The effects of foreign acquisitions on wages: how the country of origin matters

Many studies show that the employees of foreign-owned firms earn higher wages on average than their otherwise similar counterparts in domestic firms. This paper contributes to the strand of literature that compares the differences in the wage gains related to foreign acquisitions, dependent on the country of origin of the foreign direct investments (FDI). The analysis is based on Estonian matched employer-employee data for the years 2006 to 2018. Impulses from Northern and Western European FDI are compared with FDI from the rest of the World. An acquisition by a foreign firm is considered a treatment. Employees who work for four consecutive years in these firms are matched with similar counterparts based on their wages before acquisition and in terms of individual characteristics and the labour productivity of firms. We estimate the effect of foreign acquisition using difference-in-differences with matching methods based on the estimated propensity score. Firm-level effects are positive. At the worker level, we find that the average treatment effect on treated individuals is not statistically significant in firms where the new owners came from Northern and Western Europe (NWE). At the same time, acquisitions by firms from other countries (OTR) indicated a large effect on stayers. Workers in the NWE group already have rather high wages prior the acquisition and workers in the OTR group may profit from the acquisition mainly because of the phenomenon known as cherries-for-sale.