The labor market effects of foreign-owned firms

Foreign firms often have a more educated workforce and pay higher wages than domestic firms. This does not necessarily imply that foreign ownership translates into higher demand for educated workers or higher wages, since foreign investment may be guided by unobservable firm characteristics correlated with the demand for educated workers or wages. The author examines foreign acquisitions of domestic firms in Portugal in the 1990s and finds small changes in the workforce skill composition and wages following acquisition. Foreign investors"cherry pick"domestic firms that are already very similar to the group of existing foreign firms.Environmental Economics&Policies,Small and Medium Size Enterprises,Small Scale Enterprise,Labor Policies,Microfinance,Private Participation in Infrastructure,Small Scale Enterprise,Environmental Economics&Policies,Trade and Regional Integration,Microfinance

Local economic structure and growth

The author tests how the local economic structure-measured by a region's sector specialization, competition, and diversity-affects the technological growth of manufacturing sectors. Most of the empirical literature on this topic assumes that in the long run more productive regions will attract more workers and use employment growth as a measure of local productivity growth. However, this approach is based on strong assumptions about national labor markets. The author shows that when these assumptions are relaxed, regional adjusted wage growth is a better measure of regional productivity growth than employment growth. She compares the two measures using data for Portugal between 1985 and 1994. With the regional adjusted wage growth, the author finds evidence of Marshall-Arrow-Romer (MAR) externalities in some sectors and no evidence of Jacobs or Porter externalities in most of the manufacturing sectors. Theseresults are at odds with her findings for employment-based regressions, which show that concentration and region size have a negative and significant effect in most of the manufacturing sectors. These employment-based results are in line with most of the existing literature, which suggests that using employment growth to proxy for productivity growth leads to misleading results.Labor Markets,Economic Theory&Research,Economic Growth,Municipal Financial Management,Achieving Shared Growth

Openness and Technological Innovation in East Asia: Have They Increased the Demand for Skills?

This paper asks whether the increased openness and technological innovation in East Asia have contributed to an increased demand for skills in the region. We explore a unique firm level data set across eight countries. Our results strongly support the idea that greater openness and technology adoption have increased the demand for skills, especially in middle income countries. Moreover, while the presence in international markets has been skill enhancing for most middle income countries, this has not been the case for manufacturing firms operating in China and in low-income countries. If international integration in the region intensifies further and technology continues to be skilled biased, policies aimed at mitigating skills shortages in the region should produce continual and persistent increases in skills.demand for skills, foreign direct investment, exports, firm level data

The incentives to invest in job training : do strict labor codes influence this decision?

This paper studies the link between labor market regulations and the incentives of firms to invest in the human capital of their employees. The author's explore a firm level data set across several developing countries and comparethe supply of formal training programs for firms exposed to different degrees of de facto labor regulations. The author's findings show that a more flexible labor code tends to be associated with a smaller investment in job training. However, this effect is small and heterogeneous. Reforms that simultaneously accelerate the diffusion of temporary contracts and increase the protection of permanent workers tend to generate negative effects on the firm's investment in human capital.Labor Markets,Labor Policies,Labor Standards,Education For All,Banks&Banking Reform

The return to firm investment in human capital

In this paper the authors estimate the rate of return to firm investments in human capital in the form of formal job training. They use a panel of large firms with unusually detailed information on the duration of training, the direct costs of training, and several firm characteristics such as their output, workforce characteristics, and capital stock. Their estimates of the return to training vary substantially across firms. On average it is -7 percent for firms not providing training and 24 percent for those providing training. Formal job trainingis a good investment for many firms and the economy, possibly yielding higher returns than either investments in physical capital or investments in schooling. In spite of this, observed amounts of formal training are small.Primary Education,Education For All,Access&Equity in Basic Education,Tertiary Education,Economic Theory&Research

Enforcement of labor regulation and informality

Enforcement of labor regulations in the formal sector may drive workers to informality because they increase the costs of formal labor. But better compliance with mandated benefits makes it attractive to be a formal employee. We show that, in locations with frequent inspections workers pay for mandated benefits by receiving lower wages. Wage rigidity prevents downward adjustment at the bottom of the wage distribution. As a result, lower paid formal sector jobs become attractive to some informal workers, inducing them to want to move to the formal sector.

The return to firm investments in human capital

In this paper the authors estimate the rate of return to firm investments in human capital in the form of formal job training. The authors use a panel of large firms with detailed information on the duration of training, the direct costs of training, and several firm characteristics. The authors estimate of the return to training are substantial (8.6 percent) for those providing training. Results suggest that formal job training is a good investment for these firms possibly yielding comparable returns to either investments in physical capital or investments in schooling. The paper proceeds as follows. Section two describes the data the authors use. In section three, the authors present basic framework for estimating the production function and the cost function. In section fourth the authors present empirical estimates of the costs and benefits of training and compute the marginal internal rate of return for investments in training. Finally, section fifth concludes.,LaborPolicies,Primary Education,Education For All,Access&Equity in Basic Education

Mandated benefits, employment, and inequality in a dual economy

The authors study the effect of enforcement of labor regulation in Brazil, an economy with a large informal sector and strict labor law. Enforcement affects mainly the degree of compliance with mandated benefits (severance pay, health, and safety) in the formal sector and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. The authors also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. This is not true at the bottom, because of downward wage rigidity. As a result, formal sector jobs at the bottom of the wage distribution become more attractive, inducing the low skilled self-employed to search for formal jobs.Labor Markets,Transport Economics Policy&Planning,Labor Policies,,Economic Theory&Research

Enforcement of labor regulation, informal labor, and firm performance

This paper investigates how enforcement of labor regulation affects the firm's use of informal employment and its impact on firm performance. Using firm level data on informal employment and firm performance, and administrative data on enforcement of regulation at the city level, the authors show that in areas where law enforcement is stricter firms employ a smaller amount of informal employment. Furthermore, by reducing the firm's access to unregulated labor, stricter enforcement also decreases average wages, productivity, and investment. The results are robust to several specification changes, and to instrumenting enforcement with (1) measures of access of labor inspectors to firms, and (2) measures of general law enforcement in the area where the firm is located.Labor Markets,Work&Working Conditions,Labor Standards,Municipal Financial Management,Labor Management and Relations

The return to firm investment in human capital

In this paper we estimate the rate of return to firm investments in human capital in the form of formal job training. We use a panel of large firms withun usually detailed information on the duration of training, the direct costs of training, and several firm characteristics such as their output,workforce characteristics and capital stock. Our estimates of the return to training vary substantially across firms. On average it is - 7% for firms not providing training and 24% for those providing training. Formal job training is a good investment for many firms and the economy, possibly yielding higher returns than either investments in physical capitalor investments in schooling. In spite of this, observed amounts of formal training are very small.On-the-Job Training, Panel Data, Production Function, Rate of Return