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Multinational Production, Skilled Labor and Real Wages

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  • James R. Markusen
  • Anthony J. Venables

Abstract

Adapting our earlier model of multinationals, we address policy issues involving wages and labor skills. Multinational firms may arise endogenously, exporting their firm-specific knowledge capital to foreign production facilities, and geographically fragmenting production into skilled and unskilled-labor-intensive activities. Multinationals thus alter the nature of trade, from trade in goods (produced with both skilled and unskilled labor) to trade in skilled- labor-intensive producer services. Results shed light on several policy questions. First, multinationals increase the skilled/unskilled wage gap in the high income country and, under some circumstances, in the low income country as well. Second, there is a sense in which multinationals export low skilled jobs to the lower income country. Third, trade barriers do not protect unskilled labor in the high income countries. By inducing a regime shift to multinationals, trade barriers protect the abundant factor, at least in the high income country and possibly in both countries. Fourth, a convergence in country characteristics induces the entry of multinationals and raises the skilled-unskilled wage gap in the initially large and skilled-labor-abundant country, and possibly in the small skilled-labor-scarce country as well.

Suggested Citation

  • James R. Markusen & Anthony J. Venables, 1996. "Multinational Production, Skilled Labor and Real Wages," NBER Working Papers 5483, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5483
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    Cited by:

    1. Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics.
    2. Robert C. Feenstra & Gordon H. Hanson & Deborah L. Swenson, 2000. "Offshore Assembly from the United States: Production Characteristics of the 9802 Program," NBER Chapters, in: The Impact of International Trade on Wages, pages 85-125, National Bureau of Economic Research, Inc.
    3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    4. De Santis, Roberto A. & Stahler, Frank, 2004. "Endogenous market structures and the gains from foreign direct investment," Journal of International Economics, Elsevier, vol. 64(2), pages 545-565, December.
    5. Francois, Joseph & Nelson, Doug R, 2000. "Victims of Progress: Economic Integration, Specialization and Wages for Unskilled Labour," CEPR Discussion Papers 2527, C.E.P.R. Discussion Papers.
    6. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc.
    7. Shalah M. Mostashari, 2011. "Vertical specialization, intermediate tariffs, and the pattern of trade: assessing the role of tariff liberalization to U.S. bilateral trade 1989-2001," Globalization Institute Working Papers 71, Federal Reserve Bank of Dallas.
    8. Natalia Vechiu & Farid Makhlouf, 2014. "Economic integration and specialization in production in the EU27: does FDI influence countries’ specialization?," Empirical Economics, Springer, vol. 46(2), pages 543-572, March.
    9. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
    10. Marco Vivarelli & Mariacristina Piva, 2001. "The skill bias in Italy: a first report," Economics Bulletin, AccessEcon, vol. 15(2), pages 1-8.
    11. Wu, Xiaodong, 2001. "Foreign direct investment, intellectual property rights, and wage inequality in China," China Economic Review, Elsevier, vol. 11(4), pages 361-384.
    12. Robert C. Feenstra & Gordon H. Hanson & Deborah L. Swenson, 2000. "Offshore Assembly from the United States: Production Characteristics of the 9802 Program," NBER Chapters,in: The Impact of International Trade on Wages, pages 85-125 National Bureau of Economic Research, Inc.
    13. Rigby, D L & Breau, Sebastien, 2007. "Impacts of Trade on Wage Quality in Los Angeles: Analysis Using Matched Employer-Employee Data," Center for Global, International and Regional Studies, Working Paper Series qt0fh5z1hf, Center for Global, International and Regional Studies, UC Santa Cruz.
    14. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    15. David Rigby & Sebastien Breau, 2006. "Impacts of Trade on Wage Inequality in Los Angeles: Analysis Using Matched Employer-Employee Data," Working Papers 06-12, Center for Economic Studies, U.S. Census Bureau.
    16. Sugandha Huria & Manoj Pant, 2018. "Foreign direct investment, welfare and wage inequality in a small open economy: theory and empirics," Indian Economic Review, Springer, vol. 53(1), pages 131-166, December.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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