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Foreign direct investment and wage dispersion: Evidence from French employer-employee data

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  • Catherine Laffineur
  • Alexandre Gazaniol

Abstract

This article investigates to what extent outward foreign direct investment (FDI) affects domestic wages. Results reveal that multinational companies pay a wage premium to their employees and the wage premium is increasing within the wage distribution. In a second step, we use a fixed effect and match effect model to analyze the effect of outward FDI within job spells. Results suggest that outward FDI raises manager wages by 0.077% and reduces wages for workers performing offshorable tasks by 0.34%. The positive effect of FDI on manager wages is mainly driven by the intensive margin of outward FDI. This result is observed even after controlling for endogenous worker mobility. Finally, we observe that the increase of outward foreign direct investment cause wages to be higher, and this effect is due to both multinational companies paying a wage premium and to changes in the market value of unobservable worker skills.

Suggested Citation

  • Catherine Laffineur & Alexandre Gazaniol, 2019. "Foreign direct investment and wage dispersion: Evidence from French employer-employee data," International Economics, CEPII research center, issue 157, pages 203-226.
    • Handle: RePEc:cii:cepiie:2019-q1-157-12
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    More about this item

    Keywords

    Foreign direct investment; Tasks; Wages; Inequality;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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