Journal Article

FDI and the labour market: a review of the evidence and policy implications

N Driffield and K Taylor

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 16, issue 3, pages 90-103
Published in print September 2000 | ISSN: 0266-903X
Published online September 2000 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/16.3.90
FDI and the labour market: a review of the evidence and policy implications

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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.

Journal Article.  0 words. 

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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