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The Effects of Foreign Owned Firms on the Labor Market

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  • Almeida, Rita K.

    () (World Bank)

Abstract

Cross sectional evidence shows that foreign firms have a more educated workforce and pay higher wages than domestic firms. These results do not necessarily imply that foreign direct investment translates into higher demand for educated workers or higher wages, however, since foreign investment may be guided by unobservable firm-characteristics correlated with the demand for educated workers or wages. Using firm-level panel data for Portugal, I seek to isolate the effect of foreign direct investment on the demand for educated workers and wages by observing labor demand and wages of different education groups before and after the foreign acquisition. I find that foreigners 'cherry pick' domestic firms to be acquired, choosing those firms with a more educated workforce. Moreover, these firms are already very similar to the group of existing foreign firms and, following the foreign acquisition, there are no significant changes in the workforce educational composition. There is evidence that average wages increase following the foreign acquisition but changes are smaller than in cross sectional estimates.

Suggested Citation

  • Almeida, Rita K., 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp785
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    References listed on IDEAS

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    Cited by:

    1. Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2007. "Cross-Border Acquisitions, Multinationals and Wage Elasticities," Working Paper Series 709, Research Institute of Industrial Economics.
    2. Nikolaj Malchow-Møller & James R. Markusen & Bertel Schjerning, 2013. "Foreign Firms, Domestic Wages," Scandinavian Journal of Economics, Wiley Blackwell, pages 292-325.
    3. John S. Earle & Almos Telegdy, 2007. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials with LEED from Hungary, 1986–2003," Upjohn Working Papers and Journal Articles 07-134, W.E. Upjohn Institute for Employment Research.
    4. Roger Bandick & Holger Görg, 2010. "Foreign acquisition, plant survival, and employment growth," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 547-573, May.
    5. Torfinn Harding & Beata S. Javorcik, 2011. "Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows," Economic Journal, Royal Economic Society, vol. 121(557), pages 1445-1476, December.
    6. Hammoudi, Abdelhakim & Hatit, Wadii, 2008. "Menace de débauchage et incitation des multinationales à la formation de la main-d’oeuvre dans les pays hôtes : un modèle théorique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 84(2), pages 179-204, juin.
    7. Roger Bandick & Pär Hansson, 2009. "Inward FDI and demand for skills in manufacturing firms in Sweden," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 111-131, April.
    8. Martins, Pedro S., 2004. "Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators," IZA Discussion Papers 1388, Institute for the Study of Labor (IZA).
    9. Cooray, Arusha & Tamazian, Artur & Vadlamannati, Krishna Chaitanya, 2014. "What drives FDI policy liberalization? An empirical investigation," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 179-189.
    10. Earle, John S. & Telegdy, Álmos, 2007. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials Using LEED from Hungary, 1986–2003," IZA Discussion Papers 3125, Institute for the Study of Labor (IZA).
    11. Maria Bas, 2012. "Foreign ownership wage premium: Does financial health matter?," Working Papers 2012-24, CEPII research center.
    12. Henry, Peter Blair & Sasson, Diego, 2009. "Capital Market Integration and Wages," Research Papers 2019, Stanford University, Graduate School of Business.
    13. Sahu, Pritish Kumar, 2010. "FDI, wage inequality and employment in emerging economies: recent evidence from Indian manufacturing," MPRA Paper 35149, University Library of Munich, Germany.
    14. Anusha Chari & Peter Blair Henry & Diego Sasson, 2012. "Capital Market Integration and Wages," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 102-132, April.
    15. repec:dau:papers:123456789/5838 is not listed on IDEAS
    16. Oldford, Erin & Otchere, Isaac, 2016. "Are cross-border acquisitions enemy of labor? An examination of employment and productivity effects," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 438-455.
    17. Peter Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," Discussion Papers 08-028, Stanford Institute for Economic Policy Research.
    18. Marko Ogorevc & Sonja Slander, 2011. "Shareholders and wage determination - bringing in "space"," ERSA conference papers ersa10p1279, European Regional Science Association.
    19. Maliranta, Mika, 2005. "Foreign-owned Firms and Productivity-enhancing Restructuring in Finnish Manufacturing Industries," Discussion Papers 965, The Research Institute of the Finnish Economy.
    20. Bandick, Roger & Hansson, Pär, 2005. "Inward FDI and demand for skills in Sweden," Working Papers 2005:10, Örebro University, School of Business.

    More about this item

    Keywords

    acquisitions; employment and wage structure; foreign direct investment;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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