Multinationals, employment and wages : microeconomic evidence from Swedish manufacturing

Abstract: The aim of this thesis, consisting of four essays, is to study the effects of multinationals and inward FDI on employment and wage formation in Swedish manufacturing during the 1990s.Paper [1] (co-authored with Patrik Karpaty) investigates the employment effects of foreign acquisitions in acquired firms in Swedish manufacturing during the 1990s. To handle likely endogeneity problems we evaluate the effects of foreign acquisitions on the targeted firms’ employment by combining propensity score matching with difference-in-difference estimation. We find some evidence of positive employment effects in firms taken over by foreigners and it seems that the employment of skilled labor increases more than that of less-skilled labor. Moreover, we examine whether the employment impact of foreign ownership differs between takeovers of Swedish MNEs and non-MNEs. Our results indicate that the positive employment effects only appear in acquired non-MNEs. Furthermore, we observe shifts in skill intensities toward higher shares of skilled labor in non-MNEs taken over by foreign MNEs, but not in acquired Swedish MNEs.Paper [2] (co-authored with Pär Hansson) investigates whether the increased foreign ownership in Sweden in the 1990s have had any effects on relative demand for skilled labor. Estimating relative labor demand at the firm level and using propensity score matching with difference-in-difference estimation, we obtain support for relative demand for skilled labor tending to rise in non-multinationals (non-MNEs)  but not in multinationals (MNEs)  that become foreign owned. Other interesting findings are that a larger presence of foreign MNEs in an industry appears to have a positive impact on the relative demand for skills in Swedish MNEs within the same industry and that the elasticity of substitution between skilled and less-skilled labor seems to be lower in MNEs than in non-MNEs.Paper [3] investigates whether MNEs are more likely than non-MNEs to close down their plants, due to their footloose character. The results from using a panel of all Swedish manufacturing plants over the period 1993 and 2002 suggest that MNE plants, and in particular Swedish MNE plants, have a higher probability of exiting the market than non-MNE plants. The outcome is robust controlling for other variables affecting the survival rates. Among non-MNE plants, the probabilities of exit are higher in non-exporting firms than in exporting firms. Moreover, the increased foreign presence in Swedish manufacturing seems, due to intensified competition, to have led to the higher exit rates of plants in non-exporting non-MNEs. Plants of globally engaged indigenous firms, such as plants of Swedish MNEs and exporting non-MNEs, appear, on the other hand, to have been unaffected by the increased foreign presence.Paper [4] examines whether MNEs  Swedish MNEs and foreign-owned firms  pay higher wages than non-MNEs in manufacturing, controlling for firm heterogeneity and individual characteristics. In accordance with the idea that MNEs are superior in performance to other firms, I find that MNEs pay higher wages than non-MNEs, in particular for skilled labor. Yet the MNE wage premium is low; the average wages in MNEs are between 4-7 percent higher than in non-MNEs, while estimates at the individual level reduce the wage premium in MNEs to around 2-3 percent. Higher wages in foreign-owned firms may result from foreign acquisitions of high-wage firms. Alternatively, the acquired firms might have a more favorable wage growth than non-targeted domestically owned firms. My findings only lend support to the hypothesis that foreign firms select high-wage firms (especially non-MNEs) for acquisition.