The Effects of Multinationals on Workers: Evidence from Costa Rica

Alonso Alfaro-Ureña, Isabela Manelici and Jose Vasquez

Institute for Research on Labor and Employment, Working Paper Series from Institute of Industrial Relations, UC Berkeley

Abstract: This paper estimates the effects of foreign multinational corporations (MNCs) on workers. To that end, we combine microdata on all worker-firm and firm-firm relationships in Costa Rica with an instrumental variable strategy that exploits shocks to the size of MNCs in the country. First, using a within-worker event-study design, we find a direct MNC wage premium of nine percent. This premium reflects above market wages rather than compensation for disamenities. Next, we study the indirect effects of MNCs on workers in domestic firms. As MNCs bring jobs that pay a premium, they can improve the outside options of workers by altering both the level and composition of labor demand. MNCs can also enhance the performance of domestic employers through firm-level input-output linkages. Shocks to firm performance may then pass through to wages. We show that the growth rate of annual earnings of a worker experiencing a one standard deviation increase in either her labor market or firm-level exposure to MNCs is one percentage point higher than that of an identical worker with no change in either MNC exposure. Finally, we develop a model to rationalize the reduced-form evidence and estimate structural parameters that govern wage setting in domestic firms. We model MNCs as paying a wage premium and buying inputs from domestic firms. To hire new workers, domestic firms need to incur recruitment and training costs. Model-based estimates reveal that workers in domestic firms are sensitive to improvements in outside options. Moreover, the marginal recruitment and training cost of the average domestic firm is estimated at 90% of the annual earnings of a worker earning the competitive market wage. This high cost allows incumbent workers to extract part of the increase in firm rents coming from intensified linkages with MNCs.

Keywords: Social and Behavioral Sciences; multinational corporations; worker-firm relationships; firm-firm relationships; wages; wage setting; labor markets (search for similar items in EconPapers)
Date: 2019-11-21
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.escholarship.org/uc/item/51r419w9.pdf;origin=repeccitec (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdl:indrel:qt51r419w9

Access Statistics for this paper

More papers in Institute for Research on Labor and Employment, Working Paper Series from Institute of Industrial Relations, UC Berkeley Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().