Working Paper: NBER ID: w9417
Authors: Robert E. Lipsey; Frederik Sjöholm
Abstract: Wages in domestically- owned Indonesian manufacturing plants taken over by foreign firms increased sharply between the year before takeover and two years after takeover, relative to plants remaining in domestic ownership. Blue- collar wage levels in these plants had been less than 10 per cent above and white- collar wages more than 10 per cent below those in their industries a year before takeover. Two years after takeover both were more than 50 per cent above average. Wages in foreign plants taken over by domestic owners tended to rise less than average for their industries, although they remained above the domestic average. Thus, foreign firms did not select particularly high- wage plants to take over and it was foreign takeovers, rather than takeovers in general, that led to large An econometric analysis of the whole panel found that both foreign ownership throughout the period and foreign takeover resulted in higher wages relative to domestically- owned plants. The wage effects for white- collar employees were typically around twice those for blue- collar employees. Foreign takeovers were associated with large increases in blue- collar employment and both foreign and domestic takeovers with declines in white- collar employment. However, the employment changes were not strongly related to the wage changes.
Keywords: Foreign Direct Investment; Wages; Indonesia; Panel Data
JEL Codes: O12; F23; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign ownership of Indonesian manufacturing plants (F23) | Significant wage increases for employees (J31) |
| Wages in domestically owned plants taken over by foreign firms (F16) | Increased sharply relative to the year before takeover and two years after (G34) |
| Foreign takeovers (F23) | Larger wage increases compared to domestic takeovers (F29) |
| Foreign takeovers (F23) | Large increases in blue-collar employment (J59) |
| Wage changes (J31) | Not strongly correlated with employment changes (J69) |
| Foreign firms (F23) | Did not selectively acquire high-wage domestically owned plants (L69) |