Abstract
How much do developing countries benefit from foreign investment? We contribute to this question by comparing the employment and wage practices of foreign and domestic firms in Brazil, using detailed matched firm-worker panel data. In order to control for unobserved worker differences, we examine both foreign acquisitions and divestments and worker mobility, including the joint estimation of firm and worker fixed effects. We find that changes in ownership do not tend to affect wages significantly, a result that holds both at the worker- and firm-levels. However, divestments are related to large job cuts, unlike acquisitions. On the other hand, movers from foreign to domestic firms take larger wage cuts than movers from domestic to foreign firms. Moreover, on average, the fixed effects of foreign firms are considerably larger than those of domestic firms, while worker selection effects are relatively small.
Highlights
How much do developing countries benefit from foreign investment? This is a question with important implica-How to cite this paper: Martins, P.S. and Esteves, L.A. (2015) Foreign Ownership, Employment and Wages in Brazil: Evidence from Acquisitions, Divestments and Job Movers
We find more than 0.8 million workers-year that stay in the same domestic firms between 1995 and 1999 and more than 1.2 million workers-year that stay in the same foreign firms over the same period
The net job creation rate and the worker reallocation rate are higher in foreign firms. (Given the large size of the data, all differences are statistically significant at any conventional levels.) When considering instead workers that stay in firms that are subject to acquisition (Table 11), we find that tenure tends to increase while the percentage of female workers and the size of the firm fall. (Bear in mind that, these workers are the same in the two periods, their distribution is not necessarily the same: the changes in their observable characteristics are related to differences in terms of how many times each workers appears before and after the change in his/her status.) pay and pay growth increase while net job creation increases
Summary
How much do developing countries benefit from foreign investment? This is a question with important implica-. By considering the two levels of analysis, we are able to understand if any changes in firm-level wages that may be observed following acquisition or divestment are due to compositional differences in the workforce. In our results, based on a matched sample of about 1350 manufacturing-sector firms, observed from 1995 to 1999, and a total of about 3.3 million worker-years, we find that both acquisitions and divestments do not tend to affect wages significantly This result holds simultaneously at the firm and the workerlevels, divestments are related to large job cuts, while acquisitions are not followed by significant employment. PIA includes data about changes in firm ownership in each firm Based on this information, [16] establishes if and in which year firms change their domestic/foreign status between 1995 and 2000. We extend these comparisons to a regression framework
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