Differences in foreign-owned U.S. manufacturing establishments by country of owner.
Howenstine, Ned G. ; Shannon, Dale P.
This article is the second in a series of articles that examine the
characteristics of foreign-owned U.S. manufacturing establishments. In a
January 1994 article, a profile of foreign-owned U.S. manufacturing
establishments, or plants, showed that these establishments pay higher
wages and are more productive than U.S.-owned establishments. However,
the differences were found to be largely attributable to differences in
industry mix, plant scale, and occupational mix, rather than to foreign
ownership per se.(1)
This article extends the earlier analysis by examining whether the
industry mix and operating characteristics of foreign-owned U.S.
manufacturing establishments vary by country of owner and by examining
the reasons for these variations.' The analysis covers
establishments owned by investors from six major investing
countries-Canada, France, Germany, Japan, the Netherlands, and the
United Kingdom-and is based on data for 1991, the most recent data
available.
The following are the key findings of the analysis:
The U.S. manufacturing establishments of each of the major investing
countries tend to be much larger, pay higher wages, and be more
productive than the U.S.-owned establishments. However, these tendencies
vary by country of owner, particularly in the cases of plant scale and
productivity. Some of these variations are due to differences in
industry mix--that is, to differences among countries in the industry
distribution of their U.S. establishments-and some are due to
differences within the same industries.
With respect to differences in industry mix:
* The establishments of all six countries tend to be concentrated in
industries with large establishments. This tendency is strongest for
Netherlands-, Japanese-, and German-owned establishments. When the
effects of differences in industry mix are isolated from those of
within-industry differences, these three countries' establishments
were found to be over twice as large, on average, as U.S.-owned
establishments.
* The establishments of all six countries tend to be concentrated in
high-wage industries. This tendency is strongest for Japanese-owned
establishments and weakest for British-owned establishments. When the
effects of differences in industry mix are isolated from those of
within-industry differences, the compensation per employee of
Japanese-owned establishments is found to be 23 percent higher, on
average, than that of U.S.-owned establishments. In contrast, the
compensation per employee of British-owned establishments is Only 3
percent higher.
* The establishments of all six countries show a strong tendency to
be concentrated in high-labor-productivity industries. This tendency is
strongest for Netherlands-owned establishments and weakest for French-
and British-owned establishments. When the effects of differences in
industry mix are isolated from those of within-industry differences, the
value added per production-worker hour of Netherlands-owned
establishments is found to be 60 percent higher than that of U.S.-owned
establishments, and that of French and British-owned establishments is
about 20 percent higher.
With respect to differences within industries:
* The establishments of all six countries tend to be significantly
larger than U.S.-owned establishments in the same industries. The
differences range from 4.5 times larger for German-owned establishments
to 3.5 times larger for British- and Netherlands-owned establishments.
* The establishments of five of the six countries differ little from
U.S.-owned establishments in the degree to which their output results
from their own production or from production originating elsewhere.
However, Japanese-owned establishments rely more heavily on production
originating elsewhere than the establishments of the other countries;
that is, a relatively large share of the output of Japanese-owned
establishments reflects materials purchased from others. The ratio of
purchased materials to output for Japanese-owned establishments is 10
percent higher than that for U.S.-owned establishments in the same
industries; the ratios for the establishments of each of the other five
countries are all within 3 percent of the ratio for U.S.-owned
establishments.
* The establishments of the six countries maintain larger materials
inventories relative to value added than do U.S.-owned establishments in
the same industries. For Japanese-owned establishments, the ratio of
materials inventory to value added is 62 percent higher than that of
U.S.-owned establishments. The ratios of the other foreign-owned
establishments ranged from 35 percent higher for German-owned
establishments to 14 percent higher for Canadian-owned establishments.
* Compensation rates within given industries vary among the
establishments of the six investing countries largely because of
differences in plant scale, capital intensity, and location. However,
even after these factors are accounted for, wage rates of French-owned
establishments are about 6 percent higher, and wage rates of
British-owned establishments are about 4 percent lower, than those of
the other foreign-owned establishments.
* Labor productivity varies significantly among the establishments of
the six countries. Most of this variation appears to be attributable to
differences in plant scale, capital intensity, employee skills, and
location. Nevertheless, even after these factors are accounted for,
value added per production-worker hour of British-owned establishments
is about 5 percent higher, and that of Japanese-owned establishments is
about 12 percent lower, than that of the other foreign-owned
establishments.
These findings are based on 1991 data for a sample of the U.S.
manufacturing establishments of the six major investing countries that
was extracted from the Census Bureau's Annual Survey of
Manufactures (ASM) through a joint project of the Bureau of Economic
Analysis (BEA) and the Census Bureau.(3) The establishments in the
sample accounted for over three-quarters of the manufacturing employment
of all foreign-owned U.S. manufacturing establishments in 1991.
The remainder of this article consists of three sections and an
appendix. The first section outlines the economic rationale for the
variations in the characteristics of foreign-owned operations by country
of owner. The second examines whether the variation in the concentration
of foreign-owned establishments in industries with particular attributes
depends on the country of the establishments' owners. The third
investigates within-industry differences in the operating
characteristics of foreign-owned establishments that have different
countries of ownership. The appendix describes the data on foreign-owned
establishments and presents the regression equations used in analyzing
the variation in wage rates and labor productivity across countries.
Economic Rationale for Country-of-ownership Differences
The questions of why foreign direct investment occurs and of why the
characteristics of foreign-owned operations may vary by country of owner
have been studied extensively. According to one widely accepted
explanation of direct investment, foreign investors are more likely to
be active in industries with particular attributes, and in a given host
country, the characteristics of the plants owned by investors from one
foreign country tend to differ from those owned by investors from other
foreign countries. This explanation follows from the premise that
foreign investors face inherent disadvantages when investing abroad:
They are less familiar with the general business environment and
frequently with the language in the host country than local
entrepreneurs, and they must manage their foreign investments from a
distance. To offset or overcome these disadvantages and to compete
successfully abroad, the foreign firm making the investment must possess
specific advantages--such as specialized knowledge, goodwill, advanced
technology, marketing skills, or production-management or other
organizational capabilities.(4)
Typically, these firm-specific advantages are not distributed evenly
across industries and countries. As a result, the industries in which
the investments are made are likely to depend on the country of the
investor. In addition, because the investor must structure its foreign
businesses in a way that will exploit these advantages, the
characteristics of a business owned by a particular foreign country are
likely to differ from those of businesses that are domestically owned or
that are owned by other foreign countries.(5) For example, if a
foreign-owned U.S. plant utilizes a technology developed by its foreign
parent, that plant may require more capital or a different mix of
employee skills than a U.S.-owned plant or a U.S. plant owned by a
foreign investor from another country.
Although firm-specific advantages may lead to differences in
operating characteristics, economic theory suggests that under
competitive market conditions, payments for factors of production should
be the same in foreign--and domestically owned businesses. For example,
the wages paid to workers of the same skill level should be the same.
However, in the United States, wage rates differ substantially across
industries for the same occupations, and some analysts have suggested
that these differences may be the result of less than perfectly
competitive labor markets.(6) If labor markets are not fully
competitive--for example, due to differences in unionization or to
regionally segmented labor markets--businesses owned by investors from
one foreign country may be able to pay different wages to workers of the
same skin level than those paid by domestically owned businesses or
businesses owned by investors from other foreign countries.
Industry-Mix Differences
Overall, foreign-owned manufacturing establishments tend to have
larger plants, pay higher wages, and be more productive than U.S.-owned
establishments. These differences persisted throughout the rapid
expansion in foreign direct investment in U.S. manufacturing over the
1988-91 period for which data on foreign-owned manufacturing
establishments are now available (tables 1 and 2). Some of these
differences vary substantially by country of investor, and the
variations reflect both industry-mix and within-industry differences. In
this section, the industry mix of the establishments of each of the six
major investing countries is compared with that of U.S.-owned
establishments.(7)
[TABULAR DATA 1 and 2 OMITTED]
Plant scale
As can be seen in table 3, the tendency to be concentrated in
industries with larger-than-average plant scale (value added per
establishment) varies considerably by country of owner.(8) The table
shows, for each country, both an overall measure of the plant scale of
foreign-owned establishments in relation to that of U.S.-owned
establishments (first column) and a measure of the relative plant scale
of foreign-owned establishments that isolates industry-mix effects
(second column).(9) Specifically, the second column shows how the plant
scale of foreign-owned establishments would compare with that of
U.S.-owned establishments if in each industry, plant scale were the same
for the two groups of establishments and if the only difference were in
the distribution of establishments by industry.(10) Differences across
countries in this measure indicate the extent to which country of
ownership influences the concentration of foreign-owned establishments
in industries with large plant scale.
Table 3.--Plant Scale of Foreign-owned Establishments Relative to
That of U.S.-owned Establishments, 1991
Percent
Country of owner Overall difference Industry-mix
difference
All countries 501 203
Canada 633 202
France 459 207
Germany 623 232
Netherlands 688 237
United Kingdom 407 174
Japan 535 234
Note.--This table Was constructed using data for 457 four-digit SIC
industries, including those that do, and do not, have foreign-owned
establishments.
As the second column indicates, Netherlands-, Japanese-, and
German-owned establishments tend to be more concentrated in industries
with large plant scale than the establishments of the other
countries." The concentration of British-owned establishments is
the weakest, but it is still significant compared with that of
U.S.-owned establishments.(12)
Wage rates
The concentration of foreign-owned U.S. establishments in industries
with above-average compensation per employee tends to vary among the six
countries, but the variation is not as large as that in plant scale.
Japanese-owned establishments show the strongest tendency to operate in
high-wage industries; when the effects of differences in industry mix
are isolated from those of within-industry differences, compensation per
employee of Japanese-owned establishments is found to be 23 percent
higher than that of U.S.-owned establishments (second column of table
4). German-owned establishments are also heavily concentrated in
high-wage industries. British-owned establishments have the weakest
concentration in high-wage industries.(13)
Table 4.--Compensation per Employee of Foreign-owned
Establishments Relative to That of U.S.-owned Establishments,
1991
Percent
Country of owner
Overall different Industry-mix
differences
All countries 116 110
Canada 118 l09
France 119 111
Germany 122 116
Netherlands 115 109
United Kingdom 108 103
Japan 121 123
NOTE.--This table was constructed using date for 457 four-digit
SIC industries, including those
that do, and do not, have foreign-owned establishments.
Japanese- and German-owned establishments may be relatively heavily
concentrated in industries that have high compensation per employee
because these industries typically have an employee mix weighted toward
skilled occupations. Japanese- and German-parent companies that invest
abroad often have firm-specific advantages that are technology
related-advantages that usually occur in industries employing relatively
large numbers of skilled, and thus highly paid, workers.
Labor productivity
The concentration of foreign-owned establishments in industries with
high labor productivity tends to vary significantly by country. Two
measures of labor productivity--value added per production-worker hour
and output per production-worker hour--show similar results (columns 2
and 4 of table 5).(14) According to both measures, the tendency to be
concentrated in high-labor-productivity industries is strongest for
Netherlands-owned establishments and weakest for French- and
British-owned establishments.(15)
[TABULAR DATA 5 OMITTED]
Within-industry Differences
This section examines the tendency of the foreign-owned
establishments of the individual countries to have different
characteristics within industries. In addition to differences in plant
scale, wage rates, and labor productivity, this section also examines
differences within industries in the degree to which the output of the
establishments results from their own production or from production
originating elsewhere and differences in the size of their materials
inventories relative to their production. As before, each country's
manufacturing establishments are compared with U.S.-owned manufacturing
establishments.
Plant scale
In the same industries, the establishments of all six countries tend
to have significantly larger plants than U.S.-owned establishments, and
the within-industry differences vary by country (column 7 of table 6).
For a given country, the within-industry difference is measured as the
difference in plant scale that would have resulted if the industry
distribution of the country's establishments were the same as that
of U.S.-owned establishments and if the only difference between the two
groups of establishments were in the plant scale in each industry.(16)
These differences range from 4.5 times larger than U.S.-owned plants for
German-owned establishments to 3.5 times larger for British- and
Netherlands-owned establishments. The plants of the other three
countries are roughly 4 times as large as those of U.S.-owned
establishments.
[TABULAR DATA 6 OMITTED]
As discussed in the January 1994 SURVEY article, large plants may be
sought out by foreign investors because the income and other benefits
that normally accrue to such plants tend to offset the inherent
disadvantages foreign investors face when investing in the United States
and when subsequently operating their U.S. businesses. For example,
foreign investors may concentrate their investments in relatively large
plants in order to spread the comparatively high fixed costs that they
incur over a larger volume of output. Operating large plants may also
benefit foreign investors by simplifying the organizational structure,
reducing the number of units that must be managed, and lowering the
number of local business environments with which they must become
familiar.
Purchased materials
Establishments may differ in the degree to which their output results
from their own production or from production originating elsewhere. The
extent to which establishments rely on production originating elsewhere
can be measured by the ratio of the value of purchased materials to the
value of total output for each country's establishments. Based on
this measure, the differences among the establishments of all the
countries except Japan are relatively small (column 7 of table 7).(17)
Japanese-owned establishments rely much more heavily on purchased
materials than do the establishments of the other five countries.(18)
[TABULAR DATA 7 OMITTED]
The heavy reliance on purchased materials by Japanese-owned
establishments is consistent with the tendency of Japanese parent
companies to rely on subcontracting in their production. It may also
result because more Japanese-owned manufacturing plants are new,
compared with those of the other five countries. As shown in the
following tabulation, outlays to establish new businesses in
manufacturing as a share of total outlays to acquire existing businesses
and establish new businesses in manufacturing was much higher for Japan
than for any of the other five countries:(19)
Country of investor Percent
Canada 4 France 2 Germany
3 Netherlands 6 United Kingdom 2 Japan
14
When a newly built plant begins operations and its workforce is
relatively inexperienced, activities in the plant many cover only a few
production stages; as the plant matures, it may be able to substitute
its own production for production originating elsewhere. In addition,
because foreign owners may be unfamiliar with the U.S. business
environment when they first set up their U.S. plants, newly built
foreign-owned plants may be more likely to rely on materials purchased
from their foreign owners.(20)
Inventories
To some extent, the variation in the use of purchased materials is
paralleled by a variation in the size of materials inventories relative
to value added. The ratio of materials inventories to value added for
Japanese-owned establishments is 62 percent higher than that for
U.S.-owned establishments within the same industries, by far the largest
difference for any country (column 7 of table 8). However, the
establishments of the other five countries also maintained relatively
large inventories of materials; the ratio ranged from 35 percent higher
for German-owned establishments to 14 percent higher for Canadian-owned
establishments.
[TABULAR DATA 8 OMITTED]
The finding that Japanese-owned establishments have unusually large
materials inventories is somewhat surprising, given Japanese
companies' reputation for keeping inventories at a minimum through
their "just-in-time" system of deliveries from suppliers. One
reason for the large inventories may be the particularly heavy reliance
by these establishments on purchased materials, much of which are
imported.' Because these materials typically travel over longer
distances and by different modes of transportation than materials
purchased domestically, imported materials may be shipped less often and
in larger quantities than domestically purchased materials. Thus,
Japanese-owned plants that rely on imported materials may have to carry
comparatively large inventories in order to ensure that their supply is
not interrupted. The differences among the establishments of the other
five countries in their reliance on imported materials also appear to
partly explain the differences in the relative size of their materials
inventories.
Wage rates
Compensation rates vary considerably among establishments of the
major investing countries; an analysis shows that these variations
appear to largely result from factors typically associated with
variations in compensation rates, such as location and plant scale. When
these factors are controlled for, only British- and French-owned
establishments appear to have compensation rates that differ from those
of the other foreign-owned establishments in the same industries.
Although the within-industry variation in compensation per employee
among the establishments of the six countries is smaller than that for
any of the characteristics examined so far, it is significant. Compared
with U.S.-owned establishments in the same industries, the differences
in compensation per employee ranged from 9 percent higher for
French-owned establishments to in percent lower for Japanese-owned
establishments (table 9, column 7).(22)
[TABULAR DATA 9 OMITTED]
(1.) See "Characteristics of Foreign-Owned U.S. Manufacturing
Establishments," Survey of Current Business 74 (January 1994):
34-59. (2.) For convenience, the establishment of U.S. affiliates of
foreign companies are referred to in this article as "foreign-owned
establishments," even though the percentage of foreign ownership in
a U.S. affiliate may be as low as 10 percent. (A U.S. affiliate is a
U.S. business enterprise that is owned 10 percent or more, directly or
indirectly, by a foreign person.) The data analyzed here are not
adjusted for percentage of foreign ownership. Thus, for example, the
employment data include all employees of a given establishment, even
though the foreign investor may own less than 1000 percent of the
affiliate to which the establishment belongs. However, most affiliates
are majority owned (that is, they are owned more than 50 percent by
direct investors): majority-owned affiliates accounted for 86 percent of
the manufacturing employment of all U.S. affiliates in 1991. (3.) For
data covering the universe of foreign-owned U.S. manufacturing
establishments, see Foreign Direct Investment in the United States:
Establishment Data for Manufacturing, 1991 (Washington, DC: U.S.
Government Printing Office, September, 1994).
The data are classified by country of ultimate beneficial owner The
UBO is that person, proceeding up a U.S. affiliate's ownership
chain, beginning with and including the foreign parent, that is not
owned more than 50 Percent by another person. The foreign parent is the
first foreign person in the affiliate's ownership chain. (4.) This
theory was first developed by Stephen H. Hymer. See Stephen H. Hymen,
The International Operations of National Firms (Cambridge, MA: MIT Press, 1976). (5.) For a discussion of both the theoretical and
empirical literature on how the variations in the characteristics of
foreign-owned businesses depend on the country of the foreign owner, see
John H. Dunning, Multinational Enterprises and the Global Economy
(Wokingham, England: Addison-Wesley, 1993). (6.) For this interpretation
of wage-rate differentials, see Edward M. Graham and Paul R. Krugman,
Foreign Direct Investment in the United States (Washington, DC:
Institute for International Economics, 1995). According to other
analysts, the difficulty of measuring some economic factors makes it
appear as if unexplained wage differentials exist; see Lawrence F. Katz and Lawrence H. Summers, "Industry Rents: Evidence and
Implications," Brookings Papers on Economic Activity,
Microeconomics 1989 (Washington, (7.) The discussion in the remainder of
the article is based on an analysis of data for 1991, but data for
1988-90 were also examined. The results for these years were consistent
with those for 1991. (8.) Table 3 covers 457 of the 459 four-digit
Standard Industrial Classification sic) industries for which data on all
U.S. manufacturing establishments are available from the data for
industries are suppressed in order to avoid the disclosure of data for
individual establishments.
Value added, as measured by the Census Bureau's ASM, is the
numerator for plan scale. It differs from BEA'S national income and
product accounts measure of gross products: Value added includes
purchased services but excluded indirect taxes, and it reflects
inventory change valued at book value rather than at replacement cost.
In the ASM, value added is calculated as the value of shipments plus the
net change in finished goods and work-in-process inventories less the
cost of material consumed.
Because the number of manufacturing establishments is not shown in
the Census Bureau's ASM publication, average plant scale for
U.S.-owned establishments was computed using the total value added from
the ASM and the number of U.S. manufacturing establishment shown in the
Census Bureau's County Business Patterns, 1991: United States
(Washington DC: U.S. Government Printing Office, 1993). (9.) In the
measures on the "all countries' line in the table, the plant
scale of all foreign-owned establishments is compared with that of
U.S.-owned establishments. These "an-countries" measures are
provided for reference but are not discussed in the text. (10.) The
values in the second column can be expressed algebraically as where P is
average plant scale for all industries, pi is plant scale for industry
i, and Si is the share of the in industry in the total number of
establishments for all industries. Variables with the superscript a
denote data for foreign-owned establishments, (11.) Several of the
industries with relatively large plants that have significant numbers of
Netherlands-, Japanese-, and German-owned establishments are in
chemicals manufacturing. For example, all three countries have numerous
establishments in various industries in the industrial inorganic and
organic chemicals groups (sic 281 and 286) and in pharmaceutical
preparations (sic 2834). (12.) A comparison of the values in the second
column with those in the first column indicates that the overall measure
of relative plant scale is both significantly larger for each country
and more variable across countries than the measure that isolates
industry-mix effects. The overall measure ten(is to be larger and more
variable because it reflects not only the differences in industry mix,
but also the differences within industries; see the section
"Within-industry Differences." (13.) Among the high-wage
industries in which the employment of Japanese-owned establishments are
concentrated are blast furnaces and steel mills (SIC 3312), tires and
inner tubes (SIC 3011), semiconductor and related devices (SIC 3674),
motor vehicles and car bodies (Sic 3711), and household audio and video
equipment (sic 365i). Among the high-wage industries in which the
employment of German-owned establishments are concentrated are a number
in chemicals manufacturing, including pharmaceutical preparations (SIC
2834), noncellulosic organic fibers (SIC 2824), industrial organic
chemicals, ner (sic 2869), cyclic crudes and intermediates (sic 2865),
and plastic materials and resins (SIC 2821). (14.) Output is measured as
shipments plus the change in finished goods and work-in-process
inventories. Productivity is measured using both output and value added
because the two measures provide different advantages. For example,
output, unlike value added, reflects the contribution of intermediate
inputs to production; however, value added avoids the double counting that can occur in the output measure when one establishment provides
materials used by other establishments in the same industry. For a
discussion of the advantages and disadvantages of the two alternative
measures of productivity, see William Gullickson, "Measurement of
Productivity Growth in U.S. Manufacturing," Monthly Labor Review 118 (July 1995): 13-28. Both value added per production-worker hour and
output per production-worker hour measure productivity relative to a
single input-labor. However, the variation in each measure may reflect
differences in the use of other inputs, such as capital and intermediate
inputs. (15.) Netherlands-owned establishments are concentrated in a
number of high-labor-productivity industries within chemicals
manufacturing and in petroleum refining. The high labor productivity in
these industries partly reflects their capital-intensive production
processes. (16.) Using the notation from footnote 10, the values shown
in column 7 of table 6 can be expressed algebraically as
[Mathematical Expression Omitted] In contrast to tables 3-5 in the
section "Industry-Mix Differences," which cover industries
both with and without foreign-owned establishments, tables 6-9 and 11-14
cover only industries with foreign-owned establishments. Differences in
industry mix occur because the intensity of foreign investment varies
across industries; thus, when relative investment intensities are
analyzed, industries with no foreign investment must be accounted for in
die same way as industries with extensive foreign investment. When
within-industry differences are analyzed, only industries with
foreign-owned establishments are included, because industries that do
not have foreign-owned establishments provide no information about the
within-industry differences between foreign- and U.S.-owned
establishments. Because the number of industries in which the six
countries have establishments varies, the number of industries in table
6 (column 1) varies by country. In addition to within-industry
differences (column 5), the overall differences in the table (column 4)
reflect differences in industry mix and the interaction of industry mix
and within-industry differences. Because table 6 covers only industries
with foreign-owned establishments, the industry-mix effects implicit in table 6 differ from those shown in table 3. (17.) Column 7 shows
within-industry differences in the ratio of cost of materials to total
output. The cost of materials consists of materials obtained from all
suppliers, whether U.S. or foreign. The cost of materials consists of
charges for materials consumed or put into production during the year,
including freight charges and other charges incurred by the
establishment in acquiring these materials. It also includes the cost of
fuel consumed. (18.) A recent analysis Of BEA's enterprise data
also found that Japanese-owned U.S. companies tend to rely on production
originating elsewhere to a much greater extent than do other
foreign-owned U.S. companies. William J. Zeile, "Imported Inputs
and the Domestic Content of Production by Foreign-Owned Manufacturing
Affiliates in the United States," in Geography and Ownership as
Bases for Economic Accounting, ed. Robert E. Baldwin, Robert E. Lipsey,
and J. David Richardson (Chicago: University of Chicago Press,
forthcoming in 1996). (19.) The data in the tabulation, which are from
BEA's of U.S. businesses acquired or established by foreign direct
investors, are averages for 1987-91 and cover only the plants built when
a new U.S. business enterprise (a new U.S. affiliate) is created. New
plants built by existing U.S. affiliates and plant expansions by
existing U.S. affiliates are not covered. (20.) Numerous studies have
shown that newly built foreign plants of multinational companies tend to
have large imports from their parent companies. One of the first studies
was Raymond R. Vernon, "International Investment and International
Trade in the Product Cyde," Quarterly Journal of Economics go (May
1966): 190-207. (21.) According to Zeile, imported materials account for
a large portion of the purchased materials of the Japanese-owned U.S.
affiliates; see "Imported Inputs and the Domestic Content of
Production." (22.) For other studies of compensation rates of
foreign-owned U.S. manufacturing establishments, using the BEA-census
Bureau data, see Robert E. Lipsey, "Foreign-owned Firms and U.S.
Wages," National Bureau of Economic Research Working Paper No. 4927
(November 1994) and J. Bradford Jensen and Mark Doms, "A Comparison
Between Operating Characteristics of Domestic arid Foreign Owned
Manufacturing Establishments in the United States," in Geography
and Ownership as Bases for Economic Accounting.
Using 1987 data, Lipsey found a somewhat different pattern.
particularly with regard to Japanese-owned establishments, than that
found in this article. He found that the within-industry compensation
rates of the Japanese-owned establishments in manufacturing are higher
than those of U.S.-owned establishments, whose this article finds that
Japanese-owned establishments' compensation rates are slightly
lower. The disparity may reflect differences in the level of industry
detail used. Lipsey used published data on foreign-owned establishments,
generally at the two-digit sic level, presumably to avoid the sometimes
high degree of suppression in the published data at finer levels of
detail. In contrast, the analysis in this article is based largely upon
data at the four-digit sic level. Thus, Lipsey's finding may
actually reflect industry-mix effects; specifically, in many two-digit
industries, Japanese-owned establishments are concentrated in the
four-digit industries with the highest compensation rates.
Doms and Jensen, in their analysis based on 1987 data, controlled for
differences in industry mix and several other factors and found that
wage rates of foreign-owned establishments vary by country of owner.
They also found that Japanese and Australian-owned establishments pay
lower production-worker wages than other foreign-owned establishments.
The following analysis examines the extent to which the variation in
within-industry compensation rates is attributable to differences in
occupational mix, location, plant scale, and capital intensity. Because
data limitations make it impossible to use the compensation-per-employee
measure for certain aspects of the analysis, this analysis also uses two
alternative measures of compensation rates--payroll per employee and
hourly wage rates of production workers.(23)
Occupational mix.--Compensation rates may vary because the
establishments of the six countries have different occupational mixes.
Although detailed occupational data are not available from the ASM, a
breakdown of total employment and total payroll between two broad
groups--production workers and nonproduction workers--is available.(24)
Nonproduction workers are usually considered to be higher skilled, on
average, than production workers. A comparison of payroll per employee
for the two groups supports this view: For both all U.S. establishments
and foreign-owned establishments, payroll per employee of nonproduction
workers is significantly higher than that of production workers for
total manufacturing and for each two-digit sic manufacturing industry
(table 10).(25)
[TABULAR DATA 10 OMITTED]
The role of occupational mix in explaining wage differences can be
examined by comparing variations in wages of production workers with
variations in compensation per employee of all workers. This comparison
indicates whether variation by country in the ratio of nonproduction
workers to production workers is a source of inter-country differences
in overall rates of pay.
Across the establishments of the six countries, the range of
within-industry differences is somewhat narrower for hourly wage rates
of production workers than it is for compensation per employee of all
workers (column 7 Of table 11 and column 7 of table 9, respectively),
suggesting that differences in occupational mix may explain some of the
variation in compensation rates. However, in some cases, the differences
in the hourly wage rates of production workers are wider than those in
the compensation per employee of all workers.(26)
[TABULAR DATA 11 OMITTED]
Location.--Wage rates may also vary by country of owner because the
establishments of one country may be more (or less) concentrated than
the establishments of other countries in geographic areas where wages
are relatively high (or low). However, even after controlling for
differences in distributions of employment across States (see column 2
of table 12), payroll per employee still varies considerably.(27) This
variation may exist partly because, as discussed earlier, the
establishments of the six countries tend to be concentrated to different
degrees in high-wage industries. Furthermore, this concentration may not
be uniformly distributed across States. Controlling for differences in
State-by-industry distributions (see column 3 of table 12) Significantly
narrows the differences in payroll per employee across the
establishments of the six countries.(28)
Table 12.--Payroll per Employee: Foreign-Owned Establishments
Compared With U.S.-owned Establishments, 1991
[Percent]
After adjustment for
differences
in distributions
Country of owner Overall Across Across
States States and
industries
(1) (2) (3)
Canada 119 107 98
France 114 109 98
Germany 120 115 101
Netherlands 118 104 102
United Kingdom 107 101 98
Japan 114 106 101
Note.-Column 1 shows payroll per employee of foreign-owned
establishments relieve to that of U.S.-owned establishments before
controlling for differences in distributions across States. Column 2
shows the relative payroll-per-employee measure that would result if the
distributions of the foreign-owned establishments across States were the
same as that of the U.S.-owned establishments and if the only difference
between the two groups of establishments were in payroll per employee
within each State. Column 3 was constructed by controlling for
differences between foreign- and U.S-owned establishments in
distributions both across States and across three-digit SIC industries
within States. Specifically, column 3 shows the relative
payroll-per-employee measure that would result if the distributions of
the foreign-owned establishments across industries within individual
States were the same as those of U.S.-owned establishments and if the
only difference between the two groups of establishments were in payroll
per employee within each State-industry cell. Other factors.--In
addition to occupational mix and location, other factors may influence
compensation rates. One is the extent to which the employees of the
establishments are unionized. Data are not available from the ASM on the
number of employees who are in unions, but such data are available from
BEA'S 1992 benchmark survey of foreign direct investment in the
United States.(29) Because the benchmark survey data are collected on an
enterprise basis, they are not directly comparable with the
establishment data from the ASM. However, the enterprise data do suggest
that there is little relationship between unionization rates and the
variation in compensation rates of the establishments of different
countries, once differences in industry mix are taken into account.
The variation in compensation rates may also reflect differences in
plant scale and capital intensity. In the january 1994 Survey article,
it was found that at the all-countries level, differences in
compensation rates between foreign- and U.S.-owned establishments are
significantly correlated with differences in plant scale. Because the
size of foreign-owned plants depends on the country of owner, the
variation in compensation rates may partly reflect differences in scale.
Capital intensity could influence compensation rates if higher skilled
labor tends to be required in plants that use large amounts of capital.
In addition, if skill levels are higher in capital-intensive plants,
employee training may be relatively expensive and the plants may pay
higher wages to reduce employee turnover and the associated training
costs.
Combined effects.--The prior analysis suggests that variation in
compensation rates among the six countries' establishments is
associated with variations in industry composition, occupational mix,
location, plant scale, or capital intensity. In order to determine
whether differences in compensation rates remain once these factors are
simultaneously taken into account, multiple regression equations were
estimated in which the dependent variable was hourly wage rates of
production workers, and the independent variables were plant scale,
capital intensity, control variables for four-digit sic industry and for
location (State), and dummy variables to indicate residual country-of-ownership differences.(30) Six equations--one for each
country--were estimated. In each case, the observations were the
individual establishments of the six countries. In the equation for each
country, the variable for country of owner was used to test whether the
establishments of that country differed from the establishments of the
other five, once the industry and State controls and the other
independent variables were taken into account.(31) Key findings of this
analysis are discussed below; the estimated equations are shown in the
appendix.
The regression analysis indicates that among the establishments of
the six countries, the variation in hourly wage rates largely results
from differences in industry mix, location, plant scale, and capital
intensity. However, even after these factors are taken into account, the
wage rates of French-owned establishments are about 6 percent higher,
and those of British-owned establishment are about 4 percent lower, than
those of the other foreign-owned establishments.
These results are based on tests that assume that the relationship
between hourly wage rates and both plant scale and capital intensity is
the same for the establishments of each country (that is, that the
regression coefficient for each variable is the same for each country).
In order to check whether the effect of a particular country's
ownership may reflect differences in the relationship between the other
independent variables and country of ownership (slope effects) rather
than any overall country-of-ownership effect (intercept effect), a
second set of regression equations was estimated in which the
relationship between wage rates and both plant scale and capital
intensity can vary depending on the country of owner.
The results from the second set of equations indicate that the
relatively high production-worker wage rates in French-owned
establishments are due to a stronger positive relationship between wage
rates and capital intensity for those establishments than for the
establishments of the other five countries. Further, French-owned
establishments with the same capital intensity as the establishments
owned by the other countries tend to have higher production-worker wage
rates than the other establishments and the higher the capital
intensity, the larger the gap between the wage rates of French-owned
establishments and those of the other establishments.
The reasons for the relatively high compensation rates for
French-owned establishments and the relatively low compensation rates of
British-owned establishments are unclear. The differences in the
compensation rates may reflect differences in the firm-specific
advantages that enable foreign companies to invest successfully in the
United States. For example, the advantages of parent companies in one
foreign country may stem from production-management or other
organizational capabilities rather than from the possession of advanced
technology. If so, compensation rates of that country's
establishments may be relatively low, because these establishments are
less likely than those of other countries to use technologically complex
production processes that require relatively large numbers of
high-skill, high-wage production workers. Variations in the skill mix of
production workers were not controlled for in this analysis, and they
may be the source of some of the differences in the wage rates of
foreign-owned establishments by country of owner.
Labor productivity
The variation in labor productivity across the establishments of the
six countries appears to be largely attributable to differences among
the establishments in factors such as plant scale and employee skill
level. However, some evidence suggests that once these factors are taken
into account, the labor productivity of British-owned establishments
tends to be somewhat higher, and the labor productivity of
Japanese-owned establishments somewhat lower, than that of the other
foreign-owned establishments.
Whether labor productivity is measured as value added per
production-worker hour or as output per production-worker hour, the
labor productivity of the establishments of the six countries varies
significantly from country to country, but each country's
establishments have higher labor productivity than U.S.-owned
establishments in the same industries.(32) Using the value-added measure, the labor productivity of French- and Netherlands-owned
establishments is particularly high relative to that of U.S.-owned
establishments--40 percent and 38 percent higher, respectively (table
13, column 7). In contrast, the labor productivity of Japanese-owned
establishments is only 7 percent higher. Using the output measure, the
differences in labor productivity range from 43 percent higher for
Netherlands-owned establishments to 8 percent higher for Canadian-owned
establishments (table 14 column 7).
[TABULAR DATA 13-14 OMITTED]
If the within-industry differences in labor productivity for the
establishments of the six countries are ranked, both measures of
productivity yield similar rankings, except that the Japanese-owned
establishments rank sixth on the basis of the value-added measure and
third on the basis of the output measure. This disparity may reflect a
tendency for the operations of Japanese-owned establishments to be
structured differently from those of the establishments of the other
countries. That structural differences exist is suggested by the earlier
finding that the ratio of purchased materials to output tends to be much
larger for Japanese-owned establishments than for the other
establishments.
The remainder of this section evaluates the extent to which variation
in labor productivity by country of owner reflects differences among the
establishments in factors that often influence labor productivity--plant
scale, capital intensity, and employee skill levels. In the January 1994
SURVEY article, it was found that at the all-countries level, the labor
productivity of foreign-owned establishments differed significantly from
that of U.S.-owned establishments and that most of this difference was
attributable to differences in industry mix, plant scale, capital
intensity, and employee skill level. In order to determine if this
finding holds across countries, multiple regression equations that
simultaneously take these factors into account were estimated for each
country. In the regressions, the dependent variable was labor
productivity and she independent variables were plant scale, capital
intensity, employee skill level, control variables for four-digit sic
industry and for State, and dummy variables to indicate residual
country-of-ownership differences. Separate equations were estimated for
the value-added and the output measures of labor productivity. In
addition, because an establishment's output embodies purchased
materials as well as its own value added, a measure of the use of
purchased materials relative to total output was included as an
independent variable in the equations using the output measure.
When the value-added measure was used as the dependent variable, the
regression results suggest that most of the differences in labor
productivity across the establishments of the six countries are
attributable to differences in plant scale, capital intensity, employee
skill level, industry, and location. However, even after these factors
are taken into account, the labor productivity of British-owned
establishments is about 5 percent higher, and the labor productivity of
Japanese-owned establishments about 12 percent lower, than that of the
establishments of the other countries.
These results were based on regressions in which it was assumed that
the relationships between labor productivity and plant scale, capital
intensity, and employee skill level are the same for the establishments
of each country. A second set of equations was estimated in which this
assumption was relaxed. The results of these regressions suggest that
the relatively high labor productivity of British-owned establishments
reflects a stronger positive relationship between labor productivity and
capital intensity for those establishments than for the establishments
of the other five countries. Further, British-owned establishments with
the same capital intensity as the other establishments tend to have
higher labor productivity than the other establishments and the higher
the capital intensity, the larger the gap between their productivity and
that of the other establishments.
When the output measure was used as the dependent variable, no
systematic differences in productivity were found across the
establishments of the six countries once differences in industry mix,
location, use of purchased materials, plant scale, capital intensity,
and employee skill were taken into account.
These results are based on regression equations in which it was
assumed that the relationships between labor productivity and the use of
purchased materials, plant scale, capital intensity, and employee skill
level are the same for the establishments of each country. A second set
of regression equations was estimated in which this assumption was
relaxed. Like the results of the value-added regressions, the results of
these regressions suggest a stronger positive relationship between labor
productivity and capital intensity for British-owned establishments than
for the establishments of the other countries. These results also
suggest that the positive relationship between the use of purchased
materials and labor productivity is stronger for Japanese-owned
establishments than for the other establishments. In contrast, the
results suggest that for Canadian-owned establishments, high labor
productivity is associated with lower, rather than higher, use of
purchased materials.
A number of factors that were not taken into account in this analysis
may explain the differences in the labor productivity of British- and
Japanese-owned establishments. For example, the productivity, like the
wage rates, of foreign-owned establishments may be influenced by the
firm-specific advantages of the establishments' parent companies.
The variation in labor productivity may also reflect a variation in
the average age of the foreign-owned establishments by country of owner.
Many Japanese-owned establishments are relatively new. Productivity in
new plants may be relatively low because these plants often operate at
less-than-full capacity and because they may incur training and other
costs that are not incurred in older plants.(33)
Appendix
This appendix consists of a description of the data on foreign-owned
establishments and a discussion of the estimated regression equations
and of the alternative regression method that were used in the analysis
of wage rates and labor productivity.
The data
The data for foreign-owned establishments were obtained from the
Census Bureau's Annual Survey of Manufactures (ASM) through a
project that linked BEA enterprise, or company, data on foreign direct
investment in the United States with Census Bureau establishment, or
plant, data for all U.S. companies. Data were obtained for most of the
ASM items for the universe of foreign-owned manufacturing
establishments.
The panel of foreign-owned establishments examined in this article
covers a subset of the universe of such establishments. The panel
includes only the establishments owned by foreign investors from the six
countries selected for study. It excludes administrative and auxiliary establishments because the data available by detailed industry cover
only operating establishments, and it excludes establishments for which
data were imputed (estimated).
Published ASM statistics cover all manufacturing establishments in
the United States. These statistics are estimates derived by combining
the data for establishments in the ASM sample with the data estimated
for establishments not in the sample. The foreign-owned establishments
not in the sample were excluded from the panel because the procedure
used to estimate data for them employs industry-level ratios that do not
differentiate between foreign- and U.S.-owned establishments and
therefore tends to mask the differences between the two groups of
establishments. The panel also excludes extreme outliers. These outliers
consist of a few foreign-owned establishments whose data appear to be
erroneous or for which temporary circumstances peculiar to the
establishments resulted in unusual values and of a few establishments
that appear to have been engaged in activities that are not typical of
other foreign- and U.S.-owned establishments in the same four-digit
industry.(34)
Even after these exclusions, the panel includes 84 percent of all
foreign-owned manufacturing establishments. It also accounts for a large
portion of the universe totals for both value added and employment-88
percent and 85 percent, respectively. Among the six major investing
countries, value added accounted for by the panel ranged from 79 percent
of the universe total for Japanese-owned establishments to 91 percent of
the total for Canadian-, Netherlands-, and British-owned establishments.
The panel of establishments used to estimate the regression equations
differs slightly from that described here; the differences are noted in
the next section.
Regression analysis
As indicated in the main text of the article, several multiple
regression equations were estimated to analyze the variations in wage
rates and in labor productivity among the establishments of the six
countries. The regressions for wage rates are shown in tables 15 and 16,
and those for labor productivity, in tables 17-20. The main text
discusses the variables used in the regressions and key results.
[TABULAR DATA 16,18 & 20 OMITTED]
Table 15.--Regression Analysis: Country-of-Ownership
Effects on Production-Worker Wages (Intercept Only), 1991
Number Country-of-owner variables
Equation(1) Number of R(2)
observations Country Intercept
effect(2)
1 6,139 0.696 Canada 0.006
(.019)
2 6,139 .698 France .063
(***)
(.018)
3 6,139 .696 Germany .005
(.018)
4 6,139 .696 Netherlands .008
(.024)
5 6,139 .697 United Kingdom -.043
(***)
(.013)
6 6,139 .696 Japan .005
(.018)
*** Significant at the 1-percent level.
** Significant at the 5-percent level.
* Significant at the 10-percent level.
1. Each equation included controls for four-digit SIC industry and
for State and included variables for plant scale and capital intensity.
The coefficients for plant scale and capital intensity were significant
at the 1-percent level in all equations, and the values for each
coefficient varied only slightly across equations. In all equations, the
coefficients of the plant-scale variable rounded to 0.065, and those of
the capital-intensity variable rounded to -0.032. Capital intensity was
measured using a proxy variable (see the appendix).
2. In each equation, the country-of-owner dummy variable tested
whether the wages paid by the establishments of the specified country
differed from those paid by the establishments of the other five
countries, once the industry and State controls and the other
independent variables were taken into account.
Note.--The observations were the individual establishments of the six
countries. All variables were expressed as natural logs; numbers in
parentheses are standard errors.
Table 17.--Regression Analysis: Country-of-Ownership Effects on Value
Added per Production-Worker Hour (Intercept Only), 1991
Number Country-of-owner variables
Equation(1) Number of R(2)
observations Country Intercept
effect(2)
1 6,139 0.814 Canada 0.014
(.037)
2 6,139 .814 France .023
(.035)
3 6,139 .814 Germany -.023
(.035)
4 6,139 .814 Netherlands .014
(.045)
5 6,139 .814 United Kingdom (.053)
(**)
(.025)
6 6,139 .814 Japan -.118
(***)
(.034)
*** Significant at the 1-percent level.
** Significant at the 5-percent level.
* Significant at the 10-percent level.
1. Each equation included controls for four-digit SIC industry and
for State and included variables for plant scale, capital intensity, and
employee skill level. The coefficients for plant scale, capital
intensity, and employee skill level were significant at the 1-percent
level in all equations, the coefficients of the plant-scale variable
rounded to 0.220, those of the capital-intensity variable rounded to
0.259, and those of the employee- skill-level variable ranged from 0.621
to 0.626. Capital intensity was measured using a proxy variable (see the
appendix).
2. In each equation he country-of-owner dummy variable tested whether
the value added per production-worker hour establishments of the
specified country differed from that of the establishments of the other
five countries, once the industry and State controls and the other
independent variables were taken into account.
Note.--The observations were the individual establishments of the six
countries. All variables were expressed as natural logs; numbers in
parentheses are standard errors.
Table 19.--Regression Analysis: Country-of-Ownership Effects
on Output per Production-Worker Hour (Intercept),
Number Country-of-owner variables
Equation(1) Number of R(2)
observations Country Intercept
effect(2)
1 6,139 0.852 Canada -0.007
(.032)
2 6,139 .852 France .013
(.030)
3 6,139 .852 Germany -.009
(.030)
4 6,139 .852 Netherlands .001
(.039)
5 6,139 .852 United Kingdom .016
(.022)
6 6,139 .852 Japan -.030
(.029)
***Significant at the 1-percent level.
** Significant at the 5-percent level.
* Significant at the 10-percent level.
1. Each equation included controls for four-digit SIC industry and
for State and included variables for plant scale, capital intensity,
employee skill level, and the ratio of purchased materials to output.
The coefficients for plant scale, capital intensity, employee skill
level, and the ratio of purchased materials to output were significant
at the 1-percent level in all equations, and the value for each
coefficient varied only slightly across equations. In all equations, the
coefficients of the plant-scale variable rounded to 0.115, those for the
capital- intensity variable rounded to 0.312, those for the
employee-skill-level variable ranged from 0.708 to 0.710, and those for
the ratio of the purchase-materials-to- output variable ranged from
0.155 to 0.157. Capital intensity was measured using a proxy variable
(see the appendix).
2. In each equation, the country-of-owner dummy variable tested
whether output per production-worker hour of the establishments of the
other five, once the industry and State controls and the other
independent variables were taken into account.
Note--The observations were the individual establishments of the six
countries. All variables were expressed as natural logs; numbers in
parentheses are standard errors.
Two sets of regressions were run for wage rates, and two were run for
each of the labor productivity measures. The first set of regressions is
based on the assumption that the relationships between the independent
variables and the dependent variable is the same for the establishments
of each country (that is, that the regression coefficient for each
variable is the same for each country). The second set of regressions
relaxes this assumption; that is, the second set of regressions checks
whether the effect of a particular country's ownership is due to
differences in the relationship between the other independent variables
and the country of ownership (slope effects) rather than to any overall
country-of-ownership effect (intercept effect).
Unlike the analysis elsewhere in the article, which was based on
industry-level aggregations, the regressions used establishment-level
data. Six equations--one for each country--were estimated for each set
of regressions. In each case, the observations were the individual
establishments of all six countries. In the equation for each country, a
dummy variable for that country is used to test whether that
country's establishments differed from the establishments of the
other five countries once the industry and State controls and the other
independent variables were taken into account.
In the regressions, capital intensity was measured indirectly using a
proxy variable--the ratio of total fuel costs to production-worker
wages--because the data needed to measure it directly were not
available.(35) The regressions controlled for industry and State by
including the mean values of the dependent variables in each industry in
each State as independent variables. This procedure is equivalent to
including dummy variables in the equations for each industry-State cell.
The sample of establishments used for the regression analysis was
somewhat smaller than that used for the analysis elsewhere in the
article because it excluded establishments for which the value for one
of the variables in the regression equations either could not be
calculated or was an extreme outlier. (Most of the variables in the
regression equations are ratios--for example, value added per
production-worker hour; a value for a ratio could not be calculated for
a particular establishment if the denominator was zero.) A total of
6,139 establishments were included in the sample used for the regression
analysis. These establishments accounted for 82 percent of the
employment and 86 percent of the value added of all operating
establishments of the six countries.
Alternative regression method
The results obtained when an alternative regression method was used
are shown in table 21. Under this method, for each dependent variable, a
single equation was estimated that includes country-of-ownership
variables for five of the six countries, and the sixth country was used
as the base.
[TABULAR DATA 21 OMITTED]
In the alternative regressions, the coefficients of the
country-of-ownership variables provide estimates of the extent to which
the wage rates or labor productivity of the establishments of each of
the five countries differ from the wage rates or labor productivity of
the establishments of the base country. The country chosen to serve as
base country could have been any of the six countries. In order to
facilitate the comparisons of the results of these regressions with the
previous regressions, the base country selected was the one for which
the coefficient for the country-of-ownership variable was closest to the
average for the establishments of all six countries. Thus, in the
wage-rate equation, Germany was chosen as the base country, and in the
productivity equations, Canada was chosen.
The regression results shown in table 21 are generally consistent
with those shown in tables 15, 17, and 19. For example, a comparison of
the wage-rate regressions for the two methods indicates that if the
coefficients of the country-of-owner variables in the equation in table
21 are ranked in terms of their size, the ranking is identical to that
obtained when the coefficients of the country-of-owner variables in
table 15 are ranked. In particular, both methods indicate that the wage
rates of French-owned establishments are higher than those of the other
establishments once differences in industry mix, location, scale, and
capital intensity are taken into account. Similarly, both methods
indicate that the wage rates of British-owned establishments are lower
than those of the other establishments.
Although providing similar rankings, the two sets of results differ
in the degree of confidence associated with the estimated coefficients
of the country-of-owner variables. For example, in the equations in
table 15, the coefficients of the country-of-owner variables in the
equations for both France and the United Kingdom are significant at the
1-percent level. In contrast, in the wage-rate equation in table 21, the
coefficient for the country-of-owner variable for France is significant
only at the 10-percent level, and the coefficient for the United Kingdom
is not statistically significant.
These differences in statistical significance arise because in table
21, the coefficients are estimated on the basis of a comparison of the
establishments of a particular country with the establishments of the
base country (Germany, in the case of the wage-rate equation) and
because in table 15, the coefficients are estimated on the basis of a
comparison of the wage rates of the establishments of a particular
country with the wage rates of the establishments of the other five
countries taken as a group. When a single country is used as the base
country, associations between the industry mix or location variables and
the country-of-owner variables for either the base country or the
subject country can limit the ability of the regression procedure to
separate the country-of-ownership effects from the industry-mix effects
or the location effects.
(23.) Compensation covers benefits as well as wages and salaries;
payroll covers only wages and salaries. (24.) Production workers are
workers--up through the line-supervisor level--at an operating
establishment who are engaged in fabricating, processing, assembling,
inspecting, receiving, storing, handling, packing, warehousing, shipping
(but not delivering), maintenance, repair, janitorial and guard
services, product development, auxiliary production for a plant's
own use (power plant, for example), record keeping, and other services
closely associated with these production operations at the
establishment.
Nonproduction workers are workers engaged in factory supervision
above the line-supervisor level and workers engaged in the following
activities: Sales including drivers/salespersons), sales delivery
(highway truck drivers and their helpers), advertising, credit,
collection, installation and servicing, clerical and routine office
functions, executive, purchasing, financial, legal, personnel (including
cafeteria and medical personnel), professional, and technical. (25.)
Payroll per employee rather than compensation per employee is shown in
table 10 because data on employee benefits by type of worker are not
available from the ASM.
Educational attainment, which is an indicator of employee skill
level, is also higher for nonproduction workers than for production
workers; see Eli Berman, John Bound, and Zvi Griliches, "Changes in
the Demand for Skilled Labor Within U.S Manufacturing Industries:
Evidence from the Annual Survey of Manufacturing," Quarterly
Journal of Economics 109 (May 1994): 367-97. (26.) Lipsey found that
differences in occupational mix played a role in explaining why
compensation rates are higher in foreign-owned establishments than in
U.S.-owned establishments only for German-owned establishments, and even
in this case, occupational mix only explained part of the difference.
See "Foreign-owned Firms and U.S. Wages." (27.) Payroll per
employee rather than hourly wage rates or compensation per employee was
used in this section because the all-U.S. data source for these
comparisons, County Business Patterns, 1991, provides data only on total
payroll and employment.
For the establishments of each country, the relative
payroll-per-employee measure in column 2 Of the table is smaller than
that in column 1, indicating that each country's establishments
tend to be more concentrated in high-wage States than the U.S.-owned
establishments. (28.) For the establishments of each country, the
relative payroll-per-employee measure in column 3 of the table is
smaller than that in column 2, indicating that each country's
establishments tend to be concentrated in the higher-wage industries
within individual States.
The conclusions based on the measures shown in table 12 are subject
to two important qualifications. First, in constructing column 3, the
differences in the industry distributions were continued for by using
data at the three-digit sic level, because all-U.S. data on payroll per
employee within States is not available at the four-digit level. Rough
calculations indicate that if four-digit, rather than three-digit,
industry data had been used, the relative payroll-per-employee measure
shown for Japanese-owned establishments would probably have been less
than 100 percent instead of the 101 percent shown.
Second, the boundaries of labor markets may not coincide with State
boundaries. Wage rates in one part of a State may be higher than those
in another part of the State (for example, wage rates may be higher in
urban areas than in rural areas). As a consequence, State data may not
always gauge accurately whether foreign-owned establishments have a
tendency to be located in areas where wages are particularly high (or
low). (29.) See U.S. Department of Commerce, Bureau of Economic
Analysis, Foreign Direct Investment in the United States. 1992 Benchmark
Survey, Final Results (Washington, Dc: U.S. Government Printing Office,
September 1995). (30.) The sample data used to estimate the regression
equations differ somewhat in coverage from those used in the analysis of
the preceding sections. It should also be noted that, in the
regressions, capital intensity was measured indirectly using a proxy
variable, because the data needed to measure it directly are not
available. See the appendix for a discussion of how the sample was
selected and a description of the capital intensity variable. (31.) An
alternative to estimating a separate regression equation for each
country is to estimate a single equation that includes
country-of-ownership variables for five of the six countries, with the
sixth country serving as a the base. In general, the results from this
alternative method, which are presented in the appendix, are consistent
with those from the separate regression equations. (32.) The value-added
and the output measures each have unique advantages as measures of labor
productivity (see footnote 14). (33.) Doms and Jensen used data from
several Census Bureau economic censuses to create a proxy for plant age
and found that labor productivity was relatively low in Japanese-owned
plants even after plant age is taken into account. They also found that
the productivity of foreign-owned plants is generally higher than that
of U.S.-owned plants but lower, than that of U.S. plants of U.S.
multinational companies. See "A Comparison Between Operating
Characteristics of Domestic and Foreign Owned Manufacturing
Establishments." (34.) In "Characteristics of Foreign-owned
U.S. Manufacturing Establishments," outliers were controlled for by
limiting the analysis to only those four-digit industries with six or
more foreign-owned establishments. That approach was rejected for this
study because of the relatively small number of four-digit industries in
which individual investing countries own six or more establishments.
(35.) In "Characteristics of Foreign-owned U.S. Manufacturing
Establishments," an alternative proxy, the non-employee
compensation share of value added, was used. Tests of how well the
alternative proxy and the one used in this article correspond to a
capital stock measure obtained in BEA'S annual survey of foreign
direct investment in the United States indicated that the correlation
was much closer for the proxy used in this article than for the
alternative.