Abstract PDF

This paper studies the impact of foreign ownership on the wage skill premium by endogenzing skill biased technological change with intangible skill complementarity in production. Increased intangible investment raises the relative demand for skilled labor, which in turn raises the wage skill premium. Foreign owned firms, who are more intangible intensive, amplify this effect. I provide supporting empirical evidence from Spain, documenting aggregate increases in intangible investment and skilled labor compensation. Foreign owned firms operate at a large scale and I show that a change to foreign ownership leads to a scaling up of production, as well as, higher relative employment of skilled workers. I develop a quantitative firm dynamics model with intangible skill complementarity in production and heterogeneity in ownership. Foreign multinationals endogenously enter through acquisition and their subsidiaries receive a technology transfer prompting them to invest at higher levels. An exogenous decline in intangible investment price triggers the mechanism and further increases foreign entry. Upon matching the decline to the data, the model accounts for nearly forty percent of the increase in the wage skill premium between 2002 and 2017 where about a quarter is attributed to foreign ownership. Through the lens of the model, intangible investment subsidies exclusively for foreign owned firms can increase aggregate output and total factor productivity, but also have welfare implications.