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 Estoniaa country with the largest gender wage gap in the EUthis 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.

The Role of Firms in the Gender Wage Gap

“…The Estonian labour market could be considered to resemble the US more, where extra and unconventional working hours or commitment get proportionally more rewards (Goldin 2014). One earlier finding illustrating the contribution of the bargaining channel to the gender gap, especially in certain companies in Estonia, is that the gender wage gap is much larger in multinational than domestically owned firms in Estonia (Vahter and Masso 2019). Multinationals pay higher wages and are more exposed to international competition.…”

“…Some of the effects may work through Becker's (1957) taste-based discrimination channel, with the ability of firms to discriminate depending on the performance of the firm. At the same time, the adoption of more knowledge intensive technologies, such as IT technologies and other non-physical skill-intensive technologies has been shown in some past studies to act to complement female labour and thus likely contribute to lowering the gender pay gap (Weinberg 2000).…”

Globalization and gender inequality: Evidence from South Africa

“…This literature shows that women benefit from FDI that comes from countries with lower gender inequality in terms of higher employment shares and better working conditions (Kodama et al 2018;Tang and Zhang 2017). Interestingly, however, the literature also points to larger GWGs in foreign-owned firms relative to firms with domestic ownership (Magda and Salach 2019;Vahter and Masso 2019). This would in fact also be in line with the flexibility channel described by Boler et al (2018), since employees of foreign-owned firms are also likely to be required to travel more and to be available during the office hours of their holding firm.…”

Offshoring and working hours adjustments in a within-firm labor market

“…Matched worker-firm data in the Japanese manufacturing sector for 15 years from 1998 to 2013 are employed for the estimations, methodologically similar to Hummels et al (2014) and Vahter and Masso (2019). Workers are categorized by their educational background and gender.…”

“…Although the impact of offshoring on the gender wage gap in within-firm labor markets has not been adequately examined, some studies deal with related topics using employer-employee panel data. Bøler, Javorcik, and Ulltveit-Moe (2018) and Vahter and Masso (2019) examine exporter firms in Norway and foreign multinationals in Estonia, respectively, 3 Closely relating to offshoring, the effect of reducing import tariffs on intermediate inputs is examined by Amiti and Cameron (2012) for Indonesia, Hahn and Choi (2017) for South Korea, and Chen, Yu, and Yu (2017) for China. They propose the opposite results; Amiti and Cameron (2012) report that it reduces the income gap between groups of skilled and unskilled workers, whereas Hahn and Choi (2017) and Chen, Yu, and Yu (2017) show that it widens the income gap.…”