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.
Acemoglu, D., and J. Pischke (1999). The Structure of Wages and Investment in General Training. Journal of Political Economy 107 (3): 539–572.
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.
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.
Becker, G. (1993). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. Third edition. Chicago: Chicago University Press.
Budd, J. W., and J. Konings (2005). International Profit Sharing in Multinational Firms. Review of Economics and Statistics 87 (1): 73–84.
Caves, R. (1996). Multinational Enterprise and Economic Analysis. Second Edition. Cambridge: Cambridge University Press.
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.
Fosfuri, A., M. Motta, and T. Ronde (2001). Foreign Direct Investment and Spillovers Through Workers’ Mobility. Journal of International Economics 53 (1): 205–222.
Globerman, S., J. Ries, and I. Vertinsky (1994). The Economic Performance of Foreign Affiliates in Canada. Canadian Journal of Economics 27 (1): 143–156
Görg, H., and E. Strobl (2005). Spillovers from Foreign Firms through Worker Mobility: An Empirical Investigation. Scandinavian Journal of Economics 107 (4): 693–709.
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.
Hashimoto, M. (1981). Firm Specific Human Capital as a Shared Investment. American Economic Review 71 (3): 475–482.
Keller, W. (1996). Absorptive Capacity: Understanding the Creation and Acquisition of Technology in Development. Journal of Development Economics 49 (1): 199–227.
Lim, D. (1977). Do Foreign Companies Pay Higher Wages Than Their Local Counterparts in Malaysian Manufacturing? Journal of Development Economics 4 (1): 55–66.
Lipsey, R., and F. Sjöholm (2004). Foreign Direct Investment, Education and Wages in Indonesian Manufacturing. Journal of Development Economics 73 (1): 415–422.
Malcolmson, J. (1999). Individual Employment Contracts. In O. Ashenfelter and D. Card (eds.), Handbook of Labor Economics. Volume 3B. Amsterdam: Elsevier Science.
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.
Sutton, J. (1986). Non-Cooperative Bargaining Theory: An Introduction. Review of Economic Studies 53 (5): 709–724.
Velde, D. te, and O. Morrissey (2003). Foreign Ownership and Wages: Evidence from Five African Countries. Journal of African Economies 12 (1): 41–73.
About this article
Cite this article
Görg, H., Strobl, E. & Walsh, F. Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training. Rev World Econ 143, 464–482 (2007). https://doi.org/10.1007/s10290-007-0117-9
- On-the-job training
- foreign-owned firms