Employees in UK companies acquired by US multinationals generally benefit whether they are skilled or not, according to research presented today at the Royal Economic Society annual conference, at the East Midlands Conference Centre of the University of Nottingham.
|Dr. Holger Görg|
US takeovers of domestic companies in European countries such as France and Germany, generally prompt strong protests from workers but Holger Görg and Sourafel Girma of Nottingham University found that employees had been some of the biggest beneficiaries of acquisitions.
In a study of UK companies between 1980 and 1994, they found a wage bonus of up to 13 per cent two years after the acquisition for employees in companies bought by US rivals.
The work complements studies such as the work of the London School of Economics' Centre for Economic Performance,* showing that US multinationals in Europe have higher productivity than domestic firms.
The research shows it is not just the economy that benefits from a foreign takeover; UK employees in the acquired company also gain. While employment levels tend to be similar a few years after the takeover, the researchers say that wages rise significantly faster in works taken over by US firms than in similar plants that remain under domestic ownership.
Skilled worker earnings rises 8 per cent above the level in other similar companies after two years while unskilled workers appear to get a more immediate boost and their wages rise almost 13 per cent two years after acquisition.
"In stark contrast, no evidence is found for any causal effect on wages, skilled or unskilled, following acquisition by EU based multinationals," the researchers told the conference today.
Takeovers by Asian companies raise wages by up to 6.8 per cent.
The academics said US companies are able to award larger pay rises because they are often more technologically advanced than European rivals.
They also suggested US companies are more likely to share profits with the workforce, and that multinational companies in general "pay higher wages to provide an incentive for workers not to quit" to minimise labour turnover.
However, they said that if US buyers hire "better" workers after the takeover who are already earning more "there does not appear to be any particularly positive effect".
The authors could not rule out the possibility that US owners fired many employees after acquiring a UK company, replacing them with higher paid people.
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Holger Görg is a Reader in International Economics in the School of Economics and a Research Fellow at the Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) and IZA Bonn. He joined Nottingham in 2000 as a post-doctoral researcher in GEP. Before joining the School he worked as a Lecturer in Economics at the University of Ulster at Jordanstown and University College Cork. He completed a Ph.D. in Economics in 1999 at Trinity College Dublin where he worked on the impact of foreign direct investment on the Irish economy. His research interests are in empirical international trade and industrial organisation focusing in particular on the activities of multinational companies, foreign direct investment, and international outsourcing.