Examining Determinants of Foreign Wage Premiums in China

Theresa Greaney and Yao Li ()

No 201420, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: We estimate foreign ownership wage premiums for every 3-digit manufacturing industry in China and discover a wide range of premiums both for so-called "foreign" ownership and for overseas Chinese ownership of firms. Foreign ownership generates larger and more prevalent wage premiums than overseas Chinese ownership of firms, but both types of foreign ownership produce wage premiums that respond similarly in hypothesis testing of determinants. Using the number of computers per worker as an indicator of a firm’s technology level, we find support in 76-78% of industries for the hypothesis that foreign firms pay higher wages to reduce the risk of worker turnover and the accompanying technology leakage to domestic rivals. However, this determinant explains only 5-6% of the foreign wage premium, on average. We find the most intensive support for the "fair wage" hypothesis that foreign firms pay higher wages because they are more profitable than domestic firms and workers in more profitable firms expect to be paid more, otherwise they will shirk. This hypothesis explains an average of 8-9% of the foreign wage premiums, with support for the hypothesis found in 72-75% of the industries using firm’s total profits per worker as the added wage determinant. Intangible assets and training costs were found to be much weaker individual determinants of foreign wage premiums. When we consider the best combination of explanatory variables to include in each industry’s wage regression, we find support for our combined hypotheses in the vast majority of industries, but we still find large residual wage premiums attached to foreign ownership in China.

Keywords: FDI; foreign ownership; wages; China (search for similar items in EconPapers)
JEL-codes: F16 F23 F66 J31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-06
New Economics Papers: this item is included in nep-cna, nep-lab, nep-lma and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.economics.hawaii.edu/research/workingpapers/WP_14-20.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Examining Determinants of Foreign Wage Premiums in China (2017)
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:hai:wpaper:201420

Ordering information: This working paper can be ordered from
http://www.economics ... esearch/working.html

Access Statistics for this paper

More papers in Working Papers from University of Hawaii at Manoa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Web Technician ().