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Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training

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Author Info
Görg, Holger () (University of Nottingham and IZA Bonn)
Strobl, Eric (University College Dublin)
Walsh, Frank (University College Dublin)

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Abstract

Foreign-owned firms have consistently been found to pay higher wages than domestic firms to what appear to be equally productive workers in both developed and developing countries alike. Although a number of studies have documented and some attempted to explain this stylized fact, the issue still remains unresolved. In a multi-period bargaining framework we show that if firm specific training is more productive in foreign firms, foreign firm workers will have a steeper wage profile and thus acquire a premium over time. Using a rich employeremployee matched data set we show that the foreign wage premium is only acquired by workers over time spent in the firm and only by those that receive on the job training, thus providing empirical support for a firm specific human capital acquisition explanation.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 590.

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Length: 33 pages
Date of creation: Oct 2002
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Handle: RePEc:iza:izadps:dp590

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Related research
Keywords: on-the-job training; foreign firms; wages;

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Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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. 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. [Downloadable!]
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  2. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Blackwell Publishing, vol. 53(5), pages 709-24, October. [Downloadable!] (restricted)
  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)
    Other versions:
  4. Lim, David, 1977. "Do foreign companies pay higher wages than their local counterparts in Malaysian manufacturing?," Journal of Development Economics, Elsevier, vol. 4(1), pages 55-66, February. [Downloadable!] (restricted)
  5. Girma, Sourafel & Görg, Holger, 2006. "Evaluating the Foreign Ownership Wage Premium Using a Difference-in-Differences Matching Approach," CEPR Discussion Papers 5788, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Acemoglu, Daron & Pischke, Jorn-Steffen, 1999. "Beyond Becker: Training in Imperfect Labour Markets," Economic Journal, Royal Economic Society, vol. 109(453), pages F112-42, February. [Downloadable!] (restricted)
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  7. Fosfuri, Andrea & Motta, Massimo & Rønde, Thomas, 1999. "Foreign Direct Investment and Spillovers through Workers' Mobility," CEPR Discussion Papers 2194, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June. [Downloadable!] (restricted)
  9. Steven Globerman & John C. Ries & Ilan Vertinsky, 1994. "The Economic Performance of Foreign Affiliates in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 143-56, February. [Downloadable!] (restricted)
  10. John W. Budd & Josef Konings & Matthew J. Slaughter, 2002. "International Rent Sharing in Multinational Firms," NBER Working Papers 8809, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February. [Downloadable!] (restricted)
  12. 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)
  13. Malcomson, J., 1998. "Individual Employment Contracts," Discussion Paper Series In Economics And Econometrics 9804, Economics Division, School of Social Sciences, University of Southampton.
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  14. Strobl, Eric & Thornton, Robert, 2002. "Do Large Employers Pay More in Developing Countries? The Case of Five African Countries," IZA Discussion Papers 660, Institute for the Study of Labor (IZA). [Downloadable!]
  15. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June. [Downloadable!] (restricted)
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  16. Mark E. Doms & J . Bradford Jensen, 1998. "Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 235-258 National Bureau of Economic Research, Inc. [Downloadable!]
  17. Gershenberg, Irving, 1987. "The training and spread of managerial know-how, a comparative analysis of multinational and other firms in Kenya," World Development, Elsevier, vol. 15(7), pages 931-939, July. [Downloadable!] (restricted)
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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. Célio Hiratuka & Rogério Dias de Araújo, 2006. "Exportações Das Firmas Domésticas E Influência Das Firmas Transnacionais," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 128, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  2. 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!]
  3. Heyman, Fredrik & Sjöholm, Fredrik & Gustavsson Tingvall, Patrik, 2004. "Is There Really A Foreign Ownership Wage Premium?Evidence From Matched Employer-Employee Data," EIJS Working Paper Series 206, The European Institute of Japanese Studies. [Downloadable!]
    Other versions:
  4. 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!]
  5. Ting Gao, 2004. "FDI, openness and income," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 13(3), pages 305-323, September. [Downloadable!] (restricted)
  6. Holger Görg & Eric Strobl, 2004. "Spillovers from Foreign Firms through Worker Mobility: An Empirical Investigation," Discussion Papers of DIW Berlin 463, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  7. Pedro S. Martins, 2004. "Do Foreign Firms Really Pay Higher Wages? : Evidence from Different Estimators," CRIEFF Discussion Papers 0409, Centre for Research into Industry, Enterprise, Finance and the Firm. [Downloadable!]
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  8. Waldkirch, Andreas & Ofosu, Andra, 2008. "Foreign Presence, Spillovers, and Productivity: Evidence from Ghana," MPRA Paper 8577, University Library of Munich, Germany. [Downloadable!]
  9. Sándor Csengödi & Rolf Jungnickel & Dieter M. Urban, 2008. "Foreign Takeovers and Wages in Hungary," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(1), pages 55-82, April. [Downloadable!] (restricted)
  10. Csengodi, Sandor & Jungnickel, Rolf & Urban, Dieter, 2005. "Foreign Takeovers and Wages: Theory and Evidence from Hungary," Discussion Paper Series 26278, Hamburg Institute of International Economics. [Downloadable!]
    Other versions:
  11. Girma, Sourafel & Goerg, Holger, 2003. "Evaluating the Causal Effects of Foreign Acquisition on Domestic Skilled and Unskilled Wages," IZA Discussion Papers 903, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Görg, Holger & Greenaway, David, 2003. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," IZA Discussion Papers 944, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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