Foreign Firms, Domestic Wages

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Three types of theories have been used to explain the wage premium in foreign firms: the theories of heterogeneous workers, heterogeneous learning, and heterogeneous firms. We set up a model that explicitly encompasses two of these theories, and that can illustrate the third. This unifying framework allows us to rigorously compare the predictions of the different theories. Thus, it is a useful tool for interpreting new and existing empirical evidence. We illustrate the usefulness of the model on matched employer−employee data, and we find considerable support for all three theories. In particular, the theory of heterogeneous workers can explain up to 75 percent of the premium.
Original languageEnglish
JournalScandinavian Journal of Economics
Issue number2
Pages (from-to)292-325
Publication statusPublished - Apr 2013

Bibliographical note

JEL Classification: F2;F16;F23

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