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.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
In a related context of effects of trade liberalization, Black and Brainerd (2004) show that US firms that faced larger increases in competition also experienced larger decrease in gender wage gap.
Another macro level indirect effect of foreign owned firms on gender wage gap functions through effects of FDI on economic growth (Aguayo-Tellez 2011). FDI may enhance the economic growth, whereas economic growth is likely to be associated with improvement of public services. As a consequence of that, gender differences in education and other types of human capital may fall, lowering also the gender wage gap.
The number of papers investigating the extent to which HRM practices are transferred or not from the headquarters to subsidiaries of MNEs has grown significantly (see e.g. Belizon et al. 2013 for a recent overview). Examples include: Pudelko and Harzing (2007), Fenton-O’Creevy et al. (2008), Ferner et al. (2011), Kodama et al. (2018), among the others. The literature on HRM and internationalisation stresses the ‘global–local’ tension, which means that there are conflicting pressures for standardization and centrally developed and managed HRM policies on the one hand, and on the other hand there is a clear need to make sure that the choice and management of HRM practices reflects the norms and traditions of the host country (Brewster et al. 2008; Fenton-O’Creevy et al. 2008; Belizon et al. 2013).
Lower bargaining power of women has been identified as one of significant determinants of the aggregate gender wage gap. For example, Card et al. (2016) find that women receive only 90% of the firm-specific pay premiums earned by men, they argue that this reflects to a significant extent the differences in bargaining power.
Note that the potential higher commitment requirement at foreign owned firms can result in self-selection of women into these firms based on their ability to provide or signal their’commitment’ or flexibility for work purposes. In principle, this self-selection could work to an extent against the commitment requirements-based expectation of a higher gender wage gap. However, similar self-selection process based on the ability to provide commitment might be there in the case of men. There is little reason to expect that the self-selection effect would fully equalize the actual and perceived level of commitment/flexibility for work purposes by men and women at foreign owned firms. Furthermore, as long as women are perceived by managers at foreign owned firms as’less committed’ (note: as an individual’s actual commitment is difficult to perceive at the time of hiring, so that the group-based perceptions about commitment matter) and as long as the actual commitment is especially valued and rewarded by foreign owned firms compared to the domestic owned firms: we could still expect a gap between the wages of otherwise similar men and women at the same workplace and that gap to be larger in foreign owned firms.
The micro level analysis of linkages between gender pay gap and foreign ownership requires by definition at the same time individual level information on wages of men and women, and information on the firm’s ownership structure. This means in practice that, in order to carry out research on the micro level, it is inevitable to focus the analysis to the data of a particular country. The cross-country datasets (e.g. European Union Labour Force Survey, European Working Conditions Survey, etc.) miss at least one of the key variables needed.
The survey is conducted as a rotation panel with an individual survey for two quarters and then after a two-quarter gap again a survey for another two quarters. Information on all members of the household is included. All the members of the household are surveyed. The various waves have been merged based on the respective household and individual identifiers, forming a longitudinal dataset.
The skills index is calculated by first ranking all occupations (either at the 1-digit or at 2-digit ISCO occupations classification) by (1) their average wages or (2) the size of coefficient on the occupational variable in the Mincerian wage regressions. Formally, the estimated regression equation looks like \(\ln \left( {Wage} \right)_{j} = \alpha + \beta \times OCC_{j} + \varepsilon_{j}\), where the dependent variable is the log of the real monthly wage for individual j, OCCj is the vector of the 1-digit or 2-digit ISCO occupational codes, β is the vector of the coefficients associated with the latter (returns to respective occupation used for ranking the occupations) and εi is the error term. Next, the skills index is calculated for each firms as the weighted average according to its occupational mix. The index is bounded between 0 and 1, and a value of 0.5 of the index would indicate that the employment is evenly distributed across the occupations.
In this case the control group is constructed based on the domestic owned firms. An alternative would be to focus on comparison of the foreign acquisitions with the domestic acquisitions. However, this would not be applicable based on our existing dataset, as we do not observe all the domestic acquisitions in the dataset.
We note that this finding of the largest gap among managers is not driven by inclusion of top managers that stem from abroad into our analysis. We have performed robustness tests by excluding individuals with foreign nationalities from analysis. The estimated gap persists and is not in any significant way affected by this omission of these rather small number of employees. We thank Dr Tiia Vissak for pointing attention to this potential issue. The estimates of the key results without this rather small group of foreign employees are given in Annex 4. Note that the estimates of the effects of FDI on gender wage gap from this robustness test are essentially identical to the ones in the main text in Table 2.
We would like to stress that the effects of FDI on the gender wage gap could probably vary also a lot depending on the type (motive) of FDI: efficiency seeking, market seeking, resource and strategic asset seeking FDI. Understanding how the different types of FDI shape the gender related effects of MNEs would be a useful extension of the analysis in this paper. Past research has, for example, shown that the host economy firm performance effects differ depending on the motivation of the FDI (Driffield and Love 2007). Past investor surveys have shown that efficiency seeking has been a key traditional motive of FDI in Estonia, in addition to the standard market seeking motive (Varblane et al. 2010).
The linear regression is a standard tool to investigate the average relationship between the endogenous variable and a set of regressors. However, it is well known that it provides a partial outline of the relationship. A more detailed and robust view can often be shown by quantile regression that investigates the relationship between the endogenous outcome variable and regressors at different points of the conditional distribution of the outcome variable. We further note that the negative interaction term of female dummy and FDI dummy is still significant if we estimate quantile regression with the 25th, 50th and 75th percentile of wages as dependent variables. As these results do not add significant new information to our key results, they are omitted from here and available upon request from authors.
References
Aguayo-Tellez, E. (2011). The impact of trade liberalization policies and FDI on gender inequalities (World Development Report 2012 Background Paper).
Aitken, B., Harrison, A., & Lispey, R. (1996). Wages and foreign ownership. A comparative study of Mexico, Venezuela, and the United States. Journal of International Economics, 40(3–4), 345–371.
Altonji, J. G., & Blank, R. M. (1999). Chapter 48 race and gender in the labor market. In O. C. Ashenfelter, & D. Card (Eds.), Handbook of labour economics, Vol. 3, Part C, pp. 3143–3259.
Anspal, S. (2015). Essays on gender wage inequality in the Estonian labour market. PhD Dissertation, Faculty of Economics and Business Administration, University of Tartu.
Arnold, J., & Javorcik, B. S. (2009). Gifted kids or pushy parents? Foreign acquisitions and firm performance in Indonesia. Journal of International Economics, 79(1), 42–53.
Becker, G. S. (1957). The economics of discrimination. Chicago: University of Chicago Press.
Belizon, M. J., Gunnigle, P., & Morley, M. (2013). Determinants of central control and subsidiary autonomy in HRM: The case of foreign-owned multinational companies in Spain. Human Resource Management Journal, 23(3), 262–278.
Ben Yahmed, S. (2013). Gender wage gaps across skills and trade openness (AMSE Working Paper No. 32). Aix-Marseille School of Economics.
Black, S. E., & Brainerd, E. (2004). Importing equality? The impact of globalization on gender discrimination. Industrial and Labor Relations Review, 57(4), 540–559.
Blau, F. D., & Kahn, L. M. (2000). Gender differences in pay. Journal of Economic Perspectives, 14(4), 75–99.
Bloom, N., Sadun, R., & Van Reenen, J. (2012). The organization of firms across countries. Quarterly Journal of Economics, 127, 1663–1705.
Bloom, N., & Van Reenen, J. (2010). Why do management practices differ across firms and countries? Journal of Economic Perspectives, 24(1), 203–224.
Boler, E. A., Javorcik, B. S., & Ulltveit-Moe, K. H. (2018). Working across time zones: Exporters and the gender wage gap. Journal of International Economics, 111, 122–133.
Braunstein, E., & Brenner, M. (2007). Foreign direct investment and gendered wages in urban China. Feminist Economics, 13, 213–237.
Brewster, C., Wood, G., & Brookes, M. (2008). Similarity, isomorphism or duality? Recent survey evidence on the human resource management policies of multinational corporations. British Journal of Management, 19(4), 320–342.
Budd, J. W., Konings, J., & Slaughter, M. J. (2005). International rent sharing in multinational firms. Review of Economics and Statistics, 87(1), 73–84.
Caliendo, M., & Kopeinig, S. (2008). Some practical guidance for the implementation of propensity score matching. Journal of Economic Surveys, 22, 31–72.
Card, D., Cardoso, A. R., & Kline, P. (2016). Bargaining, sorting, and the gender wage gap: Quantifying the impact of firms on the relative pay of women. The Quarterly Journal of Economics, 131(2), 633–686.
Chaudhuri, S., & Mukhopadhyay, U. (2014). Chapter 6. FDI and gender wage inequality. In S. Chaudhuri & U. Mukhopadhyay (Eds.), Foreign direct investment in developing countries: A theoretical evaluation (pp. 139–160). Berlin: Springer.
Chen, Z., Ge, Y., Lai, H., & Wan, C. (2013). Globalization and gender wage inequality in China. World Development, 44, 256–266.
Connell, R. W. (1998). Masculinities and globalization. Men and Masculinities, 1(1), 3–23.
Correll, S., Benard, S., & Paik, I. (2007). Getting a job: Is there a motherhood penalty? American Journal of Sociology, 112(5), 1297–1338.
Coser, L. (1974). Greedy institutions: Patterns of undivided commitment. New York: Free Press.
Davidson, C., Heyman, F., Matusz, S., Sjöholm, F., & Zhu, S. C. (2014). Global engagement and the occupational structure of firms (IFN Working Paper No. 1026).
Driffield, N., & Love, J. H. (2007). Linking FDI motivation and host economy productivity effects: Conceptual and empirical analysis. Journal of International Business Studies, 38, 460–473.
Fenton-O’Creevy, M., Gooderham, P., & Nordhaug, O. (2008). HRM in US subsidiaries in Europe and Australia: Centralisation or autonomy? Journal of International Business Studies, 39(1), 151–166.
Ferner, A., Tregaskis, O., Edwards, P., Edwards, T., Marginson, P., Adam, D., et al. (2011). HRM structures and subsidiary discretion in foreign multinationals in the UK. The International Journal of Human Resource Management, 22(3), 483–509.
Figini, P., & Görg, H. (1999). Multinational companies and wage inequality in the host country: The case of Ireland. Weltwirtschaftliches Archiv/Review of World Economics, 134(4), 594–612.
Fosfuri, A., Motta, M., & Ronde, T. (2001). Foreign direct investments and spillovers through workers’ mobility. Journal of International Economics, 53(1), 205–222.
Gislason, I. (2007). Parental leave in Iceland: Bringing the fathers in. Technical report, Centre for Gender Equality, Ministry of Social Affairs.
Goldin, C. (2014). A grand gender convergence: Its last chapter. American Economic Review, 104(4), 1091–1119.
Heyman, F., Sjöholm, F., & Tingvall, P. (2007). Is there really a foreign ownership wage premium? Evidence from matched employer-employee data. Journal of International Economics, 73(2), 355–376.
Juhn, C., Ujhelyi, G., & Villegas-Sanchez, C. (2014). Men, women, and machines: How trade impacts gender inequality. Journal of Development Economics, 106, 179–193.
Kodama, N., Javorcik, B. S., & Abe, Y. (2018). Transplanting corporate culture across international borders: Foreign direct investment and female employment in Japan. World Economy, 41, 1148–1165.
Krillo, K., & Masso, J. (2010). The part-time/full-time wage gap in Central and Eastern Europe: The case of Estonia. Research in Economics and Business: Central and Eastern Europe, 2(1), 47–75.
Kvande, E. (2007). Doing gender on flexible organizations. Bergen: Fagbokforlaget.
Kvande, E. (2009). Work-life balance for fathers in globalized knowledge work. Some insights from the Norwegian context. Gender, Work and Organization, 16(1), 58–72.
Masso, J., Espenberg, K., Mierina, I., & Soloviov, V. (2017). The Baltic States country reports on equality at work and cross-country convergence. University of Tartu, Mimeo.
Meardi, G. (2007). Multinationals in the new EU member states and the revitalisation of trade unions. Journal of Contemporary Central and Eastern Europe, 15(2), 177–193.
OECD. (2012). Closing the gender gap: Act now. Paris: OECD Publishing.
Oostendorp, R. H. (2009). Globalization and the gender wage gap. World Bank Economic Review, 23(1), 141–161.
Pieters, J. (2015). Trade liberalization and gender inequality. IZA: World of Labor.
Pudelko, M., & Harzing, A. W. (2007). Country-of-origin, localization or dominance effect? An empirical investigation of HRM practices in foreign subsidiaries. Human Resource Management, 46(4), 535–559.
Rosenbaum, P., & Rubin, D. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70, 41–50.
Schuler, R. S., & Rogovsky, N. (1998). Understanding compensation practice variations across firms: The impact of national culture. Journal of International Business Studies, 29, 159–177.
Seguino, S. (2005). Gender inequality in a globalizing world (Working Paper No. 426). The Levy Economics Institute of Bard College.
Taylor, K., & Driffield, N. (2005). Wage inequality and the role of multinationals: Evidence from UK panel data. Labour Economics, 12, 223–249.
Varblane, U., Roolaht, T., Vissak, T., Vahter, P., et al. (2010). Otsesed välisinvesteeringud eestis (Vol. 153, p. 153). Tartu: Tartu University Press.
Weinberg, B. A. (2000). Computer use and the demand for female workers. Industrial and Labor Relations Review, 53(2), 290–308.
Wooldridge, J. (2002). Econometric analysis of cross section and panel data. Cambridge: MIT Press.
Acknowledgements
The authors acknowledge financial support from the Estonian Research Agency project No. IUT20-49 “Structural Change as the Factor of Productivity Growth in the Case of Catching up Economies”. Priit Vahter acknowledges financial support from Östersjostiftelsen in Sweden (project “The Baltic economies: Catalysts for the internationalization of Swedish SMEs?”) and Jaan Masso from the Ernst Jaakson Memorial Foundation. The authors also acknowledge support for the compilation of the datasets used in the paper from the Estonian Research Infrastructures Roadmap project “Infotechnological Mobility Observatory (IMO)”. We are grateful to the comments made by the participants of the CAED 2017 conference in Seoul, AIB 2018 in Minneapolis, EACES 2018 in Warsaw and in the seminars at the Baltic International Centre for Economic Policy Studies (BICEPS) in Riga, Latvia, and at Tallinn University of Technology, and by Dr. Jaanika Meriküll and Dr. Tiia Vissak. We are grateful to the Statistics Estonia for granting access to the Estonian individual and firm-level datasets and note that all calculations have been made following their confidentiality requirements. The authors are solely responsible for all errors and omissions.
Author information
Authors and Affiliations
Corresponding author
Electronic supplementary material
Below is the link to the electronic supplementary material.
Appendices
Appendix 1
Descriptive statistics of variables used in the regression analysis and propensity score matching (Table 10).
Appendix 2
Pairwise tests of differences of the effects of foreign ownership on the gender wage gap in different occupation groups, in Tables 3 and 4 in the main text (Tables 11, 12).
Appendix 3
Probit models used in the propensity score matching (Tables 13, 14).
Appendix 4
A robustness test: the exclusion of employees who originate from outside Estonia (Table 15).
Appendix 5
Does minority foreign ownership have any effects on the gender wage gap? (Table 16).
About this article
Cite this article
Vahter, P., Masso, J. The contribution of multinationals to wage inequality: foreign ownership and the gender pay gap. Rev World Econ 155, 105–148 (2019). https://doi.org/10.1007/s10290-018-0336-2
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10290-018-0336-2