Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Foreign Direct Investment, Employment and Wages B4-V3
We develop a general equilibrium two-country model with heterogeneous producers, self-selection of only the most productive firms into multinational activity and rent sharing at the firm level due to fairness preferences of workers. In this setting, we identify two major sources of a multinational wage premium. On the one hand, there is a pure composition effect, because multinational firms on average make higher profits, and therefore pay higher wages as well. Since rent sharing relates to a firm's global profits, there is in addition a firm-level wage effect: A multinational firm pays higher wages in its home market than an otherwise identical firm that chooses not to become multinational. We study in detail how these two sources interact in determining the multinational wage premium. In addition, we extend our model to one with technology differences between the two economies and analyse to what extent the multinational wage premium is governed by country-specific factors.