Do firms or workers drive the foreign acquisition wage premium?
Firms pay higher wages after they are acquired by a foreign owner. The post-acquisition wage premium can arise with worker changes (e.g. as the quality of employees rises) or with firm-level changes (e.g. as productivity improves). We propose a full-sample, dynamic decomposition of the wage premium for the universe of employer-employee relations in the Netherlands.
Firms pay higher wages after they are acquired by a foreign owner. The post-acquisition wage premium can arise with worker changes (e.g. as the quality of employees rises) or with firm-level changes (e.g. as productivity improves). We propose a full-sample, dynamic decomposition of the wage premium for the universe of employer-employee relations in the Netherlands. After accounting for selection effects, we find a wage premium of foreign acquisition that rises from 1% to 5% in the years after acquisition. Firm-level premia account for three quarters of the premium, comprising a 3.5% wage increase. Worker-level premia are absent just after acquisition but rise over time to account for one fifth of the premium. Within firms, premia are higher for workers with a relatively high earnings capacity. Though industry variation and firm size class heterogeneity is considerable, the dominance of firm-level premia suggests that foreign acquisitions change firms beyond a workforce reshuffling.
