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The takeover and selection effects of foreign-owned establishments: an analysis using linked employer–employee data

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Abstract

We provide the first estimates of the effect of foreign ownership on wages in Germany, controlling for the observed and unobserved characteristics of workers and plants. We also test whether the wage gains from joining a foreign-owned firm are subsequently lost when leaving that firm, and we examine whether wage gains vary across the sample. We find large selection effects in terms of worker and plant components of wages. Once the selection effect is taken into account, the takeover effect is small and in some cases insignificantly different from zero.

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Notes

  1. Blomstrom and Kokko (1998) note that the movement of workers from foreign-owned to domestic plants might be a source of so-called “spillovers”. Fosfuri et al. (2001, p. 206) argue that “\(\ldots\) evidence on spillovers due to workers’ mobility is scarce and far from conclusive.”

  2. Earle and Telegdy (2008) also uses LEED, but in their data workers cannot be tracked over time due to the omission of workers’ identification codes.

  3. This is not supported, however, by the findings of Buckley and Enderwick (1983) and Girma and Görg (2007) for the United Kingdom.

  4. Equivalently, workers might have been more productive already before they move to a foreign-owned plant.

  5. With T = 2, differencing and mean-deviating are identical methods.

  6. The selection effect can be recovered after estimating Eq. 4, as illustrated in Sect. 5.

  7. See Wooldridge (2002, ch. 14.6) and Andrews et al. (2006) for further details. Because the plant dummies are only necessary in the movers regression this method is computationally feasible.

  8. Note that we have information on plants (or establishments) rather than firms. We are not able to determine whether individual plants in the survey belong to the same firm, although we do know whether the plant is one of several plants within a firm.

  9. The relevant question is: “Is the establishment mainly or solely in: (a) West German ownership (b) East German ownership (c) Foreign ownership (d) Public sector ownership (e) No single owner which holds majority?” Our analysis considers only plants under (a)–(c). We are not therefore able to measure the share of foreign ownership in a plant.

  10. We exclude plants in agriculture, banks and insurances, education, health and the public sector.

  11. In our analysis we therefore exclude East German–owned plants in West Germany.

  12. The ceiling is in 2000 at €143.92 for West and at €118.81 for East Germany. In 2004, the respective figures are €166.10 and €114.30. In our regression sample, 12.1 (5.5)% of the wage observations from 2000 in West (East) Germany are censored, while in 2004 10.9% (4.5%) of workers are affected.

  13. See Gartner (2005) for further details.

  14. The overall DiD estimate is a weighted average of the movers’ and non-movers’ estimates. As can be seen from Table 6, only a small fraction of the sample comprise movers (4.6% of the workers in West Germany working for West German-owned plants in 2000).

  15. In fact, this specification means that z it is a fixed effect, and so this estimator gives identical estimates of δ F and δ W as the raw DiD for plant-stayers.

  16. It is also consistent with a model in which the effects of foreign ownership on wages take a long time (more than 4 years) to develop.

  17. Temouri et al. (2008) find that the productivity gap between foreign-owned and domestic plants is greater in the Eastern states.

  18. Plant effects are only plotted for establishments which are observed twice. The difference in the distributions of the worker effects does not depend on whether only stayers, only movers or (as in the figure) all workers are included.

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Acknowledgments

The authors thank the Economic and Social Research Council (under grant number RES-000-22-1034) and the Leverhulme Trust (under grant number F/00 114/AM) for financial assistance. We also thank the participants of the following conferences for their comments: 2006 Comparative Analysis of Enterprise Micro Data (CAED) Chicago; 2nd User Conference on the Analysis of BA and IAB Data (2006) Nürnberg; IAB outsourcing workshop (2006) Nürnberg; EALE (2007) Oslo. The data were kindly supplied by the Institut für Arbeitsmarkt und Berufsforschung, Nürnberg.

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Authors and Affiliations

  1. University of Manchester, Manchester, UK

    Martyn Andrews

  2. Institut für Arbeitsmarkt- und Berufsforschung and Friedrich-Alexander-Universität Erlangen-Nürnberg, Nürnberg, Germany

    Lutz Bellmann

  3. Friedrich-Alexander-Universität Erlangen-Nürnberg, Nürnberg, Germany

    Thorsten Schank

  4. School of Economics, University of Nottingham, Nottingham, NG7 2RD, UK

    Richard Upward

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  1. Martyn Andrews
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  2. Lutz Bellmann
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  4. Richard Upward
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Correspondence to Richard Upward.

Appendices

Appendix 1: Sample means

Table 4 Plant-level sample means by location and ownership status
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Table 5 Individual-level sample means by location and ownership status
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Appendix 2: Regression sample

Table 6 West Germany
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Table 7 East Germany
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Andrews, M., Bellmann, L., Schank, T. et al. The takeover and selection effects of foreign-owned establishments: an analysis using linked employer–employee data. Rev World Econ 145, 293–317 (2009). https://doi.org/10.1007/s10290-009-0016-3

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