Why Do Foreign-Owned Firms Pay More? The Role of On-the-Job Training
Kiel Institute for the World Economy; Institute for the Study of Labor (IZA)
Ecole Polytechnique, Paris - Department of Economic Sciences; Institute for the Study of Labor (IZA)
National University of Ireland - University College Dublin
CEPR Discussion Paper No. DP6171
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.
Number of Pages in PDF File: 28
Keywords: Foreign firms, on-the-job training, wages
JEL Classification: F23, J24
Date posted: May 20, 2008
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