Wage inequality, unemployment and linkages: Do the multinational enterprises ride to the rescue?

Abstract

This paper aims to discuss the wage and unemployment effects of backward, horizontal and forward linkages established between MNEs and domestic firms in imperfect labor markets. The search and matching model allows us to derive different wages for different types of linkages. The findings of the paper suggest that buyer-supplier linkages between domestic and foreign firms and reservation wages due to frictions in the labor market are responsible for the differential wage effects of foreign firms. The paper also highlights the crucial effect of linkages on job creation and unemployment rates in local economies.