Jan 5
What is Labor Mobility
and How Does It Affect Your Business?
The impacts of labor mobility on economic growth are a subject that has been studied and discussed extensively in academia, government, and the business community.
Business activities that have historically been limited to a single state or country have now become global. As a result, the boundaries between states and countries are increasingly becoming blurred.
In this article, we will explore the topic of labor mobility and its impact on the business environment, as well as how it affects you as an entrepreneur.
What is Labor Mobility?
Labor mobility refers to the movement of workers between states and countries. It also includes changes in employment location, hours worked, and the kind of work performed by the employee.
Increased labor mobility is generally good for the economy as it allows for more efficient allocation of resources and greater productivity.
The February 2021 data showed that 7.5% (975,000) of employed people had changed their employer or business in the first year of the pandemic, which was the lowest rate of job mobility on record in the annual series.
Labor mobility is influenced by many factors, such as:
a. Demographic characteristics of the country
b. International labor agreements
c. Infrastructure and transport networks
d. Legal restrictions on labor mobility
e. National labor market conditions, including wage rates and taxes.
These factors can be viewed as the driving forces behind labor mobility.
For example, if a state or country’s population is growing rapidly and there are shortages of skilled workers, businesses will tend to relocate to the state or country that is offering better opportunities.
Similarly, if wages in a particular country are high relative to other countries, the demand for skilled labor will shift to that country.
It is important to note that the impact of these factors on labor mobility is not necessarily permanent. In fact, many of these factors can change over time due to changes in policies and regulations.
Therefore, it is important for business owners and entrepreneurs to monitor these trends closely and adjust their strategies accordingly.
What is the Labor Mobility’s Effect On Business?
1. Cost of Labor
As labor mobility increases, businesses have to consider the costs associated with the movement of labor.
For example, a business may have to pay for travel and accommodation expenses when moving employees to a new location.
This can be quite costly, especially if there is no direct flight or train connection between the two locations. It may also require additional hiring and training expenses in order to recruit and train new employees.
2. Businesses that Relocate
If businesses decide to relocate their operations from one state or country to another, they will need to consider what their total cost of relocation will be.
In many cases, businesses will face transportation costs (for example, for relocating workers) as well as compensation for any existing employees that are not retained after relocation.
3. Taxation in Different Countries
Another factor that business owners should consider is the effect of taxation on their business operations in different countries.
Taxes play an important role in encouraging businesses to locate in a particular state or country by providing them with financial incentives (for example, tax deductions).
If tax rates are higher in another country than they are in the business owner’s home country, this can lead companies to relocate elsewhere in order to take advantage of lower tax rates.
4. Competition for Labor
If a particular state or country has a large pool of skilled labor, companies that relocate to that location will have to compete with other businesses for those workers.
The competition can be quite fierce and can affect wages and benefits. For example, if businesses relocate to a state or country with a high cost of living and are forced to pay high wages, it can affect their competitiveness.
Businesses that cannot compete with the wages in the new location will have to reduce their labor costs and may even be forced out of business altogether.
5. Migration of Skilled Workers
If there is a shortage of skilled workers in one state or country, companies may choose to move their operations elsewhere in order to secure this resource.
This could result in the migration of skilled workers from one state or country to another, resulting in lower wages and benefits in the first location and higher wages and benefits in the second location. This phenomenon is referred to as brain drain.
6. Businesses that Remain Locally Employed (BLUE) or Outsource (Outsource) Operations Overseas
Another impact of labor mobility is that it can lead to the decision by businesses to remain locally employed (BLUE) or outsource their operations overseas.
For example, if there is a large pool of skilled labor in one state or country and a business does not want to pay high wages for those workers, it may decide to remain locally employed and continue to pay local wages and benefits.
This can be a positive impact on the business dynamism because it can save on labor costs, but it can also affect the economic growth of the state or country where these businesses are located.
If these companies decide to relocate overseas in order to take advantage of lower wages and other advantages, they may put downward pressure on local wages and drive up unemployment rates in that state or country.
7. Migration of Foreign Workers
If foreign workers are not allowed into a particular state or country due to strict immigration policies, they will have little choice but to relocate elsewhere in order to work.
This will affect both domestic wage rates and the economic growth of the state or country as well as cause a loss in tax revenue for the government. This can be quite detrimental to government finances.
8. Increased Job Opportunities in New Locations
As labor mobility increases, there will be an increased demand for workers in a particular state or country.
This can be beneficial for the economic growth of the state or country as it will lead to an increase in employment growth and GDP.
In addition, there may be an increase in wages and benefits as businesses must compete with other businesses for skilled labor.
Final Thoughts
The impact of labor mobility on business is an important topic that must be monitored closely by business owners and entrepreneurs.
Labor mobility can have a significant impact on a company’s finances as well as the impact on productivity, and competitiveness.
For example, businesses that relocate to another state or country may have to pay higher wages in order to compete with other businesses for skilled labor. If these companies cannot compete with the wages in the new location, they may be forced out of business altogether.
Businesses that relocate their operations overseas will find it increasingly difficult to attract workers due to the high cost of living and poor living conditions. As a result, there may be a shortage of skilled labor in that state or country, which will put downward pressure on wages and other labor-related benefits.
This can be negative effects that lead to unemployment rates in that state or country as businesses cannot afford to pay high wages for skilled workers.
About the Author
I hope that my post has helped you know more about Entrepreneurship and Business. Feel free to leave a comment and tag me and I will answer them. Follow my profile to get the latest content I post to stay ahead of the curve.
I am the Founder of Cudy Technologies, a full-stack EdTech startup helping teachers and students learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces, and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
Connect with me on LinkedIn if you have further questions. Let me know that you are a reader of my Medium posts in your invitation message.
