Do Foreign-Owned Firms Provide Better Working Conditions than Their Domestic Counterparts? A Comparative Analysis

44 Pages Posted: 25 Oct 2010

See all articles by Alexander Hijzen

Alexander Hijzen

Organization for Economic Co-Operation and Development (OECD)

Pedro S. Martins

Queen Mary University of London; IZA Institute of Labor Economics; Global Labor Organization (GLO); New University of Lisbon

Thorsten Schank

University of Erlangen-Nuremberg

Richard Upward

University of Nottingham - School of Economics

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Abstract

This paper analyses to what extent working conditions in foreign-owned firms differ from those in their domestic counterparts. It makes three main contributions. First, we replicate the consensus in the empirical literature by applying a standardised methodology to firm-level data for three developed (Germany, Portugal, UK) and two emerging economies (Brazil, Indonesia). We show that, consistent with previous evidence, foreign-owned firms offer substantially higher average wages than domestic firms and that this difference is particularly important in emerging economies. Second, we show that these positive wage effects of foreign takeovers reduce in size when controlling for changes in the composition of the workforce, although they tend to remain positive and statistically significant. However, the wage effects associated with worker movements from domestic to foreign firms are potentially important, particularly in emerging economies. Third, we look not only at wage outcomes but also consider other working conditions such as working hours, job stability and union coverage. We find that foreign takeovers of domestic firms tend to have a small positive effect on wages, but little effect on other aspects of working conditions.

Keywords: foreign direct investment, foreign wage premia

JEL Classification: F14, F16, F23

Suggested Citation

Hijzen, Alexander and Martins, Pedro S. and Schank, Thorsten and Upward, Richard, Do Foreign-Owned Firms Provide Better Working Conditions than Their Domestic Counterparts? A Comparative Analysis. IZA Discussion Paper No. 5259, Available at SSRN: https://ssrn.com/abstract=1696883

Alexander Hijzen (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

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Pedro S. Martins

Queen Mary University of London ( email )

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IZA Institute of Labor Economics

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Global Labor Organization (GLO) ( email )

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New University of Lisbon

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Thorsten Schank

University of Erlangen-Nuremberg ( email )

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Richard Upward

University of Nottingham - School of Economics ( email )

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