Foreign Firms, Domestic Wages

52 Pages Posted: 22 May 2008

See all articles by Nikolaj Malchow-Moeller

Nikolaj Malchow-Moeller

Copenhagen Business School - Center for Economic and Business Research (CEBR); University of Southern Denmark

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Bertel Schjerning

Copenhagen Business School - Center for Economic and Business Research (CEBR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2007

Abstract

Foreign-owned firms are often hypothesized to generate productivity "spillovers" to the host country, but both theoretical micro-foundations and empirical evidence for this are limited. We develop a heterogeneous-firm model in which ex-ante identical workers learn from their employers in proportion to the firm's productivity. Foreign-owned firms have, on average, higher productivity in equilibrium due to entry costs, which means that low-productivity foreign firms cannot enter. Foreign firms have higher wage growth and, with some exceptions, pay higher average wages, but not when compared to similarly large domestic firms. The empirical implications of the model are tested on matched employer-employee data from Denmark. Consistent with the theory, we find considerable evidence of higher wages and wage growth in large and/or foreign-owned firms. These effects survive controlling for individual characteristics, but, as expected, are reduced significantly when controlling for unobservable firm heterogeneity. Furthermore, acquired skills in foreign-owned and large firms appear to be transferable to both subsequent wage work and self-employment.

Keywords: heterogeneous firms, knowledge transfer, multinationals, productivity, spillovers

JEL Classification: F16, F2, F23

Suggested Citation

Malchow-Moeller, Nikolaj and Markusen, James R. and Schjerning, Bertel, Foreign Firms, Domestic Wages (May 2007). , Vol. , pp. -, 2007. Available at SSRN: https://ssrn.com/abstract=1136031

Nikolaj Malchow-Moeller (Contact Author)

Copenhagen Business School - Center for Economic and Business Research (CEBR) ( email )

Solbjerg Plads 3
Copenhagen, DK-2000
Denmark

University of Southern Denmark

Campusvej 55
DK-5230 Odense, 5000
Denmark

James R. Markusen

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-0748 (Phone)
303-492-8960 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bertel Schjerning

Copenhagen Business School - Center for Economic and Business Research (CEBR)

Solbjerg Plads 3
Copenhagen, DK-2000
Denmark

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