What is Labor Arbitrage?

4/14/2017           |      Print      Send to friend

What is Labor Arbitrage?
What is Labor Arbitrage?

 

What Is Labor Arbitrage?

Labor arbitrage is often associated with outsourcing or offshoring. The idea is that a certain set of skills (e.g., a mathematician with five years of experience) could be hired in a different market, such as another city, region, or country for less. The difference in labor costs is an incentive to reevaluate the position's geographic location, whether in the same country or to a global market.
 
labor-outsourcing
 
The term labor arbitrage comes from a financial concept that refers to identifying the cost differential between two similar or identical products or services in two or more markets and capitalizing on the difference in cost. For example, financial traders will buy the rights to a million tons of wheat in one state where the price is slightly low and sell it in another state where the price is slightly high. Likewise, if an employer has $10,000 to spend on labor cost, the decision to outsource the labor for $5,000 is far more appealing than keeping up with the rising cost of wages that may require the employer to pay $12,000 for an employee with identical or similar capabilities.

 

Using Labor Costs to Justify Outsourcing

Labor cost differentials also may affect an employer's decision to hire an employee with less or even more expertise for the role in that particular region. The cost to employ a New York-based mathematician with 10 years of experience for an entry-level or mid-range position is likely more than the cost to hire a recent college graduate in Oklahoma City, who has the basic skills and aptitude necessary to perform the job duties.
However, in the real world, the arbitrage of labor is not the same as the arbitrage of agricultural or manufactured goods. For example, each of a batch of 1,000,000 ball bearings might be essentially identical. However, each member of a team of financial analysts in Paris will have their strengths and weaknesses.
If their work were given to a team in Berlin, even if that team had similar qualifications, the results would probably be somewhat different. If the work were instead given to a team in India with good (but different) qualifications, the results would differ even more.

 

Factors That Affect Outsourcing Decisions

The lack of certainty in labor arbitrage can be mitigated a number of ways. If the outsourced labor is less expensive, you can hire some or all of the teams with individuals with higher credentials than the team they replace. Alternatively, you may be able to hire additional team members or managers. Each option has a cost that must be part of the calculation for labor arbitrage benefits.

Talent-acquisition-specialist
 
The benefits and disadvantages of labor arbitrage should take into account indirect costs associated with outsourcing, such as expenses related to managing the outsourced positions, and employee benefits cost in the newly selected region or market. For example, labor costs might be lower in a particular region due to labor market availability, skills, and expertise of workers. On the other hand, the cost to insure workers, products, and equipment might be higher, thus offsetting the benefit an employer stands to gain from outsourcing work or sending jobs offshore.
 
Source: The Balance


Releted post

What do relocation services usually include?

What do relocation services usually include?

10/17/2017

Every single year, millions of people in the Vietnamese relocate for work – companies hire new employees from out of the area, current employees are sent on long-term assignments in distant cities...

Read more

What is Compliance Services?

What is Compliance Services?

7/18/2017

In some cases a company can, like any customer, decide to stop buying a particular good or service, and so even severance or shutdown costs can be under its control....

Read more

Payroll Service - Automatic Data Payroll

Payroll Service - Automatic Data Payroll

7/17/2017

A payroll service is a company that will, for a fee, handle all of these functions independently, freeing up the business owner's time for more important matters. Once an account is established...

Read more

What Are the Duties of the Local HR Assistance?

What Are the Duties of the Local HR Assistance?

7/15/2017

Local HR Assistance is an administrative professional who performs a variety of transactional duties in support of a business’...

Read more

Top of Best Payroll Services for 2017

Top of Best Payroll Services for 2017

7/13/2017

To help you find the right payroll service, we researched and analyzed dozens of options. Here is a roundup of our 2017 best picks for online payroll services and an explanation of how we chose them.

Read more

Choosing a Payroll Service: A Buying Guide for Businesses

Choosing a Payroll Service: A Buying Guide for Businesses

7/13/2017

Here's everything you need to know about what an online payroll service is, what it offers and how to choose one. If you already know what you're looking for, visit our best picks page to see...

Read more

What is Labour Outscourcing?

What is Labour Outscourcing?

7/12/2017

In implementing labour outsourcing, the licenced Labour Outsourcing Provider will recruit employees and assign such employees to work for another employer...

Read more

How to Start an Employment Service Staffing Agency

How to Start an Employment Service Staffing Agency

7/11/2017

The most common structure of employment agencies is a small office with a handful of internal employees who recruit candidates and sell employment services to local businesses. Even the largest international staffing companies...

Read more

Human Resources and Human Resources Services

Human Resources and Human Resources Services

6/29/2017

The department or support systems responsible for personnel sourcing and hiring, applicant tracking, skills development and tracking, benefits administration and compliance with associated government regulations .

Read more

Statutory Liability - Insurance

Statutory Liability - Insurance

6/14/2017

Another benefit of this type of cover is that it pays out for a wide range of different expenses. Any good statutory liability insurance policy should reimburse...

Read more

Definitions: Payroll Management

Definitions: Payroll Management

6/7/2017

An employer, regardless of the number of workers they employ, must maintain all records pertaining to payroll taxes for at least four years after the tax becomes due or is paid...

Read more

09 Tips for Talent Recruitment

09 Tips for Talent Recruitment

4/26/2017

Recruitment art is actually a pure spreading form because you do not merely to persuade others to try your product, buy service or even to do business with you but asking people to bet their career in your company.

Read more

Compulsory Insurance

Compulsory Insurance

4/15/2017

Any type of insurance an individual or business is legally required to buy. Compulsory insurance is mandatory for individual...

Read more

Labor Dispatch Service

Labor Dispatch Service

4/14/2017

Labor dispatch also known as talent dispatch, staffing, workforce dispatch or workforce leasing, refers to a new type of employment mode by which labor dispatch institutions...

Read more

2016 BENEFITS & TRENDS

2016 BENEFITS & TRENDS

4/14/2017

2016 BENEFITS & TRENDS

Read more

10 methods of wrong recruitment must be avoided

10 methods of wrong recruitment must be avoided

4/7/2017

All companies are afraid of hiring the wrong person which causes lots of adverse effects on the company’s operations.

Read more

Do not blow your chance with great candidates

Do not blow your chance with great candidates

4/7/2017

Interviews are arguably the most important element of a recruiting process, but too often employers let themselves down by failing to properly plan and inform candidates of what to expect.

Read more

OBTAINING WORK PERMIT ASSISTANCE

OBTAINING WORK PERMIT ASSISTANCE

3/23/2017

In hanoi, the number of foreign laborers coming to Vietnam has steadily increased in recent years, surging to over 88,000 workers at the end of 2012.

Read more

The role and task of Talent acquisition specialist

The role and task of Talent acquisition specialist

3/22/2017

The Talent acquisition specialist has the role and task of recruiting talented new employees to a given company. This job requires the individual to have excellent communication skills.

Read more

Definitions of Staffing Solutions and Services

Definitions of Staffing Solutions and Services

3/11/2017

Here are definitions of the basic types of staffing services, as well as the occupational categories typically served by staffing firms.

Read more

REGULATIONS ON LABOR DISPATCH

REGULATIONS ON LABOR DISPATCH

3/10/2017

The Labor Contract Law of Vietnam or few country in the worlds requires enterprise(s) using labor dispatch services to sign an agreement governing the terms of such services ("Dispatch Agreement") with the relevant staffing agency.

Read more

The difference of Recruitment and Talent Acquisition

The difference of Recruitment and Talent Acquisition

3/9/2017

Talent Acquisition means a view of not only filling positions, but also utilization of the candidates and their skills that come out of a rigorous recruitment process

Read more

No more BAD HIRES- TIPS to HIRE WITH PURPOSE

No more BAD HIRES- TIPS to HIRE WITH PURPOSE

1/20/2017

If you want to have a great company, you can’t do so without great people

Read more

Search

Tags


Follow us