Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?

Dirk Willem te Velde

Journal of African Economies, 2003, vol. 12, issue 1, 41-73

Abstract: Do firms owned by foreigners pay higher wages than locally owned firms for apparently equivalent workers? Do such benefits accrue to all or only certain types of workers? This paper uses data on individual wages in manufacturing industry for five African countries in the early 1990s to address these questions. We present two main findings. First, foreign ownership is associated with a 20--40% increase in individual wages (conditional on age, tenure and education) on average. This is halved to 8--23% if we take into account the fact that foreign-owned firms are larger and locate in high-wage sectors and regions. Secondly, there is a tendency in some countries for more skilled workers (using occupation and education categories) to benefit more from foreign ownership than less skilled workers and this conclusion holds after accounting for the size distribution of foreign firms. We discuss, but cannot directly test, the plausibility of two explanations for these findings: (i) foreign-owned firms employ technologies that are more skill-biased than technologies in local firms and (ii) skilled workers in foreign firms are more effective in rent-sharing than other workers. We contend that these explanations may not be mutually exclusive and, hence, cannot be empirically distinguished. Copyright 2003, Oxford University Press.

Date: 2003
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