Equity Relationships and Firms ' Internal Wages : Differential

Firms' interfirm relationships such as foreign direct investment (FDI) and domestic vertical equity connections have important implications for workers' wages within the firms. However, little empirical evidence on these wage effects within firms is available in the literature. This paper contributes to the literature by presenting estimates for such wage effects. We estimate the effects on workers' wages within manufacturing firms of inward and outward FDI as well as domestic interfirm equity (keiretsu) relationships in Japan. Using linked workeremployer data sets covering most of Japan's manufacturing firms and their employees, we find that Japanese employees benefit, in the form of wage gains, from their employers' association with FDI, in both directions. Our main findings include the following. (1)Firms' preferences towards higher ownership shares in their overseas subsidiaries (such as fully-owned subsidiaries) are justified given that higher ownership shares are correlated with higher wages at home. (2) Workers at higher ranks benefit more from outward FDI. (3) Contrary to their foreign connections, Japanese firms' equity connections with other domestic firms (keiretsu) have mostly negative effects on the wages of their employees.