Review of World Economics

, Volume 155, Issue 1, pp 105–148 | Cite as

The contribution of multinationals to wage inequality: foreign ownership and the gender pay gap

  • Priit VahterEmail author
  • Jaan Masso
Original Papers


While an abundance of studies exists documenting the significant wage premium of multinationals (MNE) and the effects of foreign direct investments on wage inequality, much less is still known about how foreign ownership of firms affects the gender wage gap. Based on employer-employee level data from Estonia—a country with the largest gender wage gap in the EU—this study highlights a regularity that foreign owned firms on average display a substantially larger gender wage gap than domestic owned firms. Among different occupation groups, this result is especially evident among managers. Furthermore, this difference is also evident if we focus on acquisitions of domestic firms by foreign MNEs and estimate its effects based on propensity score matching. The resulting increase in the gender wage gap is due to men capturing a higher wage premium from working at foreign owned firms than women, although both tend to gain in terms of wages from being employed at foreign owned firms. We find evidence (albeit limited) suggesting that one of the explanations of the difference between foreign and domestic owned firms in the gender wage gap could be that foreign owned firms require more continuous commitment from their employees compared to other firms.


FDI Foreign ownership Wages Gender wage gap 

JEL Classification

F10 F23 J16 J31 



The authors acknowledge financial support from the Estonian Research Agency project No. IUT20-49 “Structural Change as the Factor of Productivity Growth in the Case of Catching up Economies”. Priit Vahter acknowledges financial support from Östersjostiftelsen in Sweden (project “The Baltic economies: Catalysts for the internationalization of Swedish SMEs?”) and Jaan Masso from the Ernst Jaakson Memorial Foundation. The authors also acknowledge support for the compilation of the datasets used in the paper from the Estonian Research Infrastructures Roadmap project “Infotechnological Mobility Observatory (IMO)”. We are grateful to the comments made by the participants of the CAED 2017 conference in Seoul, AIB 2018 in Minneapolis, EACES 2018 in Warsaw and in the seminars at the Baltic International Centre for Economic Policy Studies (BICEPS) in Riga, Latvia, and at Tallinn University of Technology, and by Dr. Jaanika Meriküll and Dr. Tiia Vissak. We are grateful to the Statistics Estonia for granting access to the Estonian individual and firm-level datasets and note that all calculations have been made following their confidentiality requirements. The authors are solely responsible for all errors and omissions.

Supplementary material

10290_2018_336_MOESM1_ESM.docx (21 kb)
Supplementary material 1 (DOCX 20 kb)


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Copyright information

© Kiel Institute 2018

Authors and Affiliations

  1. 1.School of Economics and Business AdministrationUniversity of TartuTartuEstonia

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