Multinational firms and local workers

High wages, advanced technology, and productivity in multinational firms (MNEs) inspire policymakers in the Netherlands and globally to attract these firms to their local economies. While the productivity effects of MNEs are well-documented, less is known about their impact on individual workers, despite employment being a primary reason for attracting MNEs. This thesis comprises three self-contained studies that assess the impact of MNE employment on local workers' wages and career trajectories, using detailed matched employer-employee data from the Netherlands.

In Chapter 2, I examine the drivers of the wage gap that arises when a domestic firm is acquired by a foreign MNE. I introduce a novel method to decompose this wage gap into contributions from i) the firm, such as increased productivity, and from ii) changes in the workforce composition. My findings reveal that firm-level changes, rather than workforce adjustments, drive most of the post-acquisition wage increases. This suggests that foreign acquired firms enhance workers' earnings, beyond a mere reshuffling of the workforce. These changes benefit local workers, as the same worker receives a higher wage at an acquired firm than at a non-acquired firm.

Chapter 3 studies the career outcomes of workers in MNEs. By tracking the career paths of all Dutch graduates entering the labor market, I demonstrate that workers accumulate considerable wage premia during their tenure within an MNE. These wage premia are highly portable to subsequent employers and rise in earlier MNE tenure. The wage premia explain the diverging wage patterns between careers in MNEs and domestic firms, as both types of firms hire workers of similar initial earnings potential. Hence, employment at an MNE improves a worker's earnings potential within the MNE and at other firms, suggesting that MNE experience allows workers to build human capital or to signal quality.

Additionally, this chapter introduces a model where MNEs leverage their value for careers to enhance productivity. Consistent with this model, I show that MNEs recruit more junior staff, pay lower entry wages, and apply stricter selection criteria for senior positions than domestic firms. Moreover, the wage premia of MNE careers explain almost the entire productivity advantage of MNEs that translates into pay.

Chapter 4 focuses on the impact of automation on wages and job separations within MNEs and domestic firms. Automation in domestic firms typically leads to wage reductions and few separations, largely affecting low-skilled workers. In contrast, automation in MNEs results in substantial separations, but also in wage increases for remaining workers. In MNEs, wage increases are concentrated among high-skilled workers, such as managers and those with a technical educational background. However, all types of workers face increased separation risks, indicating significant organizational changes within MNEs post-automation.

Overall, this thesis demonstrates that while MNE employment raises local wages and fosters skill development, it can also lead to greater job instability and wage inequality.

Rösch, M.A. (2024). Multinational firms and local workers. Dissertation, Erasmus University Rotterdam.