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The Effects of Foreign Owned Firms on the Labor Market

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  • Almeida, Rita K.

    (World Bank)

Abstract

Cross sectional evidence shows that foreign firms have a more educated workforce and pay higher wages than domestic firms. These results do not necessarily imply that foreign direct investment translates into higher demand for educated workers or higher wages, however, since foreign investment may be guided by unobservable firm-characteristics correlated with the demand for educated workers or wages. Using firm-level panel data for Portugal, I seek to isolate the effect of foreign direct investment on the demand for educated workers and wages by observing labor demand and wages of different education groups before and after the foreign acquisition. I find that foreigners 'cherry pick' domestic firms to be acquired, choosing those firms with a more educated workforce. Moreover, these firms are already very similar to the group of existing foreign firms and, following the foreign acquisition, there are no significant changes in the workforce educational composition. There is evidence that average wages increase following the foreign acquisition but changes are smaller than in cross sectional estimates.

Suggested Citation

  • Almeida, Rita K., 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp785
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    References listed on IDEAS

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    Cited by:

    1. Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2007. "Cross-Border Acquisitions, Multinationals and Wage Elasticities," Working Paper Series 709, Research Institute of Industrial Economics.
    2. Roger Bandick & Holger Görg, 2016. "Foreign acquisition, plant survival, and employment growth," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 7, pages 115-141, World Scientific Publishing Co. Pte. Ltd..
    3. Sahu, Pritish Kumar, 2010. "FDI, wage inequality and employment in emerging economies: recent evidence from Indian manufacturing," MPRA Paper 35149, University Library of Munich, Germany.
    4. Cooray, Arusha & Tamazian, Artur & Vadlamannati, Krishna Chaitanya, 2014. "What drives FDI policy liberalization? An empirical investigation," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 179-189.
    5. 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.
    6. 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.
    7. 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.
    8. Roger Bandick & Pär Hansson, 2009. "Inward FDI and demand for skills in manufacturing firms in Sweden," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 111-131, April.
    9. Anusha Chari & Peter Blair Henry & Diego Sasson, 2012. "Capital Market Integration and Wages," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 102-132, April.
    10. Oldford, Erin & Otchere, Isaac, 2016. "Are cross-border acquisitions enemy of labor? An examination of employment and productivity effects," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 438-455.
    11. Peter Henry & Diego Sasson, "undated". "Capital Market Integration and Wages," Discussion Papers 08-028, Stanford Institute for Economic Policy Research.
    12. Bandick, Roger & Hansson, Pär, 2005. "Inward FDI and demand for skills in Sweden," Working Papers 2005:10, Örebro University, School of Business.
    13. John S. Earle & Álmos Telegdy, 2008. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials with LEED from Hungary, 1986 to 2003," NBER Chapters, in: The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, pages 229-252, National Bureau of Economic Research, Inc.
    14. Martins, Pedro S., 2004. "Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators," IZA Discussion Papers 1388, Institute of Labor Economics (IZA).
    15. Henry, Peter Blair & Sasson, Diego, 2009. "Capital Market Integration and Wages," Research Papers 2019, Stanford University, Graduate School of Business.
    16. Abdelhakim Hammoudi & Wadii Hatit & Lamia Rouached, 2013. "Foreign Direct Investment and Training in the Host Country: The Tariff-Jumping Argument Revisited," The International Trade Journal, Taylor & Francis Journals, vol. 27(1), pages 36-62, March.
    17. Torfinn Harding, Torfinn; Javorcik, Beata S., 2010. "Roll out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows," CAGE Online Working Paper Series 18, Competitive Advantage in the Global Economy (CAGE).
    18. repec:dau:papers:123456789/5838 is not listed on IDEAS
    19. Maliranta, Mika, 2005. "Foreign-owned Firms and Productivity-enhancing Restructuring in Finnish Manufacturing Industries," Discussion Papers 965, The Research Institute of the Finnish Economy.
    20. Ying Ge, 2006. "The Effect of Foreign Direct Investment on the Urban Wage in China: An Empirical Examination," Urban Studies, Urban Studies Journal Limited, vol. 43(9), pages 1439-1450, August.
    21. Hammoudi, Abdelhakim & Hatit, Wadii, 2008. "Menace de débauchage et incitation des multinationales à la formation de la main-d’oeuvre dans les pays hôtes : un modèle théorique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 84(2), pages 179-204, juin.
    22. Maria Bas, 2012. "Foreign ownership wage premium: Does financial health matter?," Working Papers 2012-24, CEPII research center.
    23. EL BOUHADI, Abdelhamid & OUAHID, Driss & ELKHIDER, Abdelkader, 2022. "Impact Of Economic And Financial Openness On Domestic Inequality In Developing And Emerging Countries: A Panel Data Study Of 11 Countries For 1980-2016," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 22(2), pages 67-88.
    24. Marko Ogorevc & Sonja Slander, 2011. "Shareholders and wage determination - bringing in "space"," ERSA conference papers ersa10p1279, European Regional Science Association.

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    More about this item

    Keywords

    acquisitions; employment and wage structure; foreign direct investment;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction 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

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