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Foreign Firms, Domestic Wages

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Author Info
Malchow-Møller, Nikolaj
Markusen, James R.
Schjerning, Bertel

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Abstract

Foreign-owned firms are often hypothesized to generate productivity “spillovers” to the host country, but both theoretical micro-foundations and empirical evidence for this are limited. We develop a heterogeneous-firm model in which ex-ante identical workers learn from their employers in proportion to the firm’s productivity. Foreign-owned firms have, on average, higher productivity in equilibrium due to entry costs, which means that low-productivity foreign firms cannot enter. Foreign firms have higher wage growth and, with some exceptions, pay higher average wages, but not when compared to similarly large domestic firms. The empirical implications of the model are tested on matched employer-employee data from Denmark. Consistent with the theory, we find considerable evidence of higher wages and wage growth in large and/or foreign-owned firms. These effects survive controlling for individual characteristics, but, as expected, are reduced significantly when controlling for unobservable firm heterogeneity. Furthermore, acquired skills in foreign-owned and large firms appear to be transferable to both subsequent wage work and self-employment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6292.

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Date of creation: May 2007
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Handle: RePEc:cpr:ceprdp:6292

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Related research
Keywords: heterogeneous firms; knowledge transfer; multinationals; productivity; spillovers;

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Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
F2 - International Economics - - International Factor Movements and International Business
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Åkerman, Anders & Forslid, Rikard, 2009. "Firm Heterogeneity and Country Size Dependent Market Entry Cost," Working Paper Series 790, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  2. Mario Larch & Wolfgang Lechthaler, 2008. "Multinational Firms and Heterogeneous Workers," Kiel Working Papers 1454, Kiel Institute for the World Economy. [Downloadable!]
  3. Csengödi, Sándor / Urban, Dieter M., 2008. "Foreign Takeovers and Wage Dispersion in Hungary," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Akerman, Anders & Forslid, Rikard, 2007. "Country Size, Productivity and Trade Share Convergence: An Analysis of Heterogenous Firms and Country Size Dependent Beachhead Costs," CEPR Discussion Papers 6545, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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