Wage and Employment of Japanese Multinational Enterprises in Vietnam

This paper explores the impact of a quasi-experimental wage shock triggered by Vietnam’s 2011 minimum wage reform. Using rich firm-level administrative data, we find that the minimum wage hike led to a significant decline in employment for Vietnamese-owned firms, whereas its impact on employment of multinational enterprises (MNEs) was minimal but positive. At the extensive margin, more exposed Vietnamese firms exit from the market, while MNEs remain unaffected. Furthermore, by constructing a comprehensive firm-level dataset that links Japanese headquarters with their Vietnamese subsidiaries, we find no evidence of labour substitution in response to the wage increase. A survey of Japanese MNEs helps explain this finding that multinationals typically absorb increased labour costs in their foreign subsidiaries. Overall, our findings suggest that MNEs remain an important driver of job creation in developing countries, even amid rapid wage growth.