Wage Differentials between Foreign Multinationals and Local Plants and Worker Quality in Malaysian Manufacturing

Abstract

Using industrial census data for 2000, and smaller sets of survey data for 2001–2004, this paper examines the extent of wage differentials between medium-large (20 or more workers) foreign multinational enterprises (MNEs) and local plants in Malaysia's manufacturing industries. On average, wages in sample MNEs were higher than in local plants by two-fifths or more. In addition to being more capital-intensive and relatively large, MNEs also hired higher shares of workers in highly paid occupations and with moderate or high education. Results from large samples of 17 manufacturing industries combined suggest that statistically significant MNE–local differentials of 5%–9% persisted even after accounting for differences in worker occupation, education, and sex, plant capital intensity and size, as well as the influences of yearly fluctuations, industry affiliation, and plant location on the constants estimated. When MNE–local differentials and all slopes are allowed to vary among the 17 industries, positive and significant differentials were observed in all estimates for six industries: food and beverages, chemicals, rubber, general machinery, electrical machinery, and furniture. Positive and significant differentials were also observed in most estimates for another five industries. However, the size and significance of these differentials often varied depending on the industry and sample examined, as well as the estimation technique used.