The Contribution of Multinationals to Wage Inequality: Foreign Ownership and the Gender Pay Gap

Abstract

While an abundance of studies exists documenting the significant wage premium of multinationals (MNE) and the effects of foreign direct investments (FDI) on wage inequality, much less is still known about how foreign ownership affects the gender wage gap of employees in firms. Based on employer-employee level data from Estonia – a country with the largest gender wage gap in the EU – this study highlights the regularity that foreign owned firms display on average a substantially larger gender wage gap than domestically owned firms. Among different occupation groups, this result is especially evident among managers. Furthermore, this difference is also evident if we focus on acquisitions of domestic firms by MNEs and estimate its effects based on propensity score matching. The resulting increase in gender wage gap is due to men capturing a higher wage premium from working at foreign owned firms than women, although both tend to gain in terms of wages from being employed at MNEs. We find evidence (albeit limited) suggesting that one of the explanations of the difference in the gender wage gap between foreign-owned and domestically-owned firms could potentially be that MNEs require more of a continuous commitment from their employees compared to other firms.