American takeovers of British firms: good news for skilled and unskilled workers
Wages tend to rise in British firms taken over by US multinationals: on average, in the two years after an acquisition, skilled workers see their earnings increase by 8% while unskilled workers pay goes up by 13%. But there are no such effects for takeovers by multinationals from continental European Union countries.
These are the findings of new research by Holger GÃrg and Sourafel Girma, which explores whether acquisitions of British companies by foreign multinationals are a threat to domestic labour.
Their study, presented at the Royal Economic Society’s 2006 Annual Conference at the University of Nottingham, looks at one aspect of this topical question: whether wages change in firms after they have been taken over by foreign firms.
The research analyses the impact of an acquisition of a domestic establishment by a foreign multinational enterprise on wages for skilled and unskilled workers using establishment level data from the Annual Respondents Database (provided by the Office for National Statistics) for the UK electronics and food industries.
Assuming that an acquisition does not change any of the main characteristics of the takeover target (at least in the short run), a possible effect of the foreign acquisition on wages in the domestic target can be attributed to the change in ownership from domestic to foreign. The empirical results suggest that:
There is substantial heterogeneity in the post-acquisition wage effect depending on the nationality of the foreign acquirer and the skill group of workers.
In particular, there is a robust and economically significant wage effect for both skilled and unskilled workers acquired by US multinationals.
For skilled workers, this takes effect some time after acquisition and stands at more than 8%.
The impact on unskilled wages is discernible at the time of acquisition and reaches nearly 13% two years after the acquisition.
In stark contrast, there is no evidence for any causal effect on wages, skilled or unskilled, following acquisition by multinationals based in the European Union.
Finally, positive unskilled wage effects are documented for the first two years (4.4% and 6.8%) following acquisition by multinationals from the rest of the world.
Evaluating the Foreign Ownership Wage Premium Using a Difference-in-differences Matching Approach by Sourafel Girma and Holger GÃrg was presented at the Royal Economic Society’s 2006 Annual Conference at the University of Nottingham, 18-20 April. The authors are at the University of Nottingham.
For further information: contact Romesh Vaitilingam on 07768-661095 (email: romesh@compuserve.com).
Related research to this paper is available via EconPapers while further details about the work of Sourafel Girma are available from IDEAS. Intute: Social Sciences links to more resources on the topic of wages.