IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp1388.html
   My bibliography  Save this paper

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

Author

Listed:
  • Martins, Pedro S.

    (Nova School of Business and Economics)

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.

Suggested Citation

  • Martins, Pedro S., 2004. "Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators," IZA Discussion Papers 1388, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp1388
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp1388.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Almeida, Rita K., 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute of Labor Economics (IZA).
    2. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    3. Robert E. Lipsey & Fredrik Sjoholm, 2001. "Foreign Direct Investment and Wages in Indonesian Manufacturing," NBER Working Papers 8299, National Bureau of Economic Research, Inc.
    4. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68, National Bureau of Economic Research, Inc.
    5. Brian Aitken & Ann Harrison & Robert E. Lipsey, 2022. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 4, pages 61-87, World Scientific Publishing Co. Pte. Ltd..
    6. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    7. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    8. Holger Görg & Eric Strobl & Frank Walsh, 2016. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 3, pages 33-51, World Scientific Publishing Co. Pte. Ltd..
    9. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2009. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," World Scientific Book Chapters, in: Globalization And International Trade Policies, chapter 17, pages 623-687, World Scientific Publishing Co. Pte. Ltd..
    10. Girma, Sourafel & Görg, Holger, 2003. "Evaluating the Causal Effects of Foreign Acquisition on Domestic Skilled and Unskilled Wages," IZA Discussion Papers 903, Institute of Labor Economics (IZA).
    11. Holger Görg & Eric Strobl, 2016. "‘Footloose’ Multinationals?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 6, pages 95-113, World Scientific Publishing Co. Pte. Ltd..
    12. 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.
    13. Pedro Martins, 2009. "Rent sharing before and after the wage bill," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2133-2151.
    14. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1, August.
    15. Pedro Portugal & José Mata, 2001. "The Survival of New Domestic and Foreign Owned Firms," Working Papers w200101, Banco de Portugal, Economics and Research Department.
    16. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
    17. 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.
    18. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
    19. Rachel Griffith & Helen Simpson, 2004. "Characteristics of Foreign-Owned Firms in British Manufacturing," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980–2000, pages 147-180, National Bureau of Economic Research, Inc.
    20. Dirk Willem te Velde, 2003. "Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 41-73, March.
    21. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 435-451, November.
    22. Pedro S. Martins, 2007. "Rent sharing and wages," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 23-31.
    23. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    24. 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.
    25. Pedro Portugal & Olivier Blanchard, 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.
    26. Martin J. Conyon & Sourafel Girma & Steve Thompson & Peter W. Wright, 2002. "The productivity and wage effects of foreign acquisition in the United Kingdom," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 85-102, March.
    27. repec:ebl:ecbull:v:10:y:2005:i:1:p:1-7 is not listed on IDEAS
    28. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2004. "Evaluating the Employment Impact of a Mandatory Job Search Program," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 569-606, June.
    29. 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 and Economics, University of Chicago Press, vol. 33(2), pages 383-408, October.
    30. Pedro Martins, 2005. "The Inter-Industry Wage Structure of U.S. Multinationals," Economics Bulletin, AccessEcon, vol. 10(1), pages 1-7.
    31. repec:rus:hseeco:121599 is not listed on IDEAS
    32. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    33. Martins, Pedro S., 2004. "Industry wage premia: evidence from the wage distribution," Economics Letters, Elsevier, vol. 83(2), pages 157-163, May.
    34. Barbosa, Natalia & Louri, Helen, 2002. "On the determinants of multinationals' ownership preferences: evidence from Greece and Portugal," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 493-515, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Csengődi, Sándor & Jungnickel, Rolf & Urban, Dieter M., 2005. "Foreign Takeovers and Wages: Theory and Evidence from Hungary," HWWA Discussion Papers 337, Hamburg Institute of International Economics (HWWA).
    2. Nikolaj Malchow-Møller & James R. Markusen & Bertel Schjerning, 2013. "Foreign Firms, Domestic Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(2), pages 292-325, April.
    3. Heyman, Fredrik & Sjoholm, Fredrik & Tingvall, Patrik Gustavsson, 2007. "Is there really a foreign ownership wage premium? Evidence from matched employer-employee data," Journal of International Economics, Elsevier, vol. 73(2), pages 355-376, November.
    4. Gianluca Orefice & Nicholas Sly & Farid Toubal, 2021. "Cross-Border Merger and Acquisition Activity and Wage Dynamics," ILR Review, Cornell University, ILR School, vol. 74(1), pages 131-162, January.
    5. Petri Böckerman & Eero Lehto, 2006. "Enemy of Labour? Analysing the Employment Effects of Mergers and Acquisitions," Working Papers 221, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    6. Cagatay Bircan, 2013. "Foreign direct investment and wages: does the level of ownership matter?," Working Papers 157, European Bank for Reconstruction and Development, Office of the Chief Economist.
    7. Sangeeta Pratap & Erwan Quintin, 2001. "Are labor markets segmented in Argentina? a semiparametric approach," Center for Latin America Working Papers 0701, Federal Reserve Bank of Dallas.
    8. Hartmut Egger & Udo Kreickemeier, 2017. "Why Foreign Ownership May be Good for You," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 13, pages 381-421, World Scientific Publishing Co. Pte. Ltd..
    9. Girma, Sourafel & Görg, Holger, 2003. "Evaluating the Causal Effects of Foreign Acquisition on Domestic Skilled and Unskilled Wages," IZA Discussion Papers 903, Institute of Labor Economics (IZA).
    10. Sule Ozler & Erol Taymaz, 2004. "Does foreign ownership matter for survival and growth? Dynamics of competition and foreign direct investment," ERC Working Papers 0406, ERC - Economic Research Center, Middle East Technical University, revised Mar 2004.
    11. Santosh Kumar Sahu & Ankita Goel, 2023. "Wages and Firm Ownership: A Study of the Manufacturing Sector of India," Studies in Microeconomics, , vol. 11(2), pages 157-183, August.
    12. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    13. Nilsson Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2014. "Multinational firms, acquisitions and job tasks," European Economic Review, Elsevier, vol. 66(C), pages 248-265.
    14. Uros Delevic & James Kennell, 2022. "Multinationals And Wages: Evidence From Employer–Employee Data In Serbia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(232), pages 49-80, January –.
    15. 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.
    16. Henrik Cronqvist & Fredrik Heyman & Mattias Nilsson & Helena Svaleryd & Jonas Vlachos, 2009. "Do Entrenched Managers Pay Their Workers More?," Journal of Finance, American Finance Association, vol. 64(1), pages 309-339, February.
    17. an de Meulen, Philipp, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 298, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    18. Heyman, Fredrik & Gustavsson Tingvall, Patrik & Sjöholm, Fredrik, 2006. "Acquisitions, Multinationals and Wage Dispersion," Working Paper Series 675, Research Institute of Industrial Economics.
    19. Girma, Sourafel & Görg, Holger, 2001. "Blessing or Curse? Domestic Plants' Survival and Employment Prospects After Foreign Acquisition," CEPR Discussion Papers 2994, C.E.P.R. Discussion Papers.
    20. 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.

    More about this item

    Keywords

    FDI; wages; matched employer-employee data; propensity score matching; Portugal;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1388. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.