Abstract
The unprecedented growth in foreign direct investment in the last few decades has caused drastic changes in the labor markets of the host countries. The major part of FDI takes place in low-tech industries, where the wages and skills are low, or in high-tech, where they offer a wage premium for the highly skilled workers. This mechanism may increase the polarization of employment into high-wage and low-wage jobs, at the expense of middle-skill jobs. This paper looks at the effects of two types of FDI inflows, namely foreign investment in high-skill and low-skill activities, on job polarization. We match data on greenfield FDI aggregated by country and sector with data on employment by occupational skill to investigate the extent to which different types of greenfield FDI are responsible for skill polarization. Our results show that low-skill foreign investment shifts employment from high- to medium- and low-skill jobs, while skill-intensive FDI generally leads to skill upgrading. Only FDI in information and communication technology (ICT) is associated with job polarization, but only when accounting for the plurality of job polarization patterns across European sectors.
Highlights
The unprecedented growth in foreign direct investments (FDI) in the last few decades has caused drastic changes in the labor markets
While there are several studies that have examined the impact of inward FDI on skill upgrading and job polarization patterns [13,15,16,17], only the work of [18] has analyzed the relationship between inward greenfield FDI and host countries’ labor markets
multinational enterprises (MNEs)’ international activities may have a positive effects on domestic economies, as they spill-over some of their technology on domestic firms, which in turn raise their demand for skilled workers [35]
Summary
The unprecedented growth in foreign direct investments (FDI) in the last few decades has caused drastic changes in the labor markets. The study of [11] revisits the theoretical framework proposed by [10] to explain the evidence of emerging skill polarization patterns and argue that the computer revolution has increased the relative labor demand for non-routine manual tasks, as these are not directly affected by technology. The second advantage of these data is that the greenfield FDI projects are classified by their primary investment activities, such as manufacturing, construction, business services, R&D, etc This distinction among activities gives us the possibility to assess if skill intensive activities, such as headquarters services and R&D, are associated with skill upgrading of labor, while low-skill activities such as manufacturing correspond to an increased share of medium- and low-skilled employment.
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