Foreign Direct Investment and Wages in Indonesian Manufacturing
NBER Working Paper No. 8299
This paper asks two types of questions. One is about the behavior of foreign-owned firms in Indonesian labor markets and the other is about the effect of the presence of foreign-owned firms on Indonesian wages. We ask first whether foreign-owned plants pay a higher price for labor, that is, more than locally-owned plants for workers of a given quality, as we can measure it. We then ask whether foreign-owned plants pay a higher price for labor given the characteristics of the plants such as their size, industry, and location. The answer is that foreign firms do pay a higher price, and even a higher price given their plant characteristics. The second set of questions is whether a larger presence of foreign-owned plants results in higher wages in locally-owned plants and overall. Higher foreign presence leads to higher wages in locally-owned plants. Since the foreign plants also pay higher wages than locally-owned ones, the two factors together mean that higher foreign presence raises the general wage level in a province and industry.
Published: Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.