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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. 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.
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  13. Martins, Pedro S., 2004. "Industry wage premia: evidence from the wage distribution," Economics Letters, Elsevier, vol. 83(2), pages 157-163, May.
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  18. Pedro S. Martins, 2007. "Rent sharing and wages," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 23-31.
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