The Multinational Wage Premium: Production vs. Financial Networks

This paper studies the relationship between multinational ownership and wages paid by German manufacturing plants. We provide novel evidence that the sizable multinational wage premium in our data is significantly smaller when plants are owned by financial investors. This observed wage gap is particularly pronounced in environments with collective bargaining and cross-border production structures. Evidence on patent citations further suggests that technology linkages within ownership networks are associated with higher wages in general, but less so when plants are owned by financial investors. To interpret these patterns, we develop a general equilibrium model of trade with oligopolistic product market competition and collective wage bargaining. In the model, multinational ownership can shape wages through two channels: it strengthens firms' outside options in wage negotiations, facilitating surplus appropriation in financial networks, and it can create additional surplus through the exploitation of cross-border production synergies in production networks. The latter channel is relevant only if the owner is not a financial investor, highlighting the central role of ownership structure for the labor market effects of multinational activity.