Vanishing Borders in the Internet Age: The Income Elasticity of the Supply of Foreign Labor in Virtual versus Physical Markets

Date
2018-01-03
Authors
Gong, Jing
Hong, Yili
Zentner, Alejandro
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Abstract
This study investigates how the supply of foreign labor in virtual versus physical markets responds to monetary incentives using information on digital labor flows from a major global online labor platform for IT services in conjunction with data on physical labor flows into the United States. We use exogenous changes in the exchange rate as a source of identification: a depreciation of a country’s currency against the US dollar exogenously increases the incentives of its workers to seek employment in the United States. Our results suggest that monetary incentives, measured as a depreciation of a country’s currency against the US dollar, have a substantial impact on the supply of foreign labor in virtual markets. However, we do not find that monetary incentives have a statistically significant impact on the supply of foreign labor in physical markets, which might be expected since physical migration faces substantial bureaucratic restrictions and transaction costs.
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Keywords
Strategy, Information, Technology, Economics, and Society (SITES), Online labor markets, foreign labor supply, exchange rate, migration
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