Wage Differentials between Foreign Multinationals and Private Plants and Worker Education in Indonesian Manufacturing
Keywords:
Multinational enterprises, Southeast Asia, manufacturing, wage determinationAbstract
This paper reexamines wage differentials between medium-large (20 or more workers) foreign multinational enterprises (MNEs) and local, private plants in Indonesian manufacturing in 1996 and compares them to 2006. Mean, unconditional differentials were large when all 17 sample industries were combined, declining from 144% to 69% for production workers and from 201% to 84% for non-production workers. Conditional differentials accounting for the tendency of MNEs to hire relatively educated workers, use relatively large amounts of energy and material inputs per worker, and be relatively large, were positive and statistically significant, but smaller, 30% and 3.5%, respectively, for production workers and 40% and 16%, respectively, for non-production workers. Industry-level, conditional differentials were also positive in 10-11 industries in 1996, but most had declined or become insignificant by 2006. The observation of substantial inter-industry heterogeneity indicates that MNE-private differentials were less pervasive than suggested by several previous analyses, which did not allow MNE-private differentials and other slope coefficients in earnings equations to vary among industries. Both aggregate and industry-level differentials tended to be relatively large for high-wage, non-production workers, but the industry-level results were again relatively weak for 2006.
References
Aitken, B., Harrison, A., & Lipsey, R., (1996). Wages and foreign ownership: A comparative study of Mexico, Venezuela, and the United States. Journal of International Economics, 40(3-4), 345-371.
Asian Development Bank (2013), Key indicators for Asia and the pacific. Manila: Asian Development Bank.
BPS-Statistics (various years), Statistik industri (industrial statistics), various volumes and underlying plant-level data, 1990-2009 issues. Jakarta: Badan Pusat Statistik.
Buckley, P., & Casson, M. (1992), The future of the multinational enterprise (2nd ed). London: Macmillan.
Casson, M. (1987), The firm and the market: Studies on the multinational and the scope of the firm, Cambridge, MA: MIT Press.
Caves, R. (2007), Multinational enterprise and economic analysis (3rd ed.). London: Cambridge University Press.
Dunning, J., (1993), Multinational enterprises and the global economy. Workingham, U.K.: Addison-Wesley Publishing Co.
Feridhanusetyawan, Tubagus., Aswicahyono, H., & Perdana, A. (2001). The male-female wage differentials in Indonesia. Economics Working Paper Series No.059, Centre for Strategic and International Studies.
Guerin, B. (2002). Sony pullout plan rocks Indonesia, Asia Times. Retrieved from http://www.atimes.com/atimes/Southeast_Asia/DL07Ae01.html.
Haji Ahmad, S., (2010). A quantitative study on the productivity of the manufacturing industry in Malaysia. Ph.D. Dissertation, Graduate School of Social Systems Studies, University of Kitakyushu (March 2010).
Hale, G., & Long, C. (2011). Did foreign direct investment put an upward pressure on wages in China?. IMF Economic Review, 59(3), 404-430.
Keizai T. (various years), Kaigai Shinshutsu Kigyou Souran: Kaisha Betsu Hen [A Comprehensive survey of firms overseas: Compiled by company], 1997 and 2007 issues. Tokyo: Toyo Keizai.
James, W., & Ramstetter, E. (2008). Trade, foreign firms and economic policy in Indonesian and Thai manufacturing. Journal of Asian Economics, 19(5-6), 413-424.
Lee, K., & Nagaraj, S. (1995). Male-female earnings differentials in Malaysia. Journal of Development Studies, 31(3), 467-480.
Lim, D. (1977). Do foreign companies pay higher wages than their local counterparts in Malaysian manufacturing. Journal of Development Economics, 4(1), 55-66.
Lipsey, R., & Sjöholm, F. (2004a). Foreign direct investment, education, and wages in Indonesian manufacturing. Journal of Development Economics, 73(1), 415-422.
Lipsey, R., & Sjöholm, F. (2004b). FDI and wage spillovers in Indonesian manufacturing. Review of World Economics, 40(2), 321-332.
Lipsey, R., & Sjöholm, F. (2005). Host country impacts of inward FDI: Why such different answers?ʼ eds. by Moran, T.D., Graham, E.D., and Blomstrom, M. in Does foreign direct investment promote development?, 23-43. Washington D.C.: Institute for International Economics.
Lipsey, R., & Sjöholm, F. (2006). Foreign multinationals and wages in Indonesia, eds. by Ramstetter, E.D. and Sjöholm, F. in Multinationals in Indonesia and Thailand: Wages, productivity and exports, 35-53. Hampshire, UK: Palgrave-Macmillan.
Markusen, J. (2002), Multinational firms and the theory of international trade. Cambridge, MA: M.I.T. Press.
Movshuk, O., & Matsuoka-Movshuk, A. (2006). Multinationals and wages in Thai manufacturing, eds. by Ramstetter, E.D. and Sjöholm, F. in Multinationals in Indonesia and Thailand: Wages, productivity and exports, 54-81. Hampshire, UK: Palgrave-Macmillan.
Nguyen, K., & Ramstetter, E. (2017). Wage differentials among ownership groups and worker quality in Vietnamese manufacturing. Global Economic Review, 46(3), 232-250.
Nguyen, K., & Ramstetter, E. (2019). Ownership-related wage differentials by occupation in Vietnamese manufacturing. Singapore Economic Review, 64(3), 625-645.
Pirmana, V. (2006). Earnings differential between male-female in Indonesia: Evidence from Sakernas data. Working Paper in Economics and Development Studies No.2006-08, Padjadjaran University.
Purnastuti, L., Miller, P., & Salim, R. (2013). Declining rates of return to education: Evidence for Indonesia. Bulletin of Indonesian Economic Studies, 49(2), 213-236.
Ramstetter, E. (2004). Labor productivity, wages, nationality, and foreign ownership shares in Thai manufacturing, 1996-2000. Journal of Asian Economics, 14(6), 861-884.
Ramstetter, E. (2012). Foreign multinationals in East Asia’s large developing economiesʼ, Working Paper No.2012-06, International Centre for the Study of East Asian Development.
Ramstetter, E. (2014). Wage differentials between foreign multinationals and local plants and worker quality in Malaysian manufacturing. Asian Development Review, 31(2), 55-76.
Ramstetter, E., & Narjoko D. (2014). Ownership and energy efficiency in Indonesia’s manufacturing plants. Bulleting of Indonesian Economic Studies, 50(2), 255-276.
Ramstetter, E., & Minh, P., (2007). Employee compensation, ownership, and producer concentration in Vietnam's manufacturing industries. Working Paper No.2007-07, International Centre for the Study of East Asian Development.
Ramstetter, E., & Takii, S., (2006). Exporting and foreign ownership in Indonesian manufacturing. Economics and Finance in Indonesia 54(3), 317–345.
Rugman, A. (1980). Internalization as a general theory of foreign direct investment: A re-appraisal of the literature. Weltwirtschaftliches Archiv, 116(2), 365-379.
Rugman, A. (1985). Internalization is still a general theory of foreign direct investment. Weltwirtschaftliches Archiv, 121(3), 570-575.
Sjöholm, F., & Lipsey, R. (2006). Foreign firms and Indonesian manufacturing wages: An analysis with panel data. Economic Development and Cultural Change, 55(1), 201-221.
Sohn, K. (2013). Monetary and nonmonetary returns to education in Indonesia. Developing Economies, 51(1), 34-59.
Takii, S., (2004). Productivity differentials between local and foreign plants in Indonesian manufacturing, 1995. World Development, 32(11), 1957-1969.
Takii, S., & Ramstetter, E. (2005). Multinational presence and labour productivity differentials in Indonesian manufacturing, 1975-2001. Bulletin of Indonesian Economic Studies, 41(2), 221-242.
World Bank (2014). World development indicators. Retrieved from http://databank.worldbank.org/data/views/variableselection/selectvariables.aspx?source=world-development-indicators#.
Yoon, H., (2011). Labor relations in Korean companies in Indonesia: Focusing on the early period. Kyoto Review of Southeast Asia, 11. Retrieved from https://kyotoreview.org/issue-11/labor-relations-in-korean-companies-in-indonesia-focusing-on-the-early-period/.
