Human Capital, Foreign Ownership& Wages
Bijit Bora and Mark Wooden This paper investigates the magnitude of the wage premium paid by foreign firms in Australia when both human capital and firm characteristics are taken into account. It builds on previous research, which until now has only used establishment data. A two-step panel estimation procedure is used, where the fixed establishment effects from an individual wage equation are regressed against firm, establishment and industry variables. Care is taken in the analysis to distinguish between technology and efficiency wage explanations for the wage premium. The results indicate that there is a robust premium of 2.9 per cent associated with majority-foreign-owned firms and 4.7 per cent for partially-foreign-owned firms. Furthermore, it is found that the premium is a function of the behaviour of the establishments, especially those that are exporters. Majority-foreign-owned exporters pay a wage premium of 13.6 per cent when compared to employees in non-exporting domestic establishments. Accordingly, the very strong conclusion arises that there is a substantial level of skill associated with outwardly oriented establishments. The last set of conclusions is then tested independently by differentiating the sample between skilled and unskilled employees. The premium for skilled employees working in majority-foreign-owned establishments is estimated to be 5.5 per cent, whereas for unskilled employees it is just one per cent.
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