Do multinational enterprises provide better pay and working conditions than their domestic counterparts? A comparative analysis Alexander Hijzen (OECD and GEP, University of Nottingham) Pedro Martins (Queen Mary, University of London and IZA) Richard Upward (University of Nottingham and GEP) Workshop on "Testing Trade Models with Labor Market Heterogeneity”, 5-6 December 2008, Stockholm

Foreign ownership and wages Large empirical literature on foreign wage premia –MNEs provide better working conditions than their domestic counterparts because of efficiency-wage arguments are stronger –Until recently, consensus based on firm-level evidence that foreign firms offer higher wages than local firms, particularly in developing countries –New evidence based on LEED challenges the conventional wisdom by suggesting smaller or even negative foreign wage premia

Foreign ownership and non- wage working conditions Limited work on the effects of foreign ownership on other aspects of workers’ employment conditions –MNEs appear to have low tendency to export labour practices to their foreign affiliates in developed countries (Bloom et al., 2008) –No evidence on the propensity of MNEs to export working conditions in developing countries

Contribution To analyse the impact of foreign ownership on workers –by providing internationally comparable evidence using LEED for Brazil, Germany, Portugal and the UK (and Indonesia at firm-level) –looking at wages, but also other employment conditions such as working hours, low pay, job stability and union bargaining power

Empirical set-up Four possible treatments: cross-border takeovers (2x) and job movers (2x): We use DiD PSM to overcome the problem of missing counterfactual

Implementation PSM Propensity score matching – –Probit of ownership status on industry, region, gender and skill dummies, log employment, log average wage, log individual wage, age, age squared and tenure –One-to-one nearest neighbour matching –Implemented separately by year, economic sector and skill group

Implementation DiD Difference-in-differences –Follow individuals for a period of four years from t=-1 to t=2 –Observe effect of treatment at three points in time at t=0, t=1 and t=2 –Panel is balanced over each 4-year window

Data sources

Firm-level evidence of cross-border takeovers on average wages

Worker-level evidence of cross- border takeovers on stayer wages

Worker-level evidence of job movers on wages

The effects of foreign takeovers on other wage and non-wage working conditions

Some concluding remarks Comparative analysis using LEED of role foreign ownership for wages and working conditions –Results suggest that FDI has positive effect on wages in foreign- owned firms, especially in developing economies –Difference between hires and stayers consistent with search model of the labour market –Theoretical link between ownership (or firm productivity) and non-wage working conditions not obvious Comparative analysis with LEED most useful when interested in the role of labour market institutions for labour market adjustment