Vasilios D.
Kosteas
May 2003
Abstract
The empirical literature finds that foreign-owned plants pay higher wages than their domestic-owned counterparts in developing countries. This paper considers two potential explanations for this wage differential. Foreign plants may pay a wage premium to prevent worker stealing and associated technology leakage. Alternatively, observed wage differences may not reflect a true premium, but unobserved worker heterogeneity across firms. This paper provides a framework for testing the worker-stealing hypothesis by exploiting the different predictions worker-stealing and worker-heterogeneity yield regarding the relationship between productivity, wages and employment. Using a panel of Mexican manufacturing plants, we find evidence supporting the worker-stealing hypothesis. However, this behavior is not limited to foreign-owned plants.