Wages and International Rent Sharing in Multinational Firms

By J. Budd, Jozef Konings, Matthew J. Slaughter. Review of Economics and Statistics, 2002

236 citations recorded by the source corpus.

We use a unique firm-level panel of multinational parents and their foreign affiliates to analyze whether profits are shared across borders within multinational firms. Affiliate wages 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 of observed variation in affiliate wages. These results reveal a previously ignored aspect of rent sharing. They also reveal an important micro-level linkage with potential macro-level implications. International rent sharing can transmit economic conditions across countries, and can thereby provide an implicit risk-sharing mechanism.

Subfields: Accounting, Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/f074438e1dcbfe6979d4e2952b36b754cc29fac9

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Citations in the corpus

Heterogeneous responses of firms to trade protection (2008, methodology): “…literature, reduced market access abroad would lower learning resulting from exporting and negatively impact firm-level productivity (De Loecker, 2007; Van Biesebroeck, 2005) An additional interpretation for the AD heterogeneity could be related to the high correlation that exists…”
Cross-Border M&As and Innovative Activity of Acquiring and Target Firms (2016, methodology): “The Amadeus database has been used in numerous empirical studies on international trade and FDI (see, for instance, Budd et al., 2005; Helpman et al., 2004; Konings and Vandenbussche, 2005).”
Self-Selection into Export Markets by Business Services Firms: Evidence from France, Germany and the United Kingdom (2013, methodology): “The dataset used in this paper for France and the United Kingdom (UK) has primarily been drawn from ORBIS which is a comprehensive and rich firm-level dataset and has been widely used (e.g. Helpman et al. 2004; Budd et al. 2005; Konings and Murphy 2006).”
Does FDI Bring Good Jobs to Host Countries? (2012, background): “Higher productivity and the resulting higher profitability of foreign affiliates may translate into higher wages because of rent-sharing arrangements between foreign firms and their employees (Budd, Konings, and Slaughter 2005).”
Analysis of Productivity Differences among Foreign and Domestic Firms: Evidence from Germany (2008, background): “A growing number of researchers have used this data set in recent years to analyse various economic issues, including Helpman et al. (2004), Budd et al. (2005) and Konings and Murphy (2006).”
Corporate taxes and the location of intangible assets within multinational firms (2011, result): “our estimations that will bias our results towards zero (see e.g. Budd et al., 2005 ).”
The Effect of Foreign Acquisition on Employment and Wages: Evidence from Finnish Establishments (2007, background): “The higher productivity of the multinational parent can also result in higher wages in its foreign affiliates through international profit sharing; see Budd, Konings, and Slaughter (2005).”
Do Financial Constraints Matter for Foreign Market Entry? A Firm-Level Examination (2008, unknown): “We use intangible assets as a proxy for innovation activities and R&D as it is often done in empirical investigations using firm level data (see e.g. Budd et al 2005).”
Earnings Shocks and Tax-Motivated Income-Shifting: Evidence from European Multinationals (2012, unknown): “However, in line with previous studies, this is not a serious concern since these misclassifications introduce noise to our estimations that will bias our results towards zero (see e.g. Budd et al., 2005).”