Wages, overseas investment and ownership: Implications for internal labor markets in Japan

Japanese firms expanded their outward foreign direct investment (FDI) rapidly in the emerging economies in Asia in the post-1990 period. The Japanese public feared that companies would increasingly rely on cheaper foreign workers and that large numbers of home country workers would find their responsibilities, and hence their earnings, dwindling over time. However, using several recent data sets on workers in firms with and without FDI investments, we show that workers received earnings premiums if they were with firms that engaged in outward FDI involving ownership of at least 50% in some foreign firm. Higher ranked workers benefited more, but even some non-managerial workers did benefit as well. These wage benefits crucially depend on the level of ownership in FDI projects. Increased foreign employment, on the other hand, did not benefit workers' wages except those in the highest ranks.