The Effects of Multinationals on Workers: Evidence from Costa Rican Microdata

Alonso Alfaro Urena, Isabela Manelici and Jose Vasquez
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Alonso Alfaro Urena: Banco Central de Costa Rica and Universidad de Costa Rica
Authors registered in the RePEc Author Service: Alonso Alfaro-Ureña

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: This paper estimates the effects of multinational corporations (MNCs) on workers. To that end, we combine microdata on all formal worker-firm and firm-firm relationships in Costa Rica with an instrumental variable approach that exploits shocks to the size of MNCs in the country. First, using an event-study design, we find an MNC wage premium of nine percent. This premium reflects above market wages rather than compensation for disamenities. Next, we study the effects of MNCs on workers in domestic firms. As MNCs bring jobs that pay a premium, they improve outside options by altering both the level and composition of labor demand. MNCs can also enhance the performance of domestic employers through 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. When hiring workers,firms incur recruitment and training costs. We find that workers are sensitive to improvements in outside options.Moreover, we estimate that the marginal recruitment and training cost of the average domestic firm is 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: Costa; Rica (search for similar items in EconPapers)
JEL-codes: F16 F23 J21 J23 J31 J63 M55 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-int and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:285

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