Labor market effects of knowledge spillovers

Abstract

This paper studies the diffusion of technology that occurs from Multinational Enterprises to domestic firms via worker mobility. It concentrates on the wage and unemployment implications of diffusion of knowledge through labor mobility in the local labor market. We construct a heterogeneous search and matching model where the labor mobility is restricted by the existence of binding contracts. Findings of the model reveal that knowledge spillovers through the movement of workers from foreign to local firm lower the firm premium and the skill premium. Further results indicate that technological progress raising the productivity gap between the foreign and the local film leads to an increase in the unemployment rate, the fim1 premium and the skill premium.