Foreign Firms, Domestic Wages

34 Pages Posted: 11 Apr 2013

See all articles by Nikolaj Malchow-Møller

Nikolaj Malchow-Møller

University of Southern Denmark - Department of Business and Economics

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)

Date Written: April 2013

Abstract

Three types of theories have been used to explain the wage premium in foreign firms: the theories of heterogeneous workers, heterogeneous learning, and heterogeneous firms. We set up a model that explicitly encompasses two of these theories, and that can illustrate the third. This unifying framework allows us to rigorously compare the predictions of the different theories. Thus, it is a useful tool for interpreting new and existing empirical evidence. We illustrate the usefulness of the model on matched employer−employee data, and we find considerable support for all three theories. In particular, the theory of heterogeneous workers can explain up to 75 percent of the premium.

Keywords: Heterogeneous firms, heterogeneous workers, learning, wage premium

JEL Classification: F2, F16, F23

Suggested Citation

Malchow-Møller, Nikolaj and Markusen, James R. and Schjerning, Bertel, Foreign Firms, Domestic Wages (April 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 2, pp. 292-325, 2013. Available at SSRN: https://ssrn.com/abstract=2248465 or http://dx.doi.org/10.1111/sjoe.12001

Nikolaj Malchow-Møller (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
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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