Foreign Firms, Domestic Wages

TY - JOUR

T1 - Foreign Firms, Domestic Wages

AU - Malchow-Møller, Nikolaj

AU - Schjerning, Bertel

AU - R. Markusen, James

N1 - JEL Classification: F2;F16;F23

PY - 2013/4

Y1 - 2013/4

N2 - Three types of theories have been used to explain the wage premium in foreign firms: the theories of heterogeneous workers, heterogeneous learning, and heterogeneous firms. We set up a model that explicitly encompasses two of these theories, and that can illustrate the third. This unifying framework allows us to rigorously compare the predictions of the different theories. Thus, it is a useful tool for interpreting new and existing empirical evidence. We illustrate the usefulness of the model on matched employer−employee data, and we find considerable support for all three theories. In particular, the theory of heterogeneous workers can explain up to 75 percent of the premium.

AB - Three types of theories have been used to explain the wage premium in foreign firms: the theories of heterogeneous workers, heterogeneous learning, and heterogeneous firms. We set up a model that explicitly encompasses two of these theories, and that can illustrate the third. This unifying framework allows us to rigorously compare the predictions of the different theories. Thus, it is a useful tool for interpreting new and existing empirical evidence. We illustrate the usefulness of the model on matched employer−employee data, and we find considerable support for all three theories. In particular, the theory of heterogeneous workers can explain up to 75 percent of the premium.

KW - Faculty of Social Sciences

KW - Heterogeneous firms

KW - heterogeneous workers

KW - learning

KW - wage premium

U2 - 10.1111/sjoe.12001

DO - 10.1111/sjoe.12001

M3 - Journal article

SN - 0347-0520

VL - 115

SP - 292

EP - 325

JO - Scandinavian Journal of Economics

JF - Scandinavian Journal of Economics

IS - 2

ER -