Foreign Wage Premium,Gender and Education: Insights from Vietnam Household Surveys

This paper investigates the differential impacts of foreign ownership on wages for different types of workers (in terms of educational background and gender) in Vietnam using the Vietnam Household Living Standards Surveys of 2002 and 2004. Whereas most previous studies have compared wage levels between foreign and domestic sectors using firm‐level data (thus excluding the informal sector), one advantage of using the Living Standards Surveys in this paper is that the data allow wage comparison analyses to extend to the informal wage sector. A series of Mincerian earnings equations and worker‐specific fixed effects models are estimated. Several findings emerge. First, foreign firms pay higher wages relative to their domestic counterparts after controlling for workers' personal characteristics. Second, the higher the individual workers' levels of education, the larger on average are the wage premiums for those who work for foreign firms. Third, longer hours of work in foreign firm jobs relative to working in the informal wage sector are an important component of the wage premium. Finally, unskilled women experience a larger foreign wage premium than unskilled men, reflecting the low earning opportunities for women and a higher gender gap in the informal wage sector.     

The labor market effects of foreign owned firms

Foreign firms have a more educated workforce and pay higher wages than domestic firms even after controlling for worker quality, at a given moment in time. This does not imply that foreign ownership improves the labor market outcomes of the workers since foreign investment may be guided by unobservable firm and worker characteristics correlated with schooling or wages. This paper asks whether foreign investors acquire firms with high human capital or wages, or whether foreign acquisition improves these outcomes. Using a matched employer-employee data set, I find that foreign acquisitions of domestic firms have small effects on the human capital and on average wages of the acquired firms. Instead, foreign investors “cherry pick” those domestic firms that are already very similar to the group of existing foreign firms.     

Is there really a foreign ownership wage premium? Evidence from matched employer-employee data

Numerous studies on firm-level data have reported higher average wages in foreign-owned firms than in domestically owned firms. This, however, does not necessarily imply that the individual worker's wage increase with foreign ownership. Using detailed matched employer-employee data on the entire Swedish private sector, we examine the effect of foreign ownership on individual wages, controlling for individual and firm heterogeneity as well as for possible selection bias in foreign acquisitions. We distinguish between foreign greenfields and takeovers and compare foreign-owned firms with both domestic multinationals and local firms. Our results show a considerably smaller wage premium in foreign-owned firms than what has been found in studies conducted at a more aggregate level. Moreover, foreign takeovers of Swedish firms tend to have no or even a negative effect on wages.     

Is there really a foreign ownership wage premium? Evidence from matched employer–employee data

Numerous studies on firm-level data have reported higher average wages in foreign-owned firms than in domestically owned firms. This, however, does not necessarily imply that the individual worker's wage increase with foreign ownership. Using detailed matched employer–employee data on the entire Swedish private sector, we examine the effect of foreign ownership on individual wages, controlling for individual and firm heterogeneity as well as for possible selection bias in foreign acquisitions. We distinguish between foreign greenfields and takeovers and compare foreign-owned firms with both domestic multinationals and local firms. Our results show a considerably smaller wage premium in foreign-owned firms than what has been found in studies conducted at a more aggregate level. Moreover, foreign takeovers of Swedish firms tend to have no or even a negative effect on wages.     

Multinational enterprises and domestic wages: The contingent effect of skill composition

While previous literature has extensively shown that foreign-owned firms pay higher wages than domestically owned firms, the examination of intra-industry wage spillovers between foreign-owned and domestic companies has received much less attention, particularly among non-core EU economies. In this paper, we contribute to the literature on wage spillovers of foreign multinational enterprises onto domestic firms by considering whether the presence of MNE subsidiaries in the Spanish manufacturing industry affects wages in domestic firms in the same industry. Although no evidence supports the existence of wage spillovers from MNEs onto domestic firms on aggregate, we show that the effect of this outside presence on domestic wages is significantly more positive in step with the higher level of workers’ skills in domestic firms. Because only workers in domestic firms with a highly skilled workforce will benefit from wage spillovers from the foreign firm presence in the industry, policy makers need bear in mind that not all FDI will automatically generate spillover benefits to domestic firms.     

Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany

We examine how foreign ownership of a firm affects the variety of goods that the firm exports and the number of countries it trades with. We construct a simple theoretical model of how foreign ownership may affect these extensive margins of exports and take this model to data from Germany, one of the leading actors on the world market for goods. In line with theoretical predictions we find that foreign‐owned firms do export more goods to more countries after controlling for firm size, productivity and industry affiliation. These differences between foreign‐owned firms and domestically controlled firms are highly statistically significant, and they are large from an economic point of view, with foreign‐owned firms exporting up to 39 per cent more goods to up to 31 per cent more countries.     

Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States

This paper explores the relationship between wages and foreign investment in Mexico, Venezuela, and the United States. Despite very different economic conditions and levels of development, we find one fact that is robust across all three countries: higher levels of foreign investment are associated with higher wages. However, in Mexico and Venezuela, foreign investment is associated with higher wages only for foreign-owned firms — there is no evidence of wage spillovers leading to higher wages for domestic firms. The lack of spillovers in Mexico and Venezuela is consistent with significant wage differentials between foreign and domestic enterprises. In the United States, where the evidence suggests some wage spillovers from foreign to domestic enterprises, wage differentials are smaller.     

Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms

Worker industry affiliation plays a crucial role in how trade policy affects wages in many trade models. Yet, most research has focused on how trade policy affects wages by altering the economy-wide returns to a specific worker characteristic (i.e., skill or education) rather than through worker industry affiliation. This paper exploits drastic trade liberalizations in Colombia in the 1980s and 1990s to investigate the relationship between protection and industry wage premiums. We relate wage premiums to trade policy in an empirical framework that accounts for the political economy of trade protection. Accounting for time-invariant political economy factors is critical. When we do not control for unobserved time-invariant industry characteristics, we find that workers in protected sectors earn less than workers with similar observable characteristics in unprotected sectors. Allowing for industry fixed effects reverses the result: trade protection increases relative wages. This positive relationship persists when we instrument for tariff changes. Our results are in line with short- and medium-run models of trade where labor is immobile across sectors or, alternatively, with the existence of industry rents that are reduced by trade liberalization. In the context of the current debate on the rising income inequality in developing countries, our findings point to a source of disparity beyond the well-documented rise in the economy-wide skill premium: because tariff reductions were proportionately larger in sectors employing a high fraction of less-skilled workers, the decrease in the wage premiums in these sectors affected such workers disproportionately.     

Wage Effects of Trade Reform with Endogenous Worker Mobility

In this paper, we use a linked employer–employee database from Brazil to evaluate the wage effects of trade reform. With an aggregate (firm-level) analysis of this question, we find that a decline in trade protection is associated with an increase in average wages in exporting firms relative to domestic firms, consistent with earlier studies. However, using disaggregated, employer–employee level data, and allowing for the endogenous assignment of workers to firms due to match-specific productivity, we find that the premium paid to workers at exporting firms is economically and statistically insignificant, as is the differential impact of trade openness on the wages of workers at exporting firms relative to otherwise identical workers at domestic firms. We also find that workforce composition improves systematically in exporting firms, in terms of the combination of worker ability and the quality of worker–firm matches, post-liberalization. These results stand in stark contrast to the findings reported in many earlier studies and underscore the importance of endogenous matching and, more generally, non-random labor market allocation mechanisms, in determining the effects of trade policy changes on wages.     

Foreign Direct Investment,Productivity, Demand for Skilled Labour and Wage Inequality: An Analysis of Uruguay

This study seeks to identify the causal effects of foreign ownership on productivity, the demand for skilled labour and wage inequality. With this aim, we use differences‐in‐differences techniques for a panel of Uruguayan manufacturing firms in the period 1997–2005. Our results seem to indicate that FDI causes higher productivity and increased demand for skilled labour. Furthermore, although average wages are higher in foreign‐owned firms than in domestic ones, the wage gap between skilled and unskilled workers is wider. It follows that promoting foreign investment enhances productivity. In addition, due to the greater demand for skilled workers, policies such as training schemes would be conducive to raising productivity still further, while other social policies could help to mitigate the wage inequality effects.     

Corporate cash holdings and promoter ownership

We examine the relationship between corporate cash holdings and promoter ownership for a sample of Indian non-financial firms. Consistent with the arguments of the ‘efficient monitoring hypothesis’, our results broadly suggest that promoter ownership is negatively associated with cash holdings, thereby highlighting the role of large owners in preventing cash accretion in an emerging market context. Indicating prominent influence of corporate ownership on cash management, we find that corporate non-promoter ownership is also negatively related with cash holdings. With regard to promoter ownership of foreign entities, our results suggest that cash holdings share a U-shaped relationship with ownership of foreign promoter corporations. In addition, our findings provide weak evidence to support a more pronounced negative association between cash holdings and promoter ownership for group-affiliated firms as compared to non-affiliated firms since the former faces lower financial constraints on account of access to internal capital markets. Finally, we perform long-term effect analysis in order to reinforce robustness of our results.     

Do Newly Founded Firms Pay Lower Wages? First Evidence from Germany

Using a linked employer–employee data set for Germany, this paper analyses wage setting in a cohort of newly founded and other establishments from 1997 to 2001. While theory provides alternative explanations for higher or lower wages in newly founded firms, we show empirically that start-ups tend to pay lower wages, ceteris paribus. On average, wages in newly founded establishments are 8% lower than in similar incumbent firms. This negative wage differential is substantially smaller in eastern than in western Germany. The wage differential is shown to decline over time as the newly founded firms become more mature.     

Reassessing the foreign ownership wage premium in Germany

This paper evaluates the effect of foreign takeover on wages of workers in German establishments, using rich linked employer–employee data from 2003 to 2014. To identify a causal effect of foreign takeover, we combine propensity-score matching with a difference-in-difference estimator. We find that a takeover by a foreign investor leads to a wage premium of 4.0 log points in the year after ownership change, which further increases to 6.3 log points 3 years after acquisition. The wage premium is largest for high-skilled workers, which is consistent with three theoretical arguments, namely rent appropriation by managers, technology protection and training on new technology. We also show that the wage premium does not pick up an exporter effect due to a platform investment of the foreign owner, that it takes about 4 years before it fully develops, that it does not vanish after foreign divestment and that the wage increase is specific to foreign acquisition instead of ownership change per se.     

Does Final Market Demand Elasticity Influence the Location of Export Processing? Evidence from Multinational Decisions in China

Given the importance many developing countries attach to attracting foreign investors engaged in export‐processing activities, surprisingly little is known about the sensitivity of these investors to local wage differences and the role played by final product market conditions. Using data on 2,884 foreign‐invested manufacturing projects in China, we estimate the importance of host province wages to firm’s location choice and investigate how this sensitivity varies with demand conditions facing the industry in China’s largest export market, the United States. We use the profit function to show theoretically that firms’ ability to pass wage costs through to final markets matters for location choice and we test the implications of the theory using a control‐function technique for conditional logit developed by Petrin and Train . As predicted, we find that investors facing more elastic demand in the US market are more sensitive to wages across export‐processing locations. Taking both the factor intensity of the activity and final market demand elasticity into account, we find that investors producing homogenous goods, such as metals, chemicals, and food processing, are more likely to be attracted by relatively low wages than those producing differentiated goods. We also find that while OECD investors are more responsive to wage differences than are investors from Hong Kong, Taiwan and Macau, they are less likely to choose a location that has received a large share of prior foreign investment.     

Saving good jobs from global competition by rewarding quality and efforts

This paper links firms' endogenous quality choices to worker effort and efficiency wages. In the model, firms differ in their ability to monitor workers who have an incentive to shirk. As high quality output requires high worker effort, it is firms with better monitoring ability that upgrade their quality. Indeed, these firms upgrade their quality to such a degree that they also end up paying higher wages to induce even more worker effort. Trade liberalization can induce greater or smaller wage inequality but always enlarges the welfare inequality as higher wages go hand in hand with even greater effort.     

The Exporter Wage Premium Hypothesis: An Unconditional Quantile Regression and Decomposition Approach

ABSTRACT

Relying on the World Bank Enterprise Survey dataset in 2012/13, this paper applies the unconditional quantile regression and decomposition estimation techniques to examine the hypothesis that workers in exporting firms receive higher wages than those in non-exporting firms. The results show that the relationship between export and firm’s wage bill is indirect and is transmitted through technology and firm size. Remarkably, these indirect relationships are much more pronounced at the more upper quantiles of the wage bill distribution. However, the net relationships of the interaction between export and technology are relatively larger and positive as compared to that of the interaction between export and firm size which are marginal and mixed. The decomposition analysis indicates that much of the present exporter wage premiums are largely due to the differences in the returns to the characteristics between exporting and non-exporting firms. The findings from this paper suggest directions for future work that can be directly useful for policy.     

外资进入、劳动收入份额与技能工资溢价——来自2008年服务业企业普查数据的经验分析

运用2008年第二次全国经济普查服务业企业数据,文章实证检验了外资进入对服务业企业劳动收入份额和技能工资溢价的影响。结果显示外资企业存在更高的劳动收入份额,且外资进入程度对当地企业的劳动收入份额存在正向的外溢效应。文章进一步将不同所有制类型与技能劳动力占比的交互项引入工资方程,发现外资企业存在更高的技能工资溢价。我们进一步验证了外资进入对当地劳动力市场技能工资溢价的影响。结果表明,在那些外资渗透率较高、市场竞争相对激烈的地区和行业,外资企业的技能工资溢价现象会产生溢出效应,促使当地企业提高对高技能员工的薪酬待遇。因此,在合理发挥服务业外资进入对收入分配优化效应的同时,也要采取相关措施防止其进一步拉大工资差距。     

Firm-size wage differentials in the Netherlands

An unsolved problem in modern labor economics is the positive relation between the size of the firm in which a worker is employed and his wage. One line of research that has been developed quite recently in this field is the application of endogenous switching regression models. In this paper we utilize such a model to investigate firm-size wage differentials in the Netherlands. The principal findings are that larger firms pay higher returns on schooling whereas smaller firms tend to reward IQ. Combined with the finding that high IQ-workers are sorted into the largest firms, the results are consistent with a model of job screening. Furthermore, we find that employed sons of self-employed fathers are more likely to work in small firms and that wage prospects for all types of workers are indeed most favorable in larger firms.     

How do Firms’ Outward FDI Strategies Relate to their Activity at Home? Empirical Evidence for the UK

This paper provides new empirical evidence on the relationship between the structure of firms’ overseas FDI and the performance and organisation of their home‐country operations in both manufacturing and business services. It addresses two questions. First, does sorting into multinational status on the basis of productivity extend to the scale of overseas activity? Second, is there evidence that off‐shoring to low‐wage countries has asymmetric effects on high and low‐skill activities in the home economy? The paper considers heterogeneity in firms’ outward FDI strategies and in their behaviour at home, distinguishing between low‐skill and high‐skill‐intensive activities. I differentiate between firms that invest in relatively low‐wage economies and hence might be engaged in vertical FDI, and those that only invest in high‐wage economies. I find that firms that invest in low‐wage economies simultaneously invest in a large number of high‐wage economies, employing complex FDI strategies. I add to existing evidence by demonstrating that selection into multinational status on productivity extends beyond the decision of whether or not to engage in FDI, to the geographic scope of overseas operations. This is consistent with the highest productivity firms being best able to overcome large fixed costs of establishing multiple overseas facilities. I find evidence consistent with differential effects of vertical FDI on firms’ high and low‐skill manufacturing activity in the UK. Relocating low‐skill activity to relatively low‐wage economies could enable a firm to expand output, with potential positive effects on investment, employment and output in complementary (high‐skill) activities at home. For firms investing in relatively low‐wage economies, I find that labour in these countries may substitute for relatively low‐skilled labour in the UK. In high‐skill manufacturing industries I find that multinationals that invest in low‐wage economies are larger, more capital intensive and more intensive in their use of intermediate inputs than other UK‐owned firms.     

Origin of Foreign Direct Investment and Firm Performance: Evidence from Foreign Acquisitions of Chinese Domestic Firms

Using a newly created panel of domestic Chinese firms who receive foreign direct investment (FDI), this paper finds that Organisation of Economic Cooperation and Development (OECD)‐acquired firms outperform those acquired by investors from Hong Kong, Macao and Taiwan (HMT). To control for possible endogeneity of the FDI decision, I employ propensity score matching combined with a difference‐in‐differences approach. The results indicate that relative to HMT‐acquired firms, OECD‐acquired firms experience significantly higher productivity in the initial year of acquisition and this productivity differential persists in subsequent years, reaching 27.8 per cent by the third year. Further, OECD‐acquired firms exhibit higher profits, average wages and capital per worker compared to HMT‐acquired firms. These results suggest that the origin of the foreign investor differentially affects target firm performance.