We read and hear a lot about immigration, mostly as a national crisis. But whether we like it or not, I believe immigration is here to stay. As circumstances in Third World countries become increasingly desperate, people are leaving those countries in favor of the rich countries. But with the rise of a geographically mobile workforce, the possibility of a major immigration flow in the opposite direction is entirely possible.
A radical idea, you say? Maybe so, but it’s likely to become a more attractive option going forward, particularly as the fortunes of the middle class and even of retirees continues to deteriorate from forces beyond our control at the individual level.
Have You Ever Head of “Global Labor Arbitrage”?
Arbitrage is a fancy word, but one we all need to be familiar with. If most or all your income is derived from work, there’s an excellent chance you’re affected by global labor arbitrage. For that reason alone, you need to understand what it’s all about.
Let’s start with the definition of the word arbitrage. It happens in virtually every economic activity, including the way we shop. Investopedia describes it as follows:
“Arbitrage is the simultaneous purchase and sale of an asset to profit from an imbalance in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient.”
To give this definition a visual picture, it’s the reason why most of the products we buy are imported from foreign countries. Mostly, it’s low-wage countries, like China, India, and Brazil. But it also happens with currencies, where an investor might buy, say the Japanese yen, because it’s cheap compared to the US dollar. It can also happen with commodities, where say, an American company imports coal from Brazil because it’s cheaper than buying it from a US source.
It happens all the time, but it’s become increasingly common with labor. And it affects most workers in one way or another.
How Global Labor Arbitrage Affects (Hurts) Workers
The Intelligent Economist gives an excellent summary of global labor arbitrage:
“Global labor arbitrage is where, as a result of the removal or reduction of barriers to international trade, jobs move to nations where labor and the cost of doing business (such as environmental regulations) is inexpensive. The alternative is impoverished labor moves to countries with higher paying jobs…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 result is an increase in the supply of labor relative to the demand for labor, which means a decrease in costs.”
Simply put, global labor arbitrage lowers wages.
The article goes on to describe the three basic forms of global labor arbitrage. The first is foreign outsourcing, where businesses move entire operations to countries with cheap labor. This explains why manufacturing jobs in the US have collapsed in the last 50 years.
The second is importing foreign skilled labor using work visas. This has become common in the IT field, where highly skilled workers from low labor cost countries (frequently India) are encouraged to relocate to the US, creating a glut of IT workers. This puts downward pressure on wages in that field.
The third is through immigration. People from low-wage countries migrate to rich countries in search of higher-paying employment opportunities. Like importing foreign skilled labor, immigration depresses wages by creating an oversupply of workers.
Whatever the specific methodology, employers gain the upper hand versus employees. Even in an expanding economy, they’re able to reduce or suppress wages, through arbitrage of the global labor force.
Arbitrage Can Work to Your Advantage – But Most Workers Aren’t Aware of it
For most workers, arbitrage is a negative. The best we can say about it is that we pay less for a wide range of products, as companies sell low-cost products manufactured in low-wage countries to consumers in rich countries. The prices are lower than products that can be manufactured domestically.
However, those price advantages aren’t always so clear-cut. Low production costs in foreign countries usually translate to higher profit margins by the companies taking advantage of the arbitrage. This means at least part of the benefit of low-cost products is lost on consumers in rich countries in favor of the companies that import them.
But what the vast majority of workers in rich countries, like the US, don’t realize is that they can use arbitrage to their advantage. It’s simply a matter of reversing the dynamics.
For example, a US worker with certain skills – that may have been at least partially devalued because of global labor arbitrage – relocates to a low-cost country. The worker retains his or her income level, but the money goes farther in the lower-cost country. It’s not an easy transition to make, because it requires a full-on life transition. But it’s actually more doable today than ever before.
There are several reasons why this is true.
1. Work skills are becoming standardized globally
At least part of the reason for importing skilled labor from one country to another has to do with the standardization of certain skills. For example, the same IT skills that are being taught and employed in India easily transition into the US. The US Department of Labor even has programs to invite foreign workers with certain skills into the country. This is probably true of many other countries as well
As the world modernizes, certain skills have become universally necessary. It’s not just IT positions either. Think about fields like nursing, teaching, and marketing skills to enable a foreign concern to sell products or services in the US.
2. Certain skills are more valuable outside the US than they are inside
One that quickly comes to mind is someone with bilingual capabilities, who can teach English to people in foreign countries who may want to either migrate to the US or do business here. Another may be working in the travel and hospitality industry. Those are low-wage positions in the US, but often pay more to induce native English speakers to come to foreign tourist destinations. I’ve actually known people who have made this transition.
The ability to speak English is a major advantage outside the English-speaking world, because English is the closest thing we have to a universal language. At a minimum, English is considered a valuable second language the world over, but especially in business. It’s an advantage most Americans don’t realize they have.
If you’ve ever considered moving to another country, you should concentrate on learning that country’s language. You might have a built-in career teaching English to the locals.
3. The Internet
While we might think of the Internet as a nice tool to have at home or at work, this human innovation is literally tearing down borders. A person in one country can transact business with someone in another. It happens all the time, and you’re probably already doing it yourself. If you’ve ever bought something online – and it came from another country – you’ve sliced through an international border.
It’s happening every day on the Internet, through tens of millions of transactions. The Internet is linking people around the globe. Were you to relocate to another country, you’d still be able to transact business in America, and in every other country in the world as well.
The possibilities here are endless. In my work as a blogger and freelance blog writer, I earn income from international sources on a regular basis. In fact, that part of my income has been growing faster than domestic sources in recent years. I believe it’s possible for anyone in just about any business today.
These bring the Internet to a handheld device. Even in a foreign country, you can easily and quickly connect with people and businesses back home. But you can also connect with people and businesses in other countries.
The dramatic improvement in communications technology in the past couple of decades truly is making the world smaller. You no longer need to live in New York City – or any other community in America – to be able to participate in what’s going on there. The Internet and smartphones are keeping everyone connected.
5. Inexpensive travel
Global tourism and travel are booming. In 1950 the number of people traveling internationally was a paltry 25 million. It rose to 1.2 billion by 2016. That means one out of every six of the world’s residents are traveling to a different country each year. The number is expected to grow steadily, at least through 2030.
This presents three major arbitrage advantages:
- Foreign travel has become easier and less expensive than ever before, and thus more accessible to the average person.
- It enables easier physical connections to and from home in a foreign location.
- It highlights the potential for employment opportunities in the travel industry.
Air travel in particular has exploded, with the net result being that there’s almost no place in the world too remote that it can’t be reached in just a few hours. But on a more local level, travel within individual countries is also easier than ever. The US interstate highway system and the European wide rail service are examples. The combination of travel options reduces physical distances between places globally.
6. Electronic Money
Much is made of the rise of electronic money. It means you can be in one place, while your money is stored somewhere else. That somewhere else is, for the most part, on the computers of banks and brokerage firms.
I think this point is missed by the masses. While we mostly think of it as being a convenience, it’s actually much more than that. You can be in one of the most remote parts of Asia, Africa or South America, while your money is safely held back in the US.
This is an incredibly liberating development (particularly for retirees). Just a couple of generations ago, mobility was highly limited by the location of your assets. It could be stock certificates held at home or with a broker, or even cash in the local bank. But now that we have electronic money, physical custody is no longer an issue, and neither is geography. In a sense, you can move to another country and take your money with you – without ever needing to physically move it.
A Strategy to Join the Geographically Mobile Workforce
It’s now possible to live in a low-cost country, while keeping most of your money and investments in the US. You can also easily maintain communications and even business transactions back in the US, and travel easily to and from your country of residence and home.
More significantly, it’s now possible to live in a low-cost country, while earning your living back in the US, or even from other countries. Since most business now transacts over the web, many jobs can now be done remotely.
If you can retain your investments in the US – as well as maintain a US level income – while living in a low-cost country, you’ll effectively reverse global labor arbitrage in your favor. You’ll be doing exactly what the big conglomerates do, but turning the financial advantage in your favor.
I’ll be the first to admit not everyone would be suited to this kind of transition. I myself would be a strong candidate for this type of move. As a mobile creative, having an income that’s not dependent on geography, it’s a move I could make. I just have no personal desire to do so.
But it can be a way for you to leverage your income to a higher effective level. For example, if you currently live in the US, earn $50,000 per year, and spend $50,000 per year, you might gain an advantage by moving to a low-cost country.
If you can live in that country for $30,000 per year, you can save and invest $20,000. You may also find the value of your labor rises, since you’ll gain a foreign perspective and experience. Whether you stay in the new country, or relocate back to the US, that experience and skill set may move you up to the next level.
Is the Rise of the Geographically Mobile Workforce the Wave of the Future?
I think it is. As living costs and taxes get higher in the rich countries, more rich country workers are likely to be enticed to move to lower-cost countries. This trend is already in motion on a very limited basis, and it has the potential to improve an individual’s finances.
The economic squeeze on the American middle class has been well documented, even if it’s being ignored by the political class. But that’s really the point. We become indoctrinated to believe that solutions to our biggest problems will come from higher up. But so far, that expectation hasn’t played out.
More likely, solutions to our biggest problems are likely to come at the grassroots level. As more skilled workers from rich countries, particularly America, relocate to low-cost countries, people will be creating their own solutions to chronic domestic problems. It may seem unreachable from where you sit right now, but as I described above, the obstacles to making an international move are becoming lower all the time.
While most of us have grown up believing we would live in America all our lives, that notion may come apart in the next decade or two. If necessity is the mother of invention then it’s also the foundation of fundamental change. When people begin to vote with their feet, moving from one place to another, we’ll begin reversing the global labor arbitrage that has so far worked against us.
It’ll take thinking outside the box, acquiring some new skills, developing a different mindset, and finding some measure of courage to pull off. But soon enough, the trickle of Americans moving to lower-cost countries may turn into a human tidal wave. It may increasingly become a move of choice or necessity.
Have you considered relocating to a low-cost country?