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Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators

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Author Info
Martins, Pedro S. () (Queen Mary, University of London and IZA Bonn)

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Abstract

We contribute to the literature on Foreign Direct Investment and labour markets by examining wage differentials between domestic and foreign firms, drawing on a large Portuguese matched employer-employee panel. Using OLS, the foreign-firm premium is large and significantly positive but falls substantially when firm and worker controls are added. Moreover, the premium also does not vary monotonically with foreign control, it increases along the wage distribution and it is generally insignificant when using propensity score matching. Finally, using differences-in-differences, we find lower wage growth for workers in domestic firms that are acquired by foreign investors, a result that holds when combining differences-in-differences and propensity score matching. Overall, our evidence suggests that the commonly-documented OLS premium cannot be interpreted as a causal impact.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1388.

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Length: 43 pages
Date of creation: Nov 2004
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Handle: RePEc:iza:izadps:dp1388

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Related research
Keywords: FDI; wages; matched employer-employee data; propensity score matching; Portugal;

Other versions of this item:

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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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.:
  1. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January. [Downloadable!] (restricted)
  2. Martins, Pedro S., 2004. "Rent Sharing Before and After the Wage Bill," IZA Discussion Papers 1376, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May. [Downloadable!] (restricted)
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  4. Almeida, Rita, 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute for the Study of Labor (IZA). [Downloadable!]
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    Other versions:
  7. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January. [Downloadable!] (restricted)
  8. Conyon, Martin J, et al, 2002. "The Productivity and Wage Effects of Foreign Acquisition in the United Kingdom," Journal of Industrial Economics, Blackwell Publishing, vol. 50(1), pages 85-102, March. [Downloadable!] (restricted)
  9. Pedro Martins, 2005. "The Inter-Industry Wage Structure of U.S. Multinationals," Economics Bulletin, AccessEcon, vol. 10(1), pages 1-7. [Downloadable!]
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  11. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier. [Downloadable!] (restricted)
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  13. Olivier Blanchard & Pedro Portugal, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March. [Downloadable!] (restricted)
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  15. Robert E. Lipsey & Fredrik Sjoholm, 2001. "Foreign Direct Investment and Wages in Indonesian Manufacturing," NBER Working Papers 8299, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Holger Görg & Eric Strobl, 2003. ""Footloose" Multinationals?," Manchester School, University of Manchester, vol. 71(1), pages 1-19, January. [Downloadable!] (restricted)
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  17. Lichtenberg, Frank R & Siegel, Donald, 1990. "The Effect of Ownership Changes on the Employment and Wages of Central Office and Other Personnel," Journal of Law & Economics, University of Chicago Press, vol. 33(2), pages 383-408, October.
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  19. Dirk Willem te Velde, 2003. "Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?," Journal of African Economies, Oxford University Press, vol. 12(1), pages 41-73, March.
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  21. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2003. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," NBER Working Papers 9669, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  22. Görg, Holger & Strobl, Eric & Walsh, Frank, 2002. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," IZA Discussion Papers 590, Institute for the Study of Labor (IZA). [Downloadable!]
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  23. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Blackwell Publishing, vol. 5(4), pages 435-51, November.
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  28. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2001. "Evaluating the employment impact of a mandatory job search assistance program," IFS Working Papers W01/20, Institute for Fiscal Studies. [Downloadable!]
  29. repec:rus:hseeco:121599 is not listed on IDEAS
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    Other versions:
Full references

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. Sourafel Girma & Holger Görg, 2006. "Evaluating the foreign ownership wage premium using a difference-indifferences matching approach," The Institute for International Integration Studies Discussion Paper Series iiisdp165, IIIS. [Downloadable!]
    Other versions:
  2. Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2007. "Cross-Border Acquisitions, Multinationals and Wage Elasticities," Working Paper Series 709, Research Institute of Industrial Economics. [Downloadable!]
  3. Pedro S. Martins, 2008. "Paying More to Hire the Best? Foreign Firms, Wages and Worker Mobility," Working Papers 17, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research. [Downloadable!]
    Other versions:
  4. John S. Earle & Almos Telegdy, 2007. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials with LEED from Hungary, 1986–2003," Staff Working Papers 07-134, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  5. Heyman, Fredrik & Gustavsson Tingvall, Patrik & Sjöholm, Fredrik, 2006. "Is There Really a Foreign Ownership Wage Premium? Evidence from Matched Employer-Employee Data," Working Paper Series 674, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  6. Mario Larch & Wolfgang Lechthaler, 2008. "Multinational Firms and Heterogeneous Workers," Kiel Working Papers 1454, Kiel Institute for the World Economy. [Downloadable!]
  7. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Working Paper Series in Economics 28, University of Lüneburg, Institute of Economics. [Downloadable!]
    Other versions:
  8. Pedro S. Martins & Luiz A. Esteves, 2008. "Foreign Ownership, Employment and Wages in Brazil: Evidence from Acquisitions, Divestments and Job Movers," Working Papers 15, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research. [Downloadable!]
    Other versions:
  9. John S. Earle & Álmos Telegdy, 2007. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials using LEED from Hungary, 1986-2003," NBER Working Papers 12997, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Nilsson Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2008. "Multinational Firms and Job Tasks," Working Paper Series 781, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  11. Heyman, Fredrik & Svaleryd, Helena & Vlachos, Jonas, 2008. "Competition, Takeovers and Gender Discrimination," CEPR Discussion Papers 6879, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  12. Malchow-Møller, Nikolaj & Markusen, James R. & Schjerning, Bertel, 2007. "Foreign Firms, Domestic Wages," CEPR Discussion Papers 6292, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  13. Martyn Andrews & Lutz Bellmann & Thorsten Schank & Richard Upward, 2009. "The takeover and selection effects of foreign-owned establishments: an analysis using linked employer–employee data," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(2), pages 293-317, July. [Downloadable!] (restricted)
  14. Jean-Pierre Cling & Mireille Razafindrakoto & François Roubaud, 2007. "Export Processing Zones in Madagascar: the impact of the dismantling of clothing quotas on employment and labour standards," Working Papers DT/2007/06, DIAL (Développement, Institutions & Analyses de Long terme). [Downloadable!]
  15. Pedro Martins, 2005. "The Inter-Industry Wage Structure of U.S. Multinationals," Economics Bulletin, AccessEcon, vol. 10(1), pages 1-7. [Downloadable!]
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