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Foreign Firms, Domestic Wages

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  • Malchow-Møller, Nikolaj
  • Markusen, James R.
  • Schjerning, Bertel

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

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References

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Citations

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Cited by:
  1. Åkerman, Anders & Forslid, Rikard, 2009. "Firm Heterogeneity and Country Size Dependent Market Entry Cost," Working Paper Series 790, Research Institute of Industrial Economics.
  2. Hijzen, Alexander & Martins, Pedro S. & Schank, Thorsten & Upward, Richard, 2013. "Foreign-owned firms around the world: A comparative analysis of wages and employment at the micro-level," European Economic Review, Elsevier, vol. 60(C), pages 170-188.
  3. Dammert, Ana & Ural Marchand, Beyza & Wan, Chi, 2013. "Gender Wage-Productivity Differentials and Global Integration in China," Working Papers 2013-1, University of Alberta, Department of Economics.
  4. Dieter M. Urban, 2007. "FDI Technology Spillovers and Wages," CESifo Working Paper Series 2132, CESifo Group Munich.
  5. Thomas Sampson, 2012. "Brain drain or brain gain? Technology diffusion and learning on-the-job," LSE Research Online Documents on Economics 51503, London School of Economics and Political Science, LSE Library.
  6. Mario Larch & Wolfgang Lechthaler, 2008. "Multinational Firms and Heterogeneous Workers," Kiel Working Papers 1454, Kiel Institute for the World Economy.
  7. 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.
  8. Hartmut Egger & Udo Kreickemeier, 2011. "Why Foreign Ownership May be Good for You," CESifo Working Paper Series 3631, CESifo Group Munich.
  9. Dasgupta, Kunal, 2012. "Learning and knowledge diffusion in a global economy," Journal of International Economics, Elsevier, vol. 87(2), pages 323-336.
  10. Teixeira, Aurora A.C. & Tavares-Lehmann, Ana Teresa, 2014. "Human capital intensity in technology-based firms located in Portugal: Does foreign ownership matter?," Research Policy, Elsevier, vol. 43(4), pages 737-748.
  11. Sándor Csengödi & Dieter M. Urban, 2008. "Foreign Takeovers and Wage Dispersion in Hungary," CESifo Working Paper Series 2188, CESifo Group Munich.
  12. Thomas Sampson, 2012. "Brain Drain or Brain Gain? Technology Diffusion and Learning On-the-job," CEP Discussion Papers dp1168, Centre for Economic Performance, LSE.
  13. Jeffrey T. Prince & Shane Greenstein, 2013. "Measuring Consumer Preferences for Video Content Provision via Cord-Cutting Behavior," Working Papers 2013-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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