Paper with Jing Gong (Temple) and Alejandro Zentner (UT Dallas) on the role of monetary incentives in the digital and physical inter-border labor flows accepted for publication in Journal of Management Information Systems!

Title: MONETARY INCENTIVES AND THE SUPPLY OF FOREIGN LABOR IN THE BORDERLESS INTERNET AGE

Abstract

By allowing individuals to engage in remote relationships with foreign employers, online labor markets have the potential to mitigate the inefficiency costs due to the legal barriers and other frictions deterring international physical migration. This study investigates how the supply of foreign labor in digital and physical markets responds differently to monetary incentives. We use a unique data set containing information on digital labor flows from a major global online labor platform in conjunction with data on physical labor flows. We exploit short-term fluctuations in the exchange rate as a source of econometric identification: a depreciation of a country’s currency against the U.S. dollar increases the incentives of its workers to seek digital and physical employment from employers based in the United States. Using a panel count data model, we find that monetary incentives induced by depreciations of foreign currencies against the U.S. dollar are positively associated with the supply of foreign labor in digital markets, as expected from the frictionless nature of electronic markets. However, we fail to find a positive relationship between monetary incentives and the supply of foreign labor in physical markets, which might be expected due to the substantial bureaucratic restrictions and transaction costs associated with physical migration. We further examine how countries’ income and information and communications technologies development levels moderate the positive relationship between monetary incentives and digital labor flows. We discuss the implications of our findings for policy design and for measuring the inefficiency costs due to the restrictions on physical migration.

KEY WORDS AND PHRASES: Economics of information systems, electronic markets, empirical research, income elasticity, information policy, monetary incentive theory, online labor markets, outsourcing.