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Do foreign-owned firms provide better working conditions than their domestic counterparts? A comparative analysis

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  • Alexander Hijzen
  • Pedro S. Martins
  • Thorsten Schank
  • Richard Upward

Abstract

This paper analyses to what extent working conditions in foreign-owned firms differ from those in their domestic counterparts. It makes three main contributions. First, we replicate the consensus in the empirical literature by applying a standardised methodology to firm-level data for three developed (Germany, Portugal, UK) and two emerging economies (Brazil, Indonesia). We show that, consistent with previous evidence, foreign-owned firms offer substantially higher average wages than domestic firms and that this difference is particularly important in emerging economies. Second, we show that these positive wage effects of foreign takeovers reduce in size when controlling for changes in the composition of the workforce, although they tend to remain positive and statistically significant. However, the wage effects associated with worker movements from domestic to foreign firms are potentially important, particularly in emerging economies. Third, we look not only at wage outcomes but also consider other working conditions such as working hours, job stability and union coverage. We find that foreign takeovers of domestic firms tend to have a small positive effect on wages, but little effect on other aspects of working conditions.

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Bibliographic Info

Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 10/21.

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Handle: RePEc:not:notgep:10/21

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Keywords: Foreign direct investment; foreign wage premia;

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  1. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  2. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  3. Lipsey, Robert E. & Sjöholm, Fredrik, 2002. "Foreign Firms and Indonesian Manufacturing Wages: An Analysis with Panel Data," EIJS Working Paper Series, The European Institute of Japanese Studies 166, The European Institute of Japanese Studies.
  4. G–rg, Holger & Eric Strobl, 2002. ""Footloose" Multinationals?," Royal Economic Society Annual Conference 2002, Royal Economic Society 89, Royal Economic Society.
  5. Almeida, Rita, 2007. "The labor market effects of foreign owned firms," Journal of International Economics, Elsevier, Elsevier, vol. 72(1), pages 75-96, May.
  6. Martins, Pedro S., 2004. "Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators," IZA Discussion Papers 1388, Institute for the Study of Labor (IZA).
  7. Pedro S. Martins, 2008. "Paying More to Hire the Best? Foreign Firms, Wages and Worker Mobility," Working Papers, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research 17, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  8. Nikolaj Malchow-Møller & James R. Markusen & Bertel Schjerning, 2013. "Foreign Firms, Domestic Wages," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 115(2), pages 292-325, 04.
  9. 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), Centre for the Study of African Economies (CSAE), vol. 12(1), pages 41-73, March.
  10. Andrea Fosfuri & Massimo Motta & Thomas Ronde, 1998. "Foreign direct investments and spillovers through workers' mobility," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 258, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, Elsevier, vol. 73(1), pages 415-422, February.
  12. Sourafel Girma & Holger Görg, 2006. "Evaluating the foreign ownership wage premium using a difference-indifferences matching approach," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp165, IIIS.
  13. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  14. Giorgio Barba Navaretti & Daniele Checchi & Alessandro Turrini, 2002. "Adjusting Labour Demand: Multinationals vs. National Firms: A Cross-European Analysis," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 168, Centro Studi Luca d\'Agliano, University of Milano.
  15. 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, The European Institute of Japanese Studies 206, The European Institute of Japanese Studies.
  16. Martyn Andrews & Lutz Bellmann & Thorsten Schank & Richard Upward, . "Foreign-owned Plants and Job Security," Discussion Papers, University of Nottingham, GEP 07/36, University of Nottingham, GEP.
  17. Francesca Fabbri & Jonathan E. Haskel & Matthew J. Slaughter, 2003. "Does Nationality Of Ownership Matter For Labor Demands?," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(2-3), pages 698-707, 04/05.
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Citations

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Cited by:
  1. Uwe Jirjahn & Steffen Mueller, 2011. "Nonunion Worker Representation, Foreign Owners and the Performance of Establishments," Research Papers in Economics, University of Trier, Department of Economics 2011-03, University of Trier, Department of Economics.
  2. John P. Weche Geluebcke, 2011. "Foreign Ownership and Firm Performance in German Services: First Evidence based on Official Statistics," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 213, University of Lüneburg, Institute of Economics.
  3. Georgios Efthyvoulou & Liza Jabbour, 2013. "Foreign Acquisitions and Firm-Level Financial Risk," Discussion Papers, University of Nottingham, GEP 2013-08, University of Nottingham, GEP.
  4. Martyn Andrews & Lutz Bellmann & Thorsten Schank & Richard Upward, 2012. "Foreign-owned plants and job security," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 148(1), pages 89-117, April.

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