Comparison Across Models

Depending on their activities in the host country, foreign …rms create di¤erent vacancies for di¤erent types of labor. So that one can focus on e¤ects of skill intensive versus unskill intensive sectors on the wages and the unemployment in the local market. A part of the literature believes that FDI is attracted to countries where unskilled labor is cheap, while another strand of the literature notes that foreign …rms generally locate in skill intensive sectors. Actually, the sectoral composition of foreign …rms is di¤erent across countries. In this context, to understand the labor market implications of the foreign …rms, one needs to take account the sectoral di¤erences. In the second chapter, we consider the case where …rms require both types of workers in the production, but in chapter three, we focus on the corner solutions and try to understand whether the skill intensity matters in studying wages and unemployment or not. On the other hand, rather than the sectoral di¤erences, di¤erent technology intensities of the foreign and local …rms within the same sector is also considered.

In the high-tech industries, such as computer or auto, foreign …rm o¤ers positions only for skilled workers, whereas, in the low-tech industries, such as food and bev- erages and textiles, they create vacant positions for unskilled workers. For instance, in the most general case, given the benchmark case, the share of foreign vacancies is 0:29, while it was 0:21 and 0:03, in the low-tech and high-tech sectors, respec- tively. Since the skilled workers constitute the 20% percent of the population, it is

hard to match with a skilled worker for the foreign …rms in the skill-intensive sector. When the cost gap between the local and foreign …rms has melt down, foreign …rms start to open more vacant positions, economy-wide skill premium records a decline in all cases. Also, in all sectors, premium of working in the foreign …rm and the economy-wide …rm premium increases in response to an increase in the foreign jobs due to the lowering job creation costs. Overall unemployment rates decrease in the all sectors as foreign …rms create vacancies, but the impact of increased presence of foreign …rms, through foreign job creation, on the unemployment rate of unskilled and skilled workers depends on the fact that at which sector foreign …rms locate.

If we consider the case where the decline in job creation costs takes place in both …rms, thus, the cost gap between the local and foreign …rms stays same, leading to a rise in the share of local vacancies. Within this picture, economy-wide skill premium increases in the most general case and in the high-tech sector, while decreases in the low-tech sector. As for the high-tech sector, the path of economy-wide skill premium follows an ambiguous path. Yet, the response of the economy-wide …rm premium is same for all sectors, that is economy-wide …rm premium decreases even the mass of foreign vacancies increases since the rise in the mass of local vacancies is greater than the latter which raises the share of local vacancies in total vacancies.

Foreign …rms create more jobs due to the technological upgrading. Economy- wide skill premium increase both in the most general case and the high-tech sector, but in the low-tech sectors, economy-wide skill premium decreases. In response to rising presence of foreign …rms following the increasing foreign jobs, economy-wide …rm premium increases. The overall unemployment rate decreases in all sectors in

response to technological uprading. On the other hand, skill upgrading decreases the economy-wide skill premium both in the high-tech and low-tech sectors. Economy- wide …rm premium increases only in the high-tech sectors and decreases in the low- tech sector and in the most general case.

More intensive use of skilled workers by the foreign …rms decreases the wages of the unskilled workers and increases the unemployment rate of unskilled workers, particularly, if the foreign …rm has considerable technological advantage. As foreign …rms o¤er positions for only skilled workers as a consequence of an increased spe- cialization in skill intensive production, the vacancies for the unskilled workers will be limited and this will deteriorate the position of unskilled workers both in terms of wages and unemployment. Speci…cally, if there is skill-biased technological change in the foreign …rm which increases the productivity gap between the foreign and local …rms, earnings of the unskilled workers decline and the unemployment rate increases. As this leads to a decline in the vacant positions o¤ered by unskilled workers, making tighter labor market for unskilled workers, overall sittuation of unskilled workers de- teriorate. Actually, this is in the same line with the empirical evidence pointing out skilled biased technological change emerge as an explanation for declining unskilled wages.

Even though unskill intensive foreign …rm presence leads to an increase in the wage gap between skilled and unskilled workers in the local …rm, it decreases the wage di¤erential between skilled and unskilled workers in the local …rm in Chapter 2, where both …rms create vacancies for both type of workers, that is, skill intensity is not considered. As the job opportunities for the skilled workers is limited since

the foreign …rm specialized on unskill intensive production in the local economy, increases foreign …rm presence has no signi…cant impact on skilled wages in the local …rm. Also, results of the numerical example says that skilled workers earn more than unskilled workers in the local …rm. However, as the foreign …rm presence increases through the vacancy generation, wages of the unskilled workers in the local …rm decrease and this leads to a rise in the skill premium in the local …rm.

To sum up, the impact of MNEs on absolute and relative wages, but also unem- ployment, varies between sector and depends on the technology intensity of …rms. Allowing di¤erent skill requirements reveals that di¤erent wage and unemployment e¤ects for both types of workers emerge in response to increased foreign presence. Therefore, the skill intensity plays a key role in studying the labor market implica- tions of the MNEs.