Global labor arbitrage is an economic phenomenon where, as a result of the removal of or disintegration of
barriers to
international trade
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. (See: World economy.)
In most countries, such trade represents a significan ...
, 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.
[The "global labor arbitrage" phenomenon has been described by economist Stephen S. Roach. See Mike Whitney]
"Labor arbitrage,"
''Entrepreneur'', June 2006.
Two common barriers to international trade are
tariff
A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...
s (politically imposed) and the costs of transporting goods across oceans. With the advent of the
Internet
The Internet (or internet) is the Global network, global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a internetworking, network of networks ...
, the decrease of the costs of
telecommunications
Telecommunication, often used in its plural form or abbreviated as telecom, is the transmission of information over a distance using electronic means, typically through cables, radio waves, or other communication technologies. These means of ...
, 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
Computer programming or coding is the composition of sequences of instructions, called computer program, programs, that computers can follow to perform tasks. It involves designing and implementing algorithms, step-by-step specifications of proc ...
) or that makes use of college education, have been greatly reduced.
Often, a prosperous nation (such as the
United States
The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
) will remove its barriers to international trade, integrating its
labor market
Labour economics seeks to understand the functioning and dynamics of the Market (economics), markets for wage labour. Labour (human activity), Labour is a commodity that is supplied by labourers, usually in exchange for a wage paid by demanding ...
with those of nations with a lower cost of labor (such as
India
India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...
,
China
China, officially the People's Republic of China (PRC), is a country in East Asia. With population of China, a population exceeding 1.4 billion, it is the list of countries by population (United Nations), second-most populous country after ...
, and
Mexico
Mexico, officially the United Mexican States, is a country in North America. It is the northernmost country in Latin America, and borders the United States to the north, and Guatemala and Belize to the southeast; while having maritime boundar ...
), resulting in a shifting of jobs from the prosperous nation to the developing one. The 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:
Foreign outsourcing
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. 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.
[Nadeem, S (2009]
"The Uses and Abuses of Time: Globalization and Time Arbitrage in India’s Outsourcing Industries,"
'' Global Networks''.
See also
*
Absolute advantage
In economics, the principle of absolute advantage is the ability of a party (an individual, or firm, or country) to produce a good or service more efficiently than its competitors. The Scottish economist Adam Smith first described the principle ...
*
Balance of trade
Balance of trade is the difference between the monetary value of a nation's exports and imports of goods over a certain time period. Sometimes, trade in Service (economics), services is also included in the balance of trade but the official IMF d ...
*
Global workforce
*
Exploitation of labour
Exploitation is a concept defined as, in its broadest sense, one agent taking unfair advantage of another agent. When applying this to labour (or labor), it denotes an unjust social relationship based on an asymmetry of power or unequal exchange ...
Notes
{{DEFAULTSORT:Global Labor Arbitrage
Arbitrage
International trade
Global workforce
Offshoring
Economic globalization