Wages and international rent sharing in multinational firms

John W. Budd, Jozef Konings, Matthew J. Slaughter

Research output: Contribution to journalArticle

89 Citations (Scopus)

Abstract

We use a unique firm-level panel of multinational parents and their foreign affiliates to analyze whether profits are shared across borders within multinational firms. Affiliate wages are estimated to respond to both affiliate and parent profitability. The elasticity of affiliate wages to parent profits per worker is approximately 0.03, which can explain over 20% of observed variation in affiliate wages. These results reveal a previously ignored aspect of rent sharing. They also reveal an important micro-level linkage with potential macro-level implications. International rent sharing can transmit economic conditions across countries, and can thereby provide an implicit risk-sharing mechanism.

Original languageEnglish
Pages (from-to)73-84
Number of pages12
JournalReview of Economics and Statistics
Volume87
Issue number1
DOIs
Publication statusPublished - Feb 1 2005

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ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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