PUBLICATIONS & REPORTS

Contents Introduction

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. Descriptive statistics suggest that MNEs tend to pay higher wages than local plants and that they tend to hire higher quality labor, in addition to being more capital intensive and larger than local plants. In large, combined samples of 17 manufacturing industries (excluding a few smaller, statistically unusual industries), estimates of earnings equations suggest that highly statistically significant wage differentials averaging 6-9 percent persisted after accounting for differences in labor quality, capital intensity, size, as well as the effects of industry affiliation and plant location on the constants estimated. When all slopes are allowed to vary among 17 industries (by estimating separate equations for each industry), results varied among industries, subperiods, and estimation method. Significant differentials were more common in 2000-2002 than in 2002-2004, and were observed more often in pooled estimates than in random effects estimates. Estimates yielded consistently significant and positive differentials for all periods and estimation methods in six industries: food and beverages, chemicals, rubber, general machinery, electrical machinery, and furniture. Wage differentials declined between 2000-2002 and 2002-2004 in five of these industries (all but food and beverages).