FDI and the Labour Market: A Review of the Evidence and Policy Implications

Posted: 1 Sep 2001

See all articles by Nigel L. Driffield

Nigel L. Driffield

Aston University - Aston Business School

Karl Taylor

University of Sheffield - Department of Economics

Abstract

This paper presents a series of results concerning the labour-market impact of inward foreign direct investment (FDI) in the UK. The paper demonstrates that one of the crucial impacts of FDI is to increase wage inequality and the use of relatively more skilled labour in the domestic firms. This result is found to be a combination of two effects. First, the entry by a multinational enterprise (MNE) increases the demand for skilled workers in an industry or region, thus increasing wage inequality. Second, technology spillovers occur from foreign to domestic firms. As a result of these spillovers, relative demand for skilled workers increases in the domestic firms, further contributing to aggregate wage inequality and skill upgrading. The paper also considers how FDI impacts upon skill shares by productivity differentials between foreign and domestic firms. Finally, the policy implications of this are discussed, from the perspective of regional development, and the likely effectiveness of attracting FDI to reduce structural unemployment.

Suggested Citation

Driffield, Nigel L. and Taylor, Karl B., FDI and the Labour Market: A Review of the Evidence and Policy Implications. Available at SSRN: https://ssrn.com/abstract=254124

Nigel L. Driffield

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

HOME PAGE: http://www.abs.aston.ac.uk/newweb/staff/Default.asp#E&S

Karl B. Taylor (Contact Author)

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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