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Skill and Foreign Firm Premium: The Role of Technology Gap and Labor Cost

Skill and Foreign Firm Premium: The Role of Technology Gap and Labor Cost
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Author(s): Bahar Bayraktar Saglam (Hacettepe University, Turkey)and Selin Sayek (Bilkent University, Turkey)
Copyright: 2013
Pages: 31
Source title: Industrial Dynamics, Innovation Policy, and Economic Growth through Technological Advancements
Source Author(s)/Editor(s): I. Hakan Yetkiner (Izmir University of Economics, Turkey), M. Teoman Pamukcu (Middle East Technical University, Turkey)and Erkan Erdil (Middle East Technical University, Turkey)
DOI: 10.4018/978-1-4666-1978-4.ch010

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Abstract

In this chapter, the authors construct a model that allows for joint discussion of foreign firm and skill premium in wages, and their evolution upon increased foreign firm activities. They allow for (1) dynamic interaction between the domestic and foreign firms in the labor market, via a two-sided search model, (2) technology differentials between domestic and foreign firms, and (3) varying cost of doing business between domestic and foreign firms. Analytical and numerical results point to the importance of modeling all three features. Both the level and the changes in the relative wages depend on the productivity differential (technology gap) and the job creation costs.

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