Unraveling the MNE wage premium

Abstract

Whereas IB has extensively studied MNEs’ generic (positive) impact on host economies, but rarely on employee wages, economics research has only shown an overall MNE wage premium. We ‘unravel’ this premium, considering multiple levels of analysis and accounting for host-country contextual contingencies, to unveil MNEs different (positive or negative) distributional effects. Using unique micro-level data from over 40,000 employees in 13 countries, we examine MNEs’ distributional effects for employees’ gender, experience, and immigrant status; the influence of host-country property rights protection and labor regulation; and interplays with region and industry effects. MNEs’ distributional effects show marked differences that largely depend on the host-country context, and that are positive for experienced and foreign-born employees in developed countries but negative for females working in developing countries. Whereas in developed countries the gender wage gap is smaller in MNEs than in domestic firms as hypothesized, we find evidence of a larger wage gap in developing countries. The analysis also reveals that the higher host-countries’ level of property rights protection, the lower the MNE wage premium. Our study points at the need to reassess statements about the generic positive impact of MNEs in host countries, particularly in developing countries, and discusses (further) research implications.