Working Paper: NBER ID: w8809
Authors: John W. Budd; Jozef Konings; Matthew J. Slaughter
Abstract: We use a unique firm-level panel data set of multinational parents and their foreign affiliates to analyze whether profits are shared across borders within multinational firms. Using both fixed-effects and generalized method-of-moments estimators, affiliate wage levels are estimated to respond to both affiliate and parent profitability. The elasticity of affiliate wages to parent profits per worker is approximately 0.03, which can explain over 20 percent of the observed variation in affiliate wages. These results reveal a previously ignored aspect of labor-market rent sharing. They also reveal an important micro-level linkage with potential macro-level implications. International rent sharing can transmit economic conditions across national borders, and can thereby provide an implicit cross-country risk-sharing mechanism.
Keywords: rent sharing; multinational firms; wages; profitability
JEL Codes: F23; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| parent profitability (D33) | affiliate wages (J31) |
| affiliate profits (D33) | affiliate wages (J31) |
| parent profits (D33) | affiliate wages (J31) |
| parent wages (J31) | affiliate profits (D33) |