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Why Foreign Ownership May be Good for You

Author

Listed:
  • Hartmut Egger
  • Udo Kreickemeier
Abstract
We develop a general equilibrium two-country model with heterogeneous producers and rent sharing at the firm level due to fairness preferences of workers. We identify two sources of a multinational wage premium. On the one hand, there is a pure composition effect because multinational firms are more productive, make higher profits, and therefore pay higher wages. On the other hand, there is a firm-level wage effect: A multinational firm pays higher wages in its home market than an otherwise identical national firm since it has higher global profits. We analyse how these two sources interact in determining the multinational wage premium in a setting with two identical countries, and show that in this case the wage premium is fully explained by firm characteristics. We then allow for technology differences between countries and find that a residual wage premium exists in the technologically backward country, but not in the advanced country.

Suggested Citation

  • Hartmut Egger & Udo Kreickemeier, 2011. "Why Foreign Ownership May be Good for You," CESifo Working Paper Series 3631, CESifo.
    • Handle: RePEc:ces:ceswps:_3631
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    multinational firms; wage premium; heterogeneous firms;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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