The Takeover and Selection Effects of Foreign Ownership in Germany : An Analysis Using Linked Worker-Firm Data

We use a linked employer-employee data set from Germany to estimate the wage effect of foreign-affiliates in (the former) East and West Germany. In addition, the wage effects of the large number of West German affiliates which are located in East Germany are also considered. The implemented techniques allow us to control both for worker- and plant-level unobserved components of earnings. We find large selection effects both in terms of worker- and firm unobserved components of wages. The selection effect is larger for East German plants. Once the selection effect is taken into account, the genuine takeover effect is small and in some cases insignificantly different from zero. In contrast to the selection effect, the takeover effect is slightly larger in West Germany, where it amounts to 2.7%