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 on wage inequality, much less is still known about how foreign ownership of firms affects the gender wage gap. Based on employer-employee level data from Estonia—a country with the largest gender wage gap in the EU—this study highlights a regularity that foreign owned firms on average display a substantially larger gender wage gap than domestic 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 foreign MNEs and estimate its effects based on propensity score matching. The resulting increase in the 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 foreign owned firms. We find evidence (albeit limited) suggesting that one of the explanations of the difference between foreign and domestic owned firms in the gender wage gap could be that foreign owned firms require more continuous commitment from their employees compared to other firms.