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Do Foreign Firms Really Pay Higher Wages? : Evidence from Different Estimators

  • Pedro S. Martins

We contribute to the literature on Foreign Direct Investment and labour markets by examining wage differentials between domestic and foreign firms, drawing on a large Portuguese matched employer-employee panel. Using OLS, the foreign-firm premium is large and significantly positive but falls substantially when firm and worker controls are added. Moreover, the premium also does not vary monotonically with foriegn control, increases along the wage distribution and is generally insignificant when using propensity score matching (PSM). Finally, using differnces-in differences (DID), we find lower wage growth for workers in domestic firms that are acquired by foreign investors, a result that holds when combining DID and PSM. Overall, our evidence suggests that the commonly-documented OLS premium cannot be interpreted as a casual impact.

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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0409.

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Date of creation: Feb 2004
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Handle: RePEc:san:crieff:0409
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  1. Pedro Martins, 2009. "Rent sharing before and after the wage bill," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2133-2151.
  2. 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.
  3. repec:rus:hseeco:121599 is not listed on IDEAS
  4. Rachel Griffith & Helen Simpson, 2001. "Characteristics of foreign-owned firms in British manufacturing," IFS Working Papers W01/10, Institute for Fiscal Studies.
  5. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
  6. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2001. "Evaluating the employment impact of a mandatory job search assistance program," IFS Working Papers W01/20, Institute for Fiscal Studies.
  7. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  8. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
  9. Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, World Bank Group, vol. 19(2), pages 171-197.
  10. Robert E. Lipsey & Fredrik Sjoholm, 2001. "Foreign Direct Investment and Wages in Indonesian Manufacturing," NBER Working Papers 8299, National Bureau of Economic Research, Inc.
  11. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  12. 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.
  13. G–rg, Holger & Eric Strobl, 2002. ""Footloose" Multinationals?," Royal Economic Society Annual Conference 2002 89, Royal Economic Society.
  14. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  15. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, 09.
  16. Lichtenberg, Frank R & Siegel, Donald, 1990. "The Effect of Ownership Changes on the Employment and Wages of Central Office and Other Personnel," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 383-408, October.
  17. Barbosa, Natalia & Louri, Helen, 2002. "On the determinants of multinationals' ownership preferences: evidence from Greece and Portugal," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 493-515, April.
  18. Girma, Sourafel & Görg, Holger, 2003. "Evaluating the Causal Effects of Foreign Acquisition on Domestic Skilled and Unskilled Wages," IZA Discussion Papers 903, Institute for the Study of Labor (IZA).
  19. Conyon, Martin J, et al, 2002. "The Productivity and Wage Effects of Foreign Acquisition in the United Kingdom," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 85-102, March.
  20. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  21. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  22. Holger Görg & Eric Strobl & Frank Walsh, 2007. "Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(3), pages 464-482, October.
  23. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
  24. Drusilla K. Brown & Alan V. Deardorff & Robert M Stern, 2002. "The Effects of Multinational Production on Wages and Working Conditions in Developing Countries," Working Papers 483, Research Seminar in International Economics, University of Michigan.
  25. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  26. Markusen, James R. & Venables, Anthony, 1996. "The role of multinational firms in the wage-gap debate," Discussion Papers, Series II 322, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  27. 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).
  28. Martins, Pedro S., 2004. "Industry wage premia: evidence from the wage distribution," Economics Letters, Elsevier, vol. 83(2), pages 157-163, May.
  29. Pedro S. Martins, 2007. "Rent sharing and wages," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 23-31.
  30. repec:ebl:ecbull:v:10:y:2005:i:1:p:1-7 is not listed on IDEAS
  31. Pedro Martins, 2005. "The Inter-Industry Wage Structure of U.S. Multinationals," Economics Bulletin, AccessEcon, vol. 10(1), pages 1-7.
  32. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1, October.
  33. José Mata & Pedro Portugal, 2001. "The Survival of New Domestic and Foreign Owned Firms," Working Papers w200101, Banco de Portugal, Economics and Research Department.
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