Key Takeaways
- Escalating living costs drive employees and freelancers globally towards remote work abroad, embracing the digital nomad lifestyle.
- High-income individuals from the US and EU relocate to cheaper regions in Europe, Asia, Latin America, and Africa, leveraging cost disparities.
- Ferriss, via “The 4-Hour Workweek,” popularized geo arbitrage, contributing to the FIRE movement’s pursuit of early financial freedom.
San Francisco, CA–More employees and freelancers worldwide are seeing the digital nomad lifestyle as a viable — effective, and in-trend — alternative to working from their home country, owing to the rising cost of living across various continents.
Geo Arbitrage: Leveraging Cost Differences
According to a 2021 study by the freelance platform Upwork, two million American citizens started freelancing in a year between 2020 and 2021. Another study by MBO Partners reveals a 131% rise in United States employees living a nomadic life since 2019.
Geo arbitrage or geographical arbitrage simply means taking advantage of differences in living costs across different geographical locations. Globally, there has been a significant movement of workers with a relatively high income (mainly US and EU citizens) to countries of lower costs (Europe, Asia, Latin America, and Africa).
Influence of Geo Arbitrage and Financial Independence
The phrase ‘geo arbitrage’ was first used by Tim Ferriss, the author of “The 4-Hour Workweek,” a pioneer in the FIRE (financial independence, retire early) movement, a financial movement of people who focus on making savings and investments early in their careers, allowing them to retire a few decades earlier than traditional means would permit.
Since the pandemic, the number of nomads worldwide has increased exponentially and has opened up many new avenues for the working class to consider.
Many Americans, who find the cost of living in the United States too high, are now taking advantage of much lower prices in other parts of the world.
Cost Disparities: Making Remote Work Affordable
“It’s potentially a tenth of the cost of the US. Sometimes, it’s a third. It depends on the country,” said Lona Alia, mother of two and digital nomad for the past four years, in an interview published on Business Insider.
She said that with $2000 to $3000, her family could stay (and get childcare) for a month or two in Mexico, Albania, or Croatia, while it would cost her $10,000 for a similar lifestyle in New York City.
Another report illustrates how it costs around $300 a month for a two-bedroom house in Chiang Mai and about $150 in Vientiane, Laos, in Thailand. In Athens, Greece, a one-bedroom apartment costs about $600, and a house costs approximately $400 in Oaxaca, Mexico.
What We Think
The surge in digital nomadism signifies a practical response to soaring living expenses, enabling individuals to work remotely from more affordable locations.
The influence of geo arbitrage, coupled with the teachings of the FIRE movement, reshapes traditional work norms, emphasizing financial flexibility and lifestyle choices in a changing global landscape.
