The Analysis On Foreign Direct Investment Affect Wages Mechanism

With the Chinese “Going Out” strategy carrying forward continuously, Foreign direct investment of China has taken a firm step, obtains remarkable result, and the position the Foreign direct investment playing in the international investment become more and more important. “Decision of the Central Committee of the Communist Party of China(CCCPC) on Some Major Issues Concerning Comprehensively Deeping the Reform” adopted at the Third Plenary Session of the 18 th CCCPC on November12,2013, proposed that “We will expand both enterprise and individual investment overseas, establish themselves as foreign-investment entities,allow them to exploit their advantages in overseas investment cooperation.” The status of foreign direct investment is becoming more and more important in Chinese economy and national strategy, ”Going Out ” has become the inevitable requirement for Chinese enterprises take use the domestic and foreign markets and two kinds of resources to participate the international division and economic globalization.The aim of this paper is to investigate the mechanism that how Chinese enterprises affect the level of wage based on the considerations of the status quo of China foreign direct investment and the importance of wage. This paper is to answer the following questions: first, whether foreign direct investment enterprises to pay higher wages? Second, if it is,whether foreign direct investment drives the ascension of the level of wage through the promotion of productivity? Third, the existence of rent sharing mechanism between foreign direct investment enterprises and labors? Fourth, whether the overseas subsidiaries have obvious wage spillover effect on domestic parent company?This paper employs both quantitative and qualitative methods and consist of theoretical analysis and empirical study. The following conclusions are drawn:Foreign direct investment enterprises pay higher wage than non foreign direct investment enterprises, and this conclusion eliminates the “self selection” may exist in foreign direct investment enterprises by using the propensity score matching method, that is, the foreign direct investment enterprises pay higher than non foreign direct investment enterprises before investment.The research of enterprises’ ownership found that the effect of foreign direct investment on wage has not significantly difference between different ownership, market principles occupy the important position in the wage decision mechanism, and there is not serious segmentation in labor market. The research of enterprises’ location found that the effect of foreign direct investment enterprises in eastern region on wage is small than those in western region.The further study of the mechanism that how Chinese enterprises affect the level of wage found that foreign direct investment drives the ascension of the level of wage through the promotion of productivity, that is, the effect of behavior of foreign direct investment on wage exist productivity effect, and encouraging enterprises “Going Out” to take use the foreign resources to enhance the productivity so as to improve the income of labors is desirable; the overseas subsidiaries have obvious wage spillover effect on domestic parent company, namely, if the enterprises investment to high wage countries has a positive effect on improving average wage; the improvement of per capita profit is conductive to improve wage, shows that Foreign direct investment enterprises can improve wage through the improvement of profitability. The behavior of foreign direct investment enhance the profit ability and promote the strength of labor in negotiations concerning rent sharing, and this indicates the existence of rent sharing mechanism between foreign direct investment enterprises and labors.This study consists of five chapters. The fist chapter is introduction, which introduces the background and significance of research, basic concept definition, literature review, analytical framework and methods, thesis structure arrangement, and the innovative points and shortcomings. The second part is theoretical analysis, which reviews the main existing theories of developed and developing countries. The review of foreign direct investment provide strong support to this study in the theoretical basis, research framework and background. The third part is analysis of the current situation of Chinese foreign direct investment from the overall scale, location, industry distribution, entry modes and investment subject, and strive to grasp the evolution and the overall characteristic of Chinese foreign direct investment, in order to provide the practical basis of research on mechanism that how Chinese enterprises affect the level of wage. The fourth part is empirical analysis, the analysis is divided into two steps, the first step is the empirical analysis of the effect of foreign direct investment on wage. Given the “self selection” problem, this paper use the propensity score matching method to overcome the sample selection bias problem, and there is a detailed study of the ownership and region. The second step is the analysis of mechanism that how Chinese enterprises affect the level of wage from the aspects of productivity effect, profit sharing and wage spillover of overseas subsidiaries. The fifth part is conclusion and policy suggestion. This part makes a systematic summary and put forward the corresponding suggestions.