Global labor arbitrage

Global labor arbitrage

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 is inexpensive and/or relatively impoverished labor moves to nations with relatively higher paying jobs.

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 a 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 the price point (wages, standard of living) where supply and demand curves intersect. This means that the owners of capital will be able to keep a relatively larger amount of the value of a laborer's work product, resulting in the enrichment of the owners of capital and laborers in the impoverished country at the expense of laborers, including college-educated white collar workers (such as computer programmers and IT workers), in the relatively prosperous nation. As with any other form of trade, the upside is the benefit gained by such transaction is efficiency as demonstrated by lower prices. Global trade reduces overall costs to the producers, which in turn will reduce the price assuming a competitive marketplace. Fact|date=February 2007

Forms of global labor arbitrage

Global labor arbitrage can take many forms, including but not limited to:

Foreign outsourcing

(Sometimes known as Offshore outsourcing.) Capital moves to nations with relatively cheap labor 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's trade deficit).

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. In the United States, two of the most common foreign work visas are the H-1B and L-1 visas, of which the former is specifically intended for workers with intent to permanently immigrate to the United States.

Such importation often has advantages. According to, over 25% of all startups in the Bay Area of the US in the last 15 years were by immigrants (most likely former or current H-1Bs). 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. It is very possible that those opportunities may have otherwise been filled by Americans, but there is no research to suggest so.

According to, immigrant founded companies such as Intel, Sun, Google, Yahoo and EBay together employed more than 200,000 people.


Relatively impoverished labor moves towards capital in relatively 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. While this is an appealing notion, given that the overwhelming majority of immigrants to the United States, both legal and illegal, are not the very small percentage of the world's population who are innovators but rather blue collar laborers and average college graduates, that possibility may be very unlikely in the United States as a result of economic laws of supply and demand of and for labor.

Although only peripherally related to the issue of global labor arbitrage but very much related to the issue of the economic prosperity and well being of non-immigrants, mass immigration can result in a population explosion which can negatively affect the well being of native people. Logically, after a nation's population has reached a certain size relative to its amount of useful land, an increasing population results in crowding (higher real estate costs and less open-space per person), a greater strain on the environment (increased environmental degradation), and increasing costs of living (fewer natural resources available per capita). Consequently, when considered in that context, it might be possible to also regard immigration as a form of "environmental arbitrage" where people flow from areas of relatively high population density to areas of lower population density.

Maintenance of a trade deficit by selling land and capital assets

Foreign labor produces goods and/or services for import into another nation's market without people in other nations purchasing an equal value of goods and/or services from that nation. This could result in the devaluation of the importer's currency and the restoration of a balance of trade, or it could result in the sale of the nation's land and capital assets to people in other countriesFact|date=February 2007, which means that the nation with the trade deficit could essentially be exchanging its land and capital assets for goods and services, resulting in the nation's impoverishmentFact|date=February 2007. The trade deficit can be the result of the other three forms of outsourcing or merely the purchase of goods and services produced by foreign-owned businesses.

External links

* [ Second Thoughts on Free Trade] by Senator Charles Schumer and Paul Craig Roberts

* [ Immigration Gumballs] a must-watch, thought-provoking presentation

* [ Debunking the Myth of a Desperate Software Labor Shortage]

* [ No Jobs for the New Economy or the Old]

* [ Subprime Nation] by Patrick J. Buchanan makes mention of how trade deficit dollars are being used to purchase American-owned assets.

* [ Third World America Forums] This is a newly opened and perhaps the first discussion forum dedicated to the issue of Global Labor Arbitrage.

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