Multinational Firms and Heterogeneous Labor

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 corporation has an advantage because it can exchange workers between plants in different countries. In this way it can draw on a larger labor market pool, reducing the mismatch of its workforce. This paper analyzes the consequences of this advantage for production, employment and, most prominently, wages. We are able to disentangle the effects of worker heterogeneity and firm heterogeneity on wages and show that the latter is important to explain why multinationals typically pay higher wages. Keywords