The effect of foreign acquisition activity on US union wage premiums

Past studies on foreign corporate investment and wages hypothesize that by expanding into highly concentrated and highly capital intensive industries, foreign owners are better able to pay higher wages than their domestic counterparts. Our study tests this hypothesis by comparing the effects of domestic and foreign acquisition activity on union and non‐union wages. We find strong evidence supporting the ability to pay hypothesis. There is no indication of bargaining strength changing with foreign acquisitions, as such activity is not associated with larger union wage premiums. Union premiums, however, decline with greater domestic acquisition activity.