The impact of foreign direct investment on wages and employment

This paper studies the impact of foreign direct investment (FDI)on wages and employment When labor-management bargaining isindustry-wide, two effects of FDI are identified; the collusioneffect and the threat-point effect. It is shown that: (i) FDIalways reduces the negotiated wage; (ii) FDI reduces union employmentand the competitive wage if die union cares more about employmentthan wages or is equally concerned about employment and wages.However, if labor-mingement bargaining is firm-specific andunionization is industry-wide, then the above effects of FDIare substantially reduced.