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Foreign direct investment and wage dispersion: Evidence from French employer-employee data

Catherine Laffineur and Alexandre Gazaniol

International Economics, 2019, issue 157, 203-226

Abstract: This article investigates to what extent outward foreign direct investment (FDI) affects domestic wages. Results reveal that multinational companies pay a wage premium to their employees and the wage premium is increasing within the wage distribution. In a second step, we use a fixed effect and match effect model to analyze the effect of outward FDI within job spells. Results suggest that outward FDI raises manager wages by 0.077% and reduces wages for workers performing offshorable tasks by 0.34%. The positive effect of FDI on manager wages is mainly driven by the intensive margin of outward FDI. This result is observed even after controlling for endogenous worker mobility. Finally, we observe that the increase of outward foreign direct investment cause wages to be higher, and this effect is due to both multinational companies paying a wage premium and to changes in the market value of unobservable worker skills.

Keywords: Foreign direct investment; Tasks; Wages; Inequality (search for similar items in EconPapers)
JEL-codes: F16 F66 J31 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:cii:cepiie:2019-q1-157-12