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FDI in hot labour markets: The implications of the war for talent

Bettina Becker, Nigel Driffield (), Sandra Lancheros and James H. Love
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Bettina Becker: Aston University
Nigel Driffield: University of Warwick
Sandra Lancheros: University of Leeds
James H. Love: University of Leeds

Journal of International Business Policy, 2020, vol. 3, issue 2, No 2, 107-133

Abstract: Abstract This paper highlights an inherent contradiction that exists within investment promotion activities in rich countries. Since the financial crisis, many inward investment agencies have shifted their activities from job creation per se to seeking to attract investment in high-tech activities. Such knowledge-intensive sectors are engaged in what has become referred to as “the war for talent”, so locations need to understand their value proposition to firms, especially where labour is tight. This paper explores the implications of this, in terms of the impact on employment and earnings of high skilled labour. We show that, because skill shortages already exist in many of these sectors, seeking to attract inward investment in these sectors simply causes the earnings of such workers to be bid up, and employment in the incumbent sector to fall. We highlight the over-riding importance that firms place on the availability of skilled labour when determining locations, and how policies which promote labour market flexibility, particularly through investment in skills to address skill shortages, can significantly mitigate the adverse effects, which tend to be more keenly felt in poorer regions of Europe where skilled labour is in even shorter supply.

Keywords: inward investment; labour market flexibility; knowledge spillover (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s42214-020-00052-y

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