The (in)efficiency of digital nomads

Last summer government policymakers on an eastern Caribbean island had a bright idea to help their economy absorb some of the pandemic’s impact. Air travel and tourism were way down and many people in the US were getting antsy after their first couple of months into their work-from-home arrangements. Government officials in Barbados invited people to move to the island for up to a year, without requiring a visa, so that they could work remotely and enjoy being just minutes away from a beach. Other countries soon joined in the effort to attract remote workers to their country, but they may have gotten more than they bargained for.

According to a recent report by MBO Partners, there are around 38.2 million adults in the US who work independently as “consultants,
freelancers, contractors, solopreneurs, microbusiness owners,
temporary or on-call workers.” While not all of these workers are nomadic, a subset travels around the country to work in different locations throughout the year. The pandemic forced a lot of workers into remote work, and the share of the country taking on a nomadic lifestyle grew as well. An interesting phrase that MBO used in their reports was that these workers took advantage of “geoarbitrage” whereby they earned money from high paying jobs (often compensating for high costs of living) while living in areas with a low cost of living:

Digital nomads are defined as people who choose to embrace a location-independent, technology-enabled lifestyle that allows them to travel and work remotely, anywhere in the Internet-connected world. Unlike regular remote workers, who tend to stay in one geographic area, digital nomads travel and explore while working.

The growth in the number of digital nomads is already creating a set of unintended consequences for many travel destinations. Many of these destinations were already struggling with inconsistent electricity and poor sewer systems, but these have been made worse. The typical tourist is only around for a few days at a time, but long-term visitors strain an already weak infrastructure, and they are not paying any taxes to boot.

The increase in long-term visitors has incentivized developers to tear down jungles in order to pave new roads and build more lavish hotels. While many of the digital nomads pick tropic or vacation destinations because of their natural amenities, this nomadic lifestyle also contributes to the same impacts as travel more broadly, namely environmental destruction and diminishment of local cultures. Oh yea, not to mention all the actual pollution associated with constantly traveling between destinations.

Despite the negative impacts associated with remote work and the nomadic lifestyle, this may be just a temporary set of externalities at hand. Normally, taxing individuals could correct a lot of these third-party effects. Over the past year, governments have not been taxing visitors in an effort to fight against the pandemic’s impact, but that would likely change once travel picks back up. Those taxes could be redistributed to improve a country’s infrastructure or protect environmental areas. This falls more into a governance issue than a nomadic lifestyle issue.

A key concept of migration, both internal and international, is that allowing people to move promotes allocative efficiency. That’s a fancy economic term for “producing the most stuff possible.” This allocative improvement doesn’t necessarily imply that the moves will be Pareto improvements. With Pareto improvements, no one can be harmed, but we’re seeing the harm in environmental degradation and tax dodging. Allowing workers to move to places that have a low cost of living gives these workers more purchasing power, which they can then spend around the area. This should increase economic activity at restaurants, cafes, and hotels.

The gains aren’t completely new gains because some of that money would have been spent in the original city where the worker used to work. Now that our remote worker is in Barbados rather than Boston, some of that consumption has shifted to Barbados, but some of it is actually new. Allocative efficiency looks at maximizing total output, so while Boston lost some output, Barbados likely gained more than what Boston lost.

Allowing workers to move around like this increases the collective output of the two areas. There are two big issues to consider, but there isn’t one “right way” to think about them. First, governments don’t usually care much about maximizing their combined output; they want to keep those workers & the output “at home.” Boston wants to make sure that Boston businesses are still in business. Second, is output maximization really the measure we should be using to gauge wellbeing? There are a variety of other measures that better account for happiness and environmental resources, like the Human Development Index or the Genuine Progress Indicator. Maybe the answer is a national happiness index like they have in Bhutan?

  • There are an estimated 287,000 residents of Barbados [United Nations]

  • There were approximately 10.9 million digital nomads in the US last year [MBO Partners]

  • Before the pandemic, approximately 16% of the workforce worked from home at least part of their time [Bureau of Labor Statistics]

  • Of the people who moved in 2020, 84% of people moved to a new place within the same metro area [Bloomberg]

We’ve officially finished the first week of the second half of the year. That means we’re on the downhill to 2022. Week 27 is over and I’ve checked in a total of 38 books. This week I finished up a couple of fiction books (The Rock Hole, The Body, and Anxious People) I was in the middle of reading and started a few nonfiction books. Of the new books I’ve started, I’m most looking forward to reading The Happiest Man on Earth. It’s the memoir of an Auschwitz survivor and has great reviews on Goodreads.

If you’d like to learn more about this week’s topic, you should stop by your local library and pick up a copy of Nomadland. The film adaptation of this book won the Oscar for best picture this year! The author shares stories about a variety of people who consider themselves modern-day nomads.