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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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 785.

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Length: 42 pages
Date of creation: May 2003
Date of revision:
Publication status: published in: Journal of International Economics, 2007, 72 (1), 75-96
Handle: RePEc:iza:izadps:dp785

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Keywords: acquisitions; employment and wage structure; foreign direct investment;

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  1. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
  2. Daniel S. Hamermesh, 1999. "The Art of Labormetrics," NBER Working Papers 6927, National Bureau of Economic Research, Inc.
  3. Girma, Sourafel & Görg, Holger, 2003. "Blessing or Curse? Domestic Plants' Survival and Employment Prospects after Foreign Acquisitions," IZA Discussion Papers 706, Institute for the Study of Labor (IZA).
  4. Charles Brown & James L. Medoff, 1988. "The Impact of Firm Acquisitions on Labor," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 9-32 National Bureau of Economic Research, Inc.
  5. Aitken, B. & Harrison, A. & Lipsey, R.E., 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States," Papers 95-21, Columbia - Graduate School of Business.
  6. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-61, April.
  7. Conyon, Martin J, et al, 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.
  8. José Mata & Pedro Portugal, 2002. "Patterns of Entry, Post-Entry Growth and Survival: A Comparison Between Domestic and Foreign Owned Firms," Working Papers w200204, Banco de Portugal, Economics and Research Department.
  9. Zadia Feliciano & Robert E. Lipsey, 1999. "Foreign Ownership and Wages in the United States, 1987 - 1992," NBER Working Papers 6923, National Bureau of Economic Research, Inc.
  10. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
  11. Haskel, Jonathan & Pereira, Sonia & Slaughter, Matthew, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," CEPR Discussion Papers 3384, C.E.P.R. Discussion Papers.
  12. 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).
  13. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
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