Multinational enterprises and domestic wages: The contingent effect of skill composition

While previous literature has extensively shown that foreign-owned firms pay higher wages than domestically owned firms, the examination of intra-industry wage spillovers between foreign-owned and domestic companies has received much less attention, particularly among non-core EU economies. In this paper, we contribute to the literature on wage spillovers of foreign multinational enterprises onto domestic firms by considering whether the presence of MNE subsidiaries in the Spanish manufacturing industry affects wages in domestic firms in the same industry. Although no evidence supports the existence of wage spillovers from MNEs onto domestic firms on aggregate, we show that the effect of this outside presence on domestic wages is significantly more positive in step with the higher level of workers’ skills in domestic firms. Because only workers in domestic firms with a highly skilled workforce will benefit from wage spillovers from the foreign firm presence in the industry, policy makers need bear in mind that not all FDI will automatically generate spillover benefits to domestic firms.

► We analyze whether the presence of foreign-owned firms in an industry has an effect on domestic wages
► We use previously unexplored firm-level data from the Spanish Survey of Business Strategies for the 1992-2008 period.
► We find no evidence supporting the existence of positive wage spillovers from foreign investment onto domestic companies
► One exception is that of highly skilled domestic firms, whose skill intensity raises the domestic wage effect of the presence of MNE subsidiaries.