The Distributional and Allocative Impacts of Virtual Labor Mobility across Time Zones through Communication Networks

• Author: Ngo Van Long,Noritsugu Nakanishi
• Date: 01 August 2015
• DOI: http://doi.org/10.1111/roie.12185
• Published date: 01 August 2015

The Distributional and Allocative Impacts of Virtual

Labor Mobility across Time Zones through

Communication Networks

Noritsugu Nakanishi and Ngo Van Long*

Abstract

Using a specific-factors’ model, with two goods (a shift-working good and a non-shift-working good), three

factors (capital specific to shift-working, land specific to non-shift-working and labor) and two countries

(Home and Foreign),which are located in different time zones, we highlight the impact of trade in labor ser-

vices via communication networks on factor prices and production patterns.If two countries are identical in

size, then under free trade in labor services,all workers work only in their local daytime, and night shift in

each country is performed by imported labor services supplied by residents of the other country in their

local daytime. Night-time wage becomes the same as daytime wage (a wage equalization result). Other

factor prices are also equalized. In both countries, capital rental rate increases, while land rent decreases.

However, if two countries are different in size,trade in labor services does not equalize wages: in the large

country, wages for night-shift workers are higher than daytime wages and some residents work at night;in

the small country, daytime wages become higher than night-time wages and no one works at night, and

night-shift work is done by imported labor services from the large country. Land rent in the small country

decreases. Land rent in the large country may or may not decrease,but it is always higher than in the small

country.Capital rental rates in both countries are equalized and increase.

1. Introduction

Thanks to the rapid advance in communication technology, the past two decades since

1995 have witnessed substantial increases in international trade in labor services. As

everyone knows, when you make a telephone enquiry about a charge on your credit

card account, you are quite likely to talk to someone working at a call center located

on the other side of the Earth. The x-ray images of your lungs taken in your local

clinic may be sent to a far-away country for reading.1Your term essay written in the

Northern hemisphere may be graded by some graduate students living in some city in

the Southern hemisphere. Your journal article to be published by a publishing house

in the “center” is proof-read somewhere by a professional proof-reader living in the

“periphery.” A computer program written by a team located in one country may

be sent to another team located in another country for debugging.

International trade in labor services have been facilitated by a variety of factors.

One of these is the increased possibility of fragmentation of the production processes.

[For models of fragmentation and the role of trade in services, see e.g. Jones and

* Nakanishi: Graduate School of Economics,Kobe University, Rokkodai-cho 2-1, Nada-ku, Kobe657-8501,

Japan.Tel:+81-78-803-6837 (Office direct); E-mail: nakanishi@econ.kobe-u.ac.jp. Long: Department of Eco-

nomics, McGill University, Montreal H3A 2T7, Canada. E-mail: ngo.long@mcgill.ca. The authors are grate-

ful to an anonymous referee for useful comments and suggestions. Noritsugu Nakanishi acknowledges the

financial support of the Japan Society for the Promotion of Science [Grant-in-Aid for Scientific Research

(A), No. 22243024].

Review of International Economics, 23(3), 638–662, 2015

DOI:10.1111/roie.12185

© 2015 JohnWiley & Sons Ltd

Kierzkowski (1990), Feenstra (1998), Long et al. (2005) and Antras (2005).] A second

reason is the technical progress that contributes to the lowering of the costs of inter-

national communications.2

With the revolution in communication technology, another difference between

countries has become a new driver for international trade in services: differences in

time zones. Cairncross (2001) pointed out that thanks to communications, time zones

offer a new competitive advantage. In a pioneering paper, Marjit (2007) showed how

differences in time zones generate gains from trade. Marjit pointed out that,for some

services, production of the final output must proceed in successive stages.The second

stage cannot begin before the first stage has been completed. For example, the first

stage may be “problem formulation” and the second stage may be “problem solving.”

In this setting, time becomes a crucial element. Consider an economy (called the

Home country) located at a specific time zone, that produces a final good (a service)

requiring two successive stages of production. Suppose that each stage requires 12

hours of work, and assume that night-time labor (say from 6 p.m. to 6 a.m.) is pro-

hibitively expensive. Then, in the absence of international trade in labor services

across time zones, a “job” that begins in the Home country at 6 a.m. on Monday can

only be completed on 6 p.m. on Tuesday, the first stage being completed at 6 p.m. on

Monday, and the second stage being commenced at 6 a.m. on Tuesday. Clearly this

economy will stand to gain if the second-stage task can be offshored to a country

(called Foreign) located in a diametrically opposite time zone, for then the whole

production process can be completed within 24 hours, without interruption.3The final

output is then available on Tuesday morning, at 6 a.m. Home firms that offshore the

second stage to Foreign can therefore obtain the revenue earlier, thus saving on

interest cost.

In his pioneering paper, Marjit (2007) presented a Ricardian model of the gains

from trade in labor services based on time-zone differences, under the assumption of

two-stage production. While workers are physically immobile between Home and

Foreign, there is virtual labor mobility because of communication technology. It is as if

Foreign daytime labor were being sent to Home to work during Home’s night-time.

Marjit (2007) assumed that (a) Home and Foreign labor perform different stages of

production, (b) night-time labor is prohibitively expensive under communication

autarky, and (c) production requires two successive stages. In his model, in each

country, workers work only in their local daytime. The gains from service trade in

Marjit’s model arise from the time-reduction aspect of trade across time zones.

Matsuoka and Fukushima (2010) identified another source of trade gains from

time-zone difference: the reduction of reliance on shift work. In their model, all goods

must be produced in two successive stages, without interruption.Then, under commu-

nication autarky,stage one of a good must be produced during daytime, and stage two

during night-time. Therefore, in this model, trade across time zones does not offer any

time-reduction advantage: it is simply not possible to reduce time. The trade gains in

their model is the elimination of shift work: stage two production can be carried out in

the foreign country during Foreign’s daytime, instead of in the Home country during

night-time. With outsourcing across time zones, workers no longer have to work at

night.

As Marjit (2007), Matsuoka and Fukushima (2010), and other theoretical studies

such as Kikuchi (2006, 2009), and Kikuchi and Iwasa (2010) have clearly shown, by

taking advantage of the time-zone differences, firms can make their production

process quicker and less costly and, thereby, facilitate international trade.This is called

the continuation effect of the time-zone differences by Head et al. (2009). Contrary to

VIRTUAL LABOR MOBILITYACROSS TIME ZONES 639

© 2015 JohnWiley & Sons Ltd