Abstract
This paper studies how the entry of multinational corporations affects local labor markets, focusing on the distributional consequences. In 1995, Brazil eliminated constitutional restrictions on foreign investment. Within a decade, 700,000 workers joined multinational corporations, doubling their employment share. Using matched employer–employee records and sectoral variation in the reform, I find that workers switching to multinational firms experienced large wage gains, while those remaining at domestic firms faced heterogeneous outcomes: college graduates saw modest wage increases, but less-educated workers experienced declines and higher informality rates. To quantify the aggregate impact of the reform, I develop and estimate a dynamic general equilibrium model with multinational production, labor market frictions, skill-biased technology, and informality. The reform raised output by 1% but widened inequality: college graduate wages rose 8%, while wages for workers without high school fell by 1%. Multinational entry, while growth-enhancing, acted as an inequality-increasing skill-biased labor market shock with significant distributional consequences.
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