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Foreign Firms, Domestic Wages

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  • Nikolaj Malchow-Møller
  • James R. Markusen
  • Bertel Schjerning

Abstract

Foreign-owned firms are often hypothesized to generate productivity "spillovers" to the host country, but both theoretical micro-foundations and empirical evidence for this are limited. We develop a heterogeneous-firm model in which ex-ante identical workers learn from their employers in proportion to the firm?s productivity. Foreign-owned firms have, on average, higher productivity in equilibrium due to entry costs, which means that low-productivity foreign firms cannot enter. Foreign firms have higher wage growth and, with some exceptions, pay higher average wages, but not when compared to similarly large domestic firms. The empirical implications of the model are tested on matched employer-employee data from Denmark. Consistent with the theory, we find considerable evidence of higher wages and wage growth in large and/or foreign-owned firms. These effects survive controlling for individual characteristics, but, as expected, are reduced significantly when controlling for unobservable firm heterogeneity. Furthermore, acquired skills in foreign-owned and large firms appear to be transferable to both subsequent wage work and self-employment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13001.

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Date of creation: Mar 2007
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Publication status: published as 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, 04.
Handle: RePEc:nbr:nberwo:13001

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Cited by:
  1. Jeffrey T. Prince & Shane Greenstein, 2013. "Measuring Consumer Preferences for Video Content Provision via Cord-Cutting Behavior," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2013-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Ã…kerman, Anders & Forslid, Rikard, 2009. "Firm Heterogeneity and Country Size Dependent Market Entry Cost," Working Paper Series, Research Institute of Industrial Economics 790, Research Institute of Industrial Economics.
  3. Egger, Hartmut & Kreickemeier, Udo, 2011. "Why foreign ownership may be good for you," University of Tuebingen Working Papers in Economics and Finance 19, University of Tuebingen, Faculty of Economics and Social Sciences.
  4. Akerman, Anders & Forslid, Rikard, 2007. "Country Size, Productivity and Trade Share Convergence: An Analysis of Heterogenous Firms and Country Size Dependent Beachhead Costs," CEPR Discussion Papers 6545, C.E.P.R. Discussion Papers.
  5. Thomas Sampson, 2012. "Brain drain or brain gain? Technology diffusion and learning on-the-job," LSE Research Online Documents on Economics 51503, London School of Economics and Political Science, LSE Library.
  6. Dasgupta, Kunal, 2012. "Learning and knowledge diffusion in a global economy," Journal of International Economics, Elsevier, vol. 87(2), pages 323-336.
  7. Hijzen, Alexander & Martins, Pedro S. & Schank, Thorsten & Upward, Richard, 2013. "Foreign-owned firms around the world: A comparative analysis of wages and employment at the micro-level," European Economic Review, Elsevier, vol. 60(C), pages 170-188.
  8. Dammert, Ana C. & Ural Marchand, Beyza & Wan, Chi, 2013. "Gender Wage-Productivity Differentials and Global Integration in China," IZA Discussion Papers 7159, Institute for the Study of Labor (IZA).
  9. Dieter M. Urban, 2007. "FDI Technology Spillovers and Wages," CESifo Working Paper Series 2132, CESifo Group Munich.
  10. Sándor Csengödi & Dieter M. Urban, 2008. "Foreign Takeovers and Wage Dispersion in Hungary," CESifo Working Paper Series 2188, CESifo Group Munich.
  11. Mario Larch & Wolfgang Lechthaler, 2008. "Multinational Firms and Heterogeneous Workers," Kiel Working Papers 1454, Kiel Institute for the World Economy.
  12. 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.
  13. Thomas Sampson, 2012. "Brain Drain or Brain Gain? Technology Diffusion and Learning On-the-job," CEP Discussion Papers dp1168, Centre for Economic Performance, LSE.

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