The Multinational Wage Premium and Wage Dynamics

By Nicholas Sly , Assistant Vice President and Economist , Gianluca Orefice and Farid Toubal


Download paper, RWP 16-10, November 2016

Using detailed administrative data linking French firms and workers over the years 2002-2007, we document a distinct U-shaped pattern in worker-level wages surrounding the time their employer is acquired by a foreign firm, with a dip in earnings observed in years just before domestic firms switch to MNE status. The dip in earnings is evident in both wages and in-kind payments given to workers. To guide our empirical approach, we present a model with fair wage considerations among workers and endogenous cross-border acquisition activity among heterogeneous firms that predicts this U-shaped pattern, and characterizes the selection of domestic targets for acquisition by an MNE. Moreover, we use the model to theoretically ground the conditional mean independence assumption that underlies commonly applied empirical techniques. Worker-level wages decline by approximately 7.5 percent in the years leading up to foreign acquisition, and subsequently increase by 12.5 percent following cross-border acquisition.

JEL Classification: F66, F14, F23

Article Citation

  • Orefice, Gianluca, Nicholas Sly, and Farid Toubal. “The Multinational Wage Premium and Wage Dynamics.” Federal Reserve Bank of Kansas City working paper no. 16-10, November. Available at https://doi.org/10.18651/RWP2016-10

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About the Author

Nicholas Sly is a senior economist at the Federal Reserve Bank of Kansas City working on issues related to globalization, labor markets, and the activities of multinational enterprises.