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 enterprise (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 with a national firm, while the wage‐effects depend on firm productivity.