Earnings and employment in foreign-owned firms (WP 14/16)

Abstract

This paper examines remuneration and labour mobility patterns among workers in foreign-owned firms operating in New Zealand. By tracking workers as they move across jobs in different types of firms, we document the extent of the “foreign wage premium” distinguishing between compositional factors (eg, differences in industry and employment composition across foreign and domestic firms) and remaining differences in wage levels and growth rates. We find that much of the average earnings gap between foreign- and domestically-owned firms is due to compositional factors - foreign firms tend to be larger and employ workers who would have received relatively high wages regardless of where they worked. However, even among apparently similar workers and firms, we find a two to four percent earnings gap between workers in domestic and foreign-owned firms. This gap is primarily associated with a wage increase of around two percent on moving from a domestic to a foreign firm, augmented by higher wage growth among foreign-owned firms. However, these premia appear to be specific to foreign-firm employment, as workers who return to domestically-owned firms do not appear to retain the additional earnings associated with foreign-firm employment into their subsequent jobs.

We then consider whether foreign-owned firms source workers differently from other New Zealand firms and whether there are systematic differences in the destinations of departing employees by firm ownership. Although foreign-owned firms do not appear to preferentially hire recent immigrants, employees of foreign owned firms are more geographically mobile within New Zealand than comparable workers in domestically owned firms, and are more likely to emigrate within a year of leaving their job.

Acknowledgements

The authors would like to thank Riccardo Crescenzi, Joe Beaglehole, Matt Benge, Tim Ng, and seminar participants at the Treasury, Ministry of Business, Innovation and Employment, Delhi School of Economics, and LSE Spatial Economics Research Centre (SERC) for valuable comments.

Disclaimer

This paper was undertaken while Richard Fabling and Lynda Sanderson were on secondment to Statistics New Zealand. The results in this paper are not official statistics, they have been created for research purposes from the Integrated Data Infrastructure prototype (IDI) managed by Statistics NZ. The opinions, findings, recommendations and conclusions expressed in this paper are those of the authors. Statistics NZ, the New Zealand Treasury, and Motu Economic and Public Policy Research take no responsibility for any omissions or errors in the information contained here.

Access to the data used in this study was provided by Statistics NZ in accordance with security and confidentiality provisions of the Statistics Act 1975. Only people authorised by the Statistics Act 1975 are allowed to see data about a particular person, business or organisation. The results in this paper have been confidentialised to protect individual people and businesses from identification.

Careful consideration has been given to the privacy, security and confidentiality issues associated with using administrative data in the IDI. Further detail can be found in the Privacy Impact Assessment for the IDI available from www.stats.govt.nz.

The results are based in part on tax data supplied by Inland Revenue to Statistics NZ under the Tax Administration Act 1994. This tax data must be used only for statistical purposes, and no individual information may be published or disclosed in any other form, or provided to Inland Revenue for administrative or regulatory purposes. Any person who has had access to the unit-record data has certified that they have been shown, have read, and have understood section 81 of the Tax Administration Act 1994, which relates to privacy and confidentiality. Any discussion of data limitations or weaknesses is in the context of using the IDI for statistical purposes, and is not related to the data's ability to support Inland Revenue's core operational requirements.