decrease in costs and a decrease in wages.
Forms of global labor arbitrage
Global labor arbitrage can take many forms, including but not limited to:
Capital moves to nations with cheap labor, lower taxes and or fewer environmental regulations or other costs of doing business for the purpose of producing goods and services for export to other markets.[2] The classic example is the case of a factory or office closing in Nation A and then moving to Nation B for the purpose of producing goods or services at lower labor costs for export back to Nation A's market. This can result in layoffs for workers in Nation A. For example, in the United States, the amount of manufacturing jobs has decreased while the importation of manufactured goods from other nations has increased (along with the United States' trade deficit). These trends are now affecting the service sector as well.[3]
Importation of foreign labor using work visas
Labor, often skilled and educated, moves to a nation on a temporary or permanent basis. This has the effect of increasing the supply of labor in that nation's market.
This type of labor importation may be advantageous. According to the National Venture Capital Association (NVCA), a registered political action committee,[4] over 25% of all startups responding to an NVCA survey, in the San Francisco Bay Area of the US in the last 15 years were "immigrant-founded" (most likely former or current H-1Bs).[5] 40% of all publicly traded and venture founded companies in high tech manufacturing were started by immigrants. These account for more than half of all jobs in this sector.
To conduct the research, we examined the Thomson Financial database of all publicly traded venture-backed companies founded since 1970. After eliminating those that had merged, been acquired, or were otherwise no longer publicly traded (or in business), we used public records, Internet research, e-mails, and phone calls to identify the nativity of the founders for the nearly 900 remaining companies.4 The companies on our final list of immigrant-founded U.S. publicly traded venture-backed companies had at least one immigrant founder.
National Venture Capital Association, American Made: The Impact of Immigrant Entrepreneurs and Professionals on U.S. Competitiveness, Stuart Anderson and Micheala Platzer, Undated.[5]
Conversely, the NVCA "American Made," publication makes little mention of US-born co-founders, makes an errant claim that Intel has an immigrant founder,[6] resulting in a faulty claim of the following companies employing more than 245,000 people in 2005:[5]
Previous studies authored by Stuart Anderson, of the National Foundation for American Policy,[7] had been careful to make the distinction of, "...founded or co-founded..." whereas the National Venture Capital Association uses the term, "immigrant-founded" 55 times in its 39-page document. The publication's data tables disclose only the names of "immigrant-born founder or cofounder", American born co-founders, and the number of American co-founders, are omitted.[5] Additionally, according to Intel Corporation (99,900 employees), Hungarian born CEO Andy Grove was not an Intel co-founder.[6]
Immigration
Impoverished labor moves towards capital in prosperous nations. This tends to increase the supply of labor relative to capital in the prosperous nations and potentially decreases wages, according to the laws of supply and demand (of and for labor). However, this decrease can be offset by job creation due to talented immigrants, as discussed in the last section.
↑ The "global labor arbitrage" phenomenon has been described by economist Stephen S. Roach. See Mike Whitney, "Labor arbitrage,"Entrepreneur, June 2006.
In economics and finance, arbitrage is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between the market prices at which the unit is traded. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs. For example, an arbitrage opportunity is present when there is the possibility to instantaneously buy something for a low price and sell it for a higher price.
International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services.
The economy of Israel is a highly developed free-market economy. The prosperity of Israel's advanced economy allows the country to have a sophisticated welfare state, a powerful modern military said to possess a nuclear-weapons capability with a full nuclear triad, modern infrastructure rivaling many Western countries, and a high-technology sector competitively on par with Silicon Valley. It has the second-largest number of startup companies in the world after the United States, and the third-largest number of NASDAQ-listed companies after the U.S. and China. American companies, such as Intel, Microsoft, and Apple, built their first overseas research and development facilities in Israel. More than 400 high-tech multi-national corporations, such as IBM, Google, Hewlett-Packard, Cisco Systems, Facebook and Motorola have opened R&D centers in the country.
The United States is a highly developed mixed economy. It is the world's largest economy by nominal GDP, and the second-largest by purchasing power parity (PPP) behind China. It has the world's seventh-highest per capita GDP (nominal) and the eighth-highest per capita GDP (PPP) as of 2022. The U.S. accounted for 25.4% of the global economy in 2022 in nominal terms, and around 15.6% in PPP terms. The U.S. dollar is the currency of record most used in international transactions and is the world's foremost reserve currency, backed by a large U.S. treasuries market, its role as the reference standard for the petrodollar system, and its linked eurodollar. Several countries use it as their official currency and in others it is the de facto currency.
Vinod Khosla is an Indian-American businessman and venture capitalist. He is a co-founder of Sun Microsystems and the founder of Khosla Ventures. Khosla made his wealth from early venture capital investments in areas such as networking, software, and alternative energy technologies. He is considered one of the most successful and influential venture capitalists.
Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state governments may also employ offshoring. More recently, technical and administrative services have been offshored.
Non-tariff barriers to trade are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.
In sociology, an ethnic enclave is a geographic area with high ethnic concentration, characteristic cultural identity, and economic activity. The term is usually used to refer to either a residential area or a workspace with a high concentration of ethnic firms. Their success and growth depends on self-sufficiency, and is coupled with economic prosperity.
Vinod Dham is an Indian-American engineer, entrepreneur and venture capitalist. He is known as the 'Father of the Pentium Chip' for his contribution to the development of Intel's Pentium micro-processor He is alos mentor, advisor, and sits on the boards of companies, including startups funded through his India-based fund Indo-US Venture Partners, where he is the founding managing director.
The law of one price (LOOP) states that in the absence of trade frictions, and under conditions of free competition and price flexibility, identical goods sold in different locations must sell for the same price when prices are expressed in a common currency. This law is derived from the assumption of the inevitable elimination of all arbitrage.
In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply (surplus).
International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale.
Unequal exchange is used primarily in Marxist economics, but also in ecological economics, to denote forms of exploitation hidden in or underwriting trade. Unequal exchange is usually calculated by assuming that any trade between a country with a high price level and a country with a low price level, is exploitation. Originating, in the wake of the debate on the Singer–Prebisch thesis, as an explanation of the falling terms of trade for underdeveloped countries, the concept was coined in 1962 by the Greco-French economist Arghiri Emmanuel to denote an exchange taking place where the rate of profit has been internationally equalised, but wage-levels have not. It has since acquired a variety of meanings, often linked to other or older traditions which perhaps then raise claims to priority.
In economics, competition is a scenario where different economic firms are in contention to obtain goods that are limited by varying the elements of the marketing mix: price, product, promotion and place. In classical economic thought, competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater the selection of a good is in the market, the lower prices for the products typically are, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly).
In international economics, international factor movements are movements of labor, capital, and other factors of production between countries. International factor movements occur in three ways: immigration/emigration, capital transfers through international borrowing and lending, and foreign direct investment. International factor movements also raise political and social issues not present in trade in goods and services. Nations frequently restrict immigration, capital flows, and foreign direct investment.
Low-cost country sourcing (LCCS) is procurement strategy in which a company sources materials from countries with lower labour and production costs in order to cut operating expenses. LCCS falls under a broad category of procurement efforts called global sourcing.
Economic discrimination is discrimination based on economic factors. These factors can include job availability, wages, the prices and/or availability of goods and services, and the amount of capital investment funding available to minorities for business. This can include discrimination against workers, consumers, and minority-owned businesses.
Global workforce refers to the international labor pool of workers, including those employed by multinational companies and connected through a global system of networking and production, foreign workers, transient migrant workers, remote workers, those in export-oriented employment, contingent workforce or other precarious work. As of 2012, the global labor pool consisted of approximately 3 billion workers, around 200 million unemployed.
Economic globalization is one of the three main dimensions of globalization commonly found in academic literature, with the two others being political globalization and cultural globalization, as well as the general term of globalization. Economic globalization refers to the widespread international movement of goods, capital, services, technology and information. It is the increasing economic integration and interdependence of national, regional, and local economies across the world through an intensification of cross-border movement of goods, services, technologies and capital. Economic globalization primarily comprises the globalization of production, finance, markets, technology, organizational regimes, institutions, corporations, and people.
This page is based on this Wikipedia article Text is available under the CC BY-SA 4.0 license; additional terms may apply. Images, videos and audio are available under their respective licenses.
