Advertisement

Review of World Economics

, Volume 143, Issue 3, pp 464–482 | Cite as

Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training

  • Holger Görg
  • Eric Strobl
  • Frank Walsh
Article

Abstract

While foreign-owned firms have consistently been found to pay higher wages than domestic firms to what appear to be equally productive workers, the causes of this remain unresolved. In a two-period bargaining framework we show that if training is more productive and specific in foreign firms, foreign firm workers will have a steeper wage profile and thus acquire a premium over time. Using a rich employer-employee matched data set we verify that the foreign wage premium is only acquired by workers over time spent in the firm and only by those that receive on-the-job training, thus providing empirical support for a firm-specific human capital acquisition explanation.

Keywords

On-the-job training foreign-owned firms wages 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Acemoglu, D., and J. Pischke (1999). The Structure of Wages and Investment in General Training. Journal of Political Economy 107 (3): 539–572.Google Scholar
  2. 2.
    Aitken, B., A. Harrison, and R. Lipsey (1996). Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States. Journal of International Economics 40 (3): 345–371.Google Scholar
  3. 3.
    Barron, J., M. Berger, and D. Black (1999). Replacing General with Specific Training: Why Restricting Alternatives Makes Sense. In S. Polachek and J. Robst (eds.), Research in Labor Economics. Amsterdam: JAI.Google Scholar
  4. 4.
    Becker, G. (1993). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. Third edition. Chicago: Chicago University Press.Google Scholar
  5. 5.
    Budd, J. W., and J. Konings (2005). International Profit Sharing in Multinational Firms. Review of Economics and Statistics 87 (1): 73–84.Google Scholar
  6. 6.
    Caves, R. (1996). Multinational Enterprise and Economic Analysis. Second Edition. Cambridge: Cambridge University Press.Google Scholar
  7. 7.
    Feliciano, Z., and R. Lipsey (2006). Foreign Ownership, Wages, and Wage Changes in U.S. Industries, 1987–92. Contemporary Economic Policy 24 (1): 74–91.Google Scholar
  8. 8.
    Fosfuri, A., M. Motta, and T. Ronde (2001). Foreign Direct Investment and Spillovers Through Workers’ Mobility. Journal of International Economics 53 (1): 205–222.Google Scholar
  9. 9.
    Globerman, S., J. Ries, and I. Vertinsky (1994). The Economic Performance of Foreign Affiliates in Canada. Canadian Journal of Economics 27 (1): 143–156Google Scholar
  10. 10.
    Görg, H., and E. Strobl (2005). Spillovers from Foreign Firms through Worker Mobility: An Empirical Investigation. Scandinavian Journal of Economics 107 (4): 693–709.Google Scholar
  11. 11.
    Griffith, R., and H. Simpson (2004). Characteristics of Foreign-Owned Firms in British Manufacturing. In R. Blundell, D. Card, and R. Freeman (eds.), Creating a Premier League Economy. Chicago: Chicago University Press.Google Scholar
  12. 12.
    Hashimoto, M. (1981). Firm Specific Human Capital as a Shared Investment. American Economic Review 71 (3): 475–482.Google Scholar
  13. 13.
    Keller, W. (1996). Absorptive Capacity: Understanding the Creation and Acquisition of Technology in Development. Journal of Development Economics 49 (1): 199–227.Google Scholar
  14. 14.
    Lim, D. (1977). Do Foreign Companies Pay Higher Wages Than Their Local Counterparts in Malaysian Manufacturing? Journal of Development Economics 4 (1): 55–66.Google Scholar
  15. 15.
    Lipsey, R., and F. Sjöholm (2004). Foreign Direct Investment, Education and Wages in Indonesian Manufacturing. Journal of Development Economics 73 (1): 415–422.Google Scholar
  16. 16.
    Malcolmson, J. (1999). Individual Employment Contracts. In O. Ashenfelter and D. Card (eds.), Handbook of Labor Economics. Volume 3B. Amsterdam: Elsevier Science.Google Scholar
  17. 17.
    Strobl, E., and R. Thornton (2004). Do Large Employers Pay More in Developing Countries? The Case of Five African Countries. Journal of Economic Development 29 (1): 139–161.Google Scholar
  18. 18.
    Sutton, J. (1986). Non-Cooperative Bargaining Theory: An Introduction. Review of Economic Studies 53 (5): 709–724.Google Scholar
  19. 19.
    Velde, D. te, and O. Morrissey (2003). Foreign Ownership and Wages: Evidence from Five African Countries. Journal of African Economies 12 (1): 41–73.Google Scholar

Copyright information

© Kiel Institute 2007

Authors and Affiliations

  1. 1.University of NottinghamNottinghamUnited Kingdom
  2. 2.Department of EconomicsEcole Polytechnique ParisPalaiseauFrance
  3. 3.University College DublinDublinIreland

Personalised recommendations