Multinational Firms and Labor Market Pooling

In the presence of increasing specialization of workers it becomes

more and more difficult for firms to find the most suitable workers. In

such an environment a multinational enterprize (MNE) has an

advantage because it can exchange workers between plants in

different countries. Recruiting from the home and foreign plant

leads to a larger labor market pool for an MNE, reducing the

mismatch of its workforce. This paper analyzes the consequences of

this advantage for production, employment, prices and wages.

In line with recent empirical results, we find that the additional ability to recruit workers from the home

and foreign labor market leads to lower mismatch, higher average

productivity of workers, lower prices, higher output, and higher

employment of a plant of an MNE as compared to a national firm,

while the wage-effects depend on firm productivity.