From Balaji Srinivasan: What is Longitudinal Arbitrage and why this is the future of remote work?

Longitudinal arbitrage was a term or an idea that I heard for the first time from Balaji Srinivasan on the My First Million Podcast. In the world of remote work, the idea of geographical proximity is slowly becoming non-existent. In the recent past, hiring managers were concerned with the location of the user as they believed that office presence/environment was a must for producing better work. COVID has come and destroyed all those notions. Companies are slowly coming to the realization that Longitudinal hiring is the future.

I threw a bunch of new terms at you, so to get a better understanding we need to know what Latitudinal hiring was and how Longitudinal hiring is changing everything.

Latitudinal Vs Longitudinal Hiring:

In the past, companies were more concerned with the location of employees as they wanted them to come into the office for work. Companies have long been stating the importance of being together in the workplace to produce better and more efficient work. I have filled out numerous applications with the question, ‘are you willing to relocate?’

But all that is changing with the increasing usage of Longitudinal hiring. What this means is that companies are not looking at the location of the employee anymore but rather at the timezone he/she is present in.

So for example, a company that is headquartered in New York shares the same timezone as Venezuela, Bahamas, Toronto, etc and even Argentina is just 1 hour ahead. The amount of talent that companies would have access to if they start hiring based on timezones is monumental. So long companies have restricted themselves to a small subset of people who would be willing to relocate, but with longitudinal arbitrage, they have unlocked a whole lot more talent.

The main example of Longitudinal arbitrage is Airbnb founder, Brian Chesky. He shifted to Argentina as it is just one hour ahead of New York and he is able to save a lot more and even experience a new lifestyle and country altogether. Although he keeps relocating to new countries as and when he feels like it, he always makes sure the place he moves to is longitudinally aligned.

Why is Longitudinal hiring considered an arbitrage?

If you are running a company in New York and if you adopt Longitudinal hiring, then you would become a remote-first hiring. You would not need an office building as such, you would just need a place of business on paper which is fairly easy to obtain. You have access to a whole host of talent from more than 10 countries, in his case you have a far more diverse workplace.

The arbitrage is that you have your operations in the US, either you sell a product or provide a service and you charge in dollars for it, but then you and your team are not in the USA. You start paying your employees based on the average salary in their respective countries. You increase your profit margins immensely

For example, consider you have made a profit margin of 20% last year by having your team in the US, now with the help of longitudinal arbitrage you have to increase that to around 45% just by working remotely but in the same time zone. Companies would have access to a lot more talent and increase profit margins considerably.

Closing:

I have googled this online, but I did not come across many articles. I would continue to update the article as more information comes up. But if you feel that my views are wrong or you have an alternative viewpoint then please do let me know in the comments section. Let’s learn and grow together.

Here is an interesting article that talks about Balaji Srinivasan on Bitcoin.

While you are here, check out this article talking about how far can a company go for customer satisfaction.