Do Foreign Firms Really Pay Higher Wages?: Evidence from Different Estimators

Pedro S. Martins

No 409, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: We contribute to the literature on Foreign Direct Investment and labour markets by examining wage differentials between domestic and foreign firms, drawing on a large Portuguese matched employer-employee panel. Using OLS, the foreign-firm premium is large and significantly positive but falls substantially when firm and worker controls are added. Moreover, the premium also does not vary monotonically with foriegn control, increases along the wage distribution and is generally insignificant when using propensity score matching (PSM). Finally, using differnces-in differences (DID), we find lower wage growth for workers in domestic firms that are acquired by foreign investors, a result that holds when combining DID and PSM. Overall, our evidence suggests that the commonly-documented OLS premium cannot be interpreted as a casual impact.

Keywords: FDI; Wages; Matched Employer-Employee Data; Propensity Score Matching; Portugal (search for similar items in EconPapers)
JEL-codes: C23 F23 J31 (search for similar items in EconPapers)
Date: 2004-02
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