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Why Foreign Ownership May be Good for You

  • Hartmut Egger
  • Udo Kreickemeier

We develop a general equilibrium two-country model with heterogeneous producers and rent sharing at the firm level due to fairness preferences of workers. We identify two sources of a multinational wage premium. On the one hand, there is a pure composition effect because multinational firms are more productive, make higher profits, and therefore pay higher wages. On the other hand, there is a firm-level wage effect: A multinational firm pays higher wages in its home market than an otherwise identical national firm since it has higher global profits. We analyse how these two sources interact in determining the multinational wage premium in a setting with two identical countries, and show that in this case the wage premium is fully explained by firm characteristics. We then allow for technology differences between countries and find that a residual wage premium exists in the technologically backward country, but not in the advanced country.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3631.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3631
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  1. Amiti, Mary & Davis, Donald R, 2008. "Trade, Firms, and Wages: Theory and Evidence," CEPR Discussion Papers 6872, C.E.P.R. Discussion Papers.
  2. Egger, Hartmut & Kreickemeier, Udo, 2012. "Fairness, trade, and inequality," Journal of International Economics, Elsevier, vol. 86(2), pages 184-196.
  3. Steven Globerman & John C. Ries & Ilan Vertinsky, 1994. "The Economic Performance of Foreign Affiliates in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 143-56, February.
  4. 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 iiisdp165, IIIS.
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  8. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  9. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  10. Heyman, Fredrik & Sjöholm, Fredrik & Gustavsson Tingvall, Patrik, 2006. "Is There Really A Foreign Ownership Wage Premium? Evidence From Matched Employer-Employee Data," EIJS Working Paper Series 230, The European Institute of Japanese Studies.
  11. Budd, John W & Konings, Jozef & Slaughter, Matthew, 2002. "International Rent Sharing in Multinational Firms," CEPR Discussion Papers 3326, C.E.P.R. Discussion Papers.
  12. Martins, Pedro S. & Yang, Yong, 2010. "Globalised Labour Markets? International Rent Sharing across 47 Countries," IZA Discussion Papers 5283, Institute for the Study of Labor (IZA).
  13. 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), vol. 12(1), pages 41-73, March.
  14. Donald R. Davis & James Harrigan, 2007. "Good Jobs, Bad Jobs, and Trade Liberalization," NBER Working Papers 13139, National Bureau of Economic Research, Inc.
  15. Rachel Griffith & Helen Simpson, 2001. "Characteristics of foreign-owned firms in British manufacturing," IFS Working Papers W01/10, Institute for Fiscal Studies.
  16. Helpman, Elhanan & Itskhoki, Oleg & Redding, Stephen J., 2009. "Inequality and Unemployment in a Global Economy," CEPR Discussion Papers 7353, C.E.P.R. Discussion Papers.
  17. Rita Almeida, 2004. "The labor market effects of foreign-owned firms," Policy Research Working Paper Series 3300, The World Bank.
  18. Görg, Holger & Strobl, Eric & Walsh, Frank, 2002. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," IZA Discussion Papers 590, Institute for the Study of Labor (IZA).
  19. Harrison, Ann E. & Scorse, Jason, 2008. "Do foreign-owned firms pay more?," MPRA Paper 15637, University Library of Munich, Germany.
  20. Andrea Fosfuri & Massimo Motta & Thomas Ronde, 1998. "Foreign direct investments and spillovers through workers' mobility," Economics Working Papers 258, Department of Economics and Business, Universitat Pompeu Fabra.
  21. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  22. Aitken, B. & Harrison, A. & Lipsey, R.E., 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States," Papers 95-21, Columbia - Graduate School of Business.
  23. Dobbelaere, Sabien, 2004. "Ownership, firm size and rent sharing in Bulgaria," Labour Economics, Elsevier, vol. 11(2), pages 165-189, April.
  24. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
  25. Hartmut Egger & Udo Kreickemeier, 2009. "Firm Heterogeneity And The Labor Market Effects Of Trade Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 187-216, 02.
  26. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
  27. Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
  28. Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.
  29. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
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