Earnings and Employment in Foreign-Owned Firms

Abstract

This paper examines remuneration patterns among workers in foreign-owned firms operating in New Zealand. By tracking workers as they move across jobs in different types of firms, we document the extent of the “foreign wage premium” distinguishing between compositional factors (e.g., differences in industry and employment composition between foreign and domestic firms) and remaining differences in wage levels and growth rates. We find that much of the average earnings gap between foreign- and domestically-owned firms is due to compositional factors—foreign firms tend to be larger and to employ workers who would have received relatively high wages regardless of where they worked. However, even among apparently similar workers and firms, we find a two to four percent earnings gap between workers in domestic and foreign-owned firms. This gap is primarily associated with a wage increase of around two percent on moving from a domestic to a foreign firm, augmented by higher wage growth within foreign-owned firms. However, these premia appear to be specific to foreign-firm employment, as workers who return to domestically-owned firms do not appear to retain these additional earnings in their subsequent jobs.