The Rise of Digital Nomad Visas: Talent Arbitrage in Real Time

New technology allows many, if not most, white collar workers to complete their tasks from anywhere on the planet with a strong Internet connection.  Computer work, such as creating or manipulating documents, spreadsheets, graphic designs, or software, can be done just as well in a beachfront rental house in Fiji as it can be done in an office complex in Omaha, Nebraska.  Not surprisingly, the improvement in online work tools during the 2020-21 Covid pandemic has led many white collar workers to seek permanent remote work.  While most seek to do their remote work from their house in the same city as their office, some attempt to move to more desirable cities and towns…or even other countries.

Historically, the concept of traveling remote workers hearkens back to the late 1990s and the rise of high-speed Internet, though workers did not begin generating remote content in significant amounts until about fifteen years later.  The Covid pandemic dramatically increased this remote generation of work, which has continued to expand in the aftermath.

Digital Nomad Visas

Those who wish to move to another country for remote work can apply for a specific digital nomad visa, also known as a remote work visa, to signify that they are employed and have an income.  Some nations have no minimum income required to receive a visa, including Germany, but most do set a required threshold.  Those making less than $2,000 per month from their remote work can only access a few digital nomad visas in Europe, but can find many nations in Latin America to establish residency.  Spain is a popular destination for digital nomads, followed by the Netherlands, Norway, and Estonia (which founded the concept of the digital nomad visa in 2014).

Talent Arbitrage Explained

Talent arbitrage means using arbitrage - taking advantage of different markets’ costs and prices - to access workers at below-market (meaning your home market) costs.  Remote work allows firms to access talent across virtually all markets, avoiding those with high cost of living where workers would demand higher wages.  A firm in high-cost New York City could save thousands per worker by hiring remote workers out of the Midwest.  This principle has been used for decades in outsourcing, where companies use the principle of labor arbitrage to find similarly-skilled workers in lower-cost markets to perform manual labor or, in recent years, white collar tasks.

With modern remote work technologies, combined with AI tools and translation programs, digital nomads may not even have to be fluent in the language of their employers.  In theory, this would allow white collar firms the ability to access all white collar workers worldwide, accessing those with the lowest market wages who meet skill and competency requirements.  To enjoy a wider range of remote work opportunities or make more profit (income minus cost of living), workers could use digital nomad visas to establish residencies in countries with the lowest cost of living that meet their desired minimum quality of life.

Economic Advantages of Attracting Remote Workers

Increased GDP

Nations offering digital nomad/remote work visas benefit from attracting workers who are bringing in money from other markets.  This is similar to the economic concept of capital inflow, where foreign investment occurs within a country, or net exports, where foreign purchases of goods and services are made.  Money that is brought into an economy adds to gross domestic product and stimulates local businesses.  Remote workers living within a country will purchase the majority of their goods and services locally, providing a net economic benefit.  Because most digital nomad visas require a minimum income threshold, these residents are unlikely to need social welfare services, thus reducing the likelihood of draining resources.  

Long-Run Benefits to Net Exports

Outside of pure revenue and resource considerations, remote workers on digital nomad visas may be economically beneficial in the long run by helping establish stronger diplomatic and/or tourism ties between nations.  For example, having a large digital nomad population of English-speaking workers in Spain may bolster diplomatic and tourism ties between Spain and the United States, Britain, and Canada.  Eventually, this could lead to greater Spanish export revenue from these countries, as returned tourists and remote workers continue to desire those goods.

Economic Disadvantages of Attracting Remote Workers

Although remote workers are bringing in foreign incomes, which stimulate local businesses, there may be additional costs to having significant numbers of digital nomads.  Cultural clashes have occurred in many places as influxes of remote workers have strained resources and caused violations of local traditions and norms.  Remote workers’ lack of ties to local cultures and communities can lead to challenges, both for the workers themselves and for native-born citizens.  These can result in economic costs as resources are expended to try to help remote workers integrate culturally, such as language classes and various outreach programs.

Localized Inflation and Gentrification

Popular locations for digital nomads have seen rising prices due to increased demand for housing and goods.  While remote workers are bringing in money that benefits local businesses, too much money causes prices to rise and potentially “price out” native-born customers.  In some areas, this has led to protests against the influx of digital nomads, especially in regard to housing rental prices.  Locals complain that their rents are being driven up by digital nomads who, making higher foreign wages, can afford to offer above-market rents.  This has led to accusations of gentrification, with higher-income remote workers from North America and Europe allegedly driving out native-born residents through higher prices.

Increased Negative Externalities

Negative externalities are costs suffered by third parties that are not subject to the economic transaction causing the cost.  A common example is pollution, which can spread far beyond its point of origin and harm people who receive little or no benefit from that economic production.  When costs are borne entirely by the producer and consumer, harms like pollution tend to be limited by market forces.  When some of the costs are borne by third parties, however, market forces are not sufficient to limit the harm - neither the producer nor consumer feels the full effect of the harm - and too much of the harm (pollution, crime, etc.) is produced.

Similarly, holders of digital nomad visas may not truly feel economic harms the way citizens or permanent residents do, allowing excessive harms to be generated.  Pollution, trash, and crime may be of less concern to digital nomads, who view their stay in that city as temporary.  Therefore, digital nomads will be considerably less invested in reducing these economic harms and try to avoid adjusting their consumption, production, or paying of taxes.  Digital nomads, as opposed to citizens or permanent residents, may see less harm in littering, failing to recycle, or choosing higher-polluting vehicles and appliances.

Taxation Complications and Insufficient Government Revenue

Paying taxes can be extra complicated for digital nomads, many of whom are expected to pay taxes both back home and in their current nation of residence.  Some digital nomads may fail to pay their full tax burden due to confusion or a conscious desire to not pay.  This can result in economic harms to the digital nomad’s nation of residence, which is receiving insufficient tax revenue.  The government is still paying to provide services, directly and indirectly, that benefit the digital nomad, while not receiving fair income.  This situation becomes compounded if many digital nomads are putting a strain on local infrastructure, requiring the government to invest in new infrastructure while receiving insufficient tax revenue in return.