[Wage Differential in a Multinational Company which has Diverse Workforce from Different Nationalities]

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Table of Contents

Wage Differential In A Multinational Company3

Introduction3

International Wage Structure5

Theories6

Unmeasured Abilities6

Compensating Differentials7

Monitoring and Shirking Model8

Turnover Costs Model8

Sociological Model9

Employees Relations: Employees-Employees & Employees- Managers10

Nationality Based-Relation11

Relationship with Senior Managers12

Relationship with the Organisation13

Psychological Impact on Employees and Managers13

Psychological Contract14

Employees Motivation and Satisfaction16

Conclusion26

References28

Wage Differential In A Multinational Company

Introduction

One of the most intriguing issues in labour economics has been the pattern of inter-industry wage differentials. Economists have found a remarkable regularity in wage dispersion within and between countries, even after wages have been controlled for differences in human capital, occupation, and other variables [Krueger and Summers, 1987, 1988; Gittleman, and Wolff, 1993]. These findings suggest that wage differentials are compatible with the functioning of capitalist economies, and thus cast doubt on the appropriateness of competitive theories. Besides competitive arguments, segmentation arising from efficiency wage models has occupied a central role in the explanation of wage differentials in developed countries [Dickens and Katz, 1987; Krueger and Summers, 1988; Katz and Summers, 1989]. Models dealing with discrimination [Daneshvary, 1993; Macpherson and Hirsch, 1995], rent-sharing and union action [Blanchflower et al., 1996; Di Nardo et al. 1996] also have an important role in the determination of wage differentials.

In the case of developing countries, however, investigation of wage differentials has focused, firstly, on the contribution of human capital variables to earnings [Corbo and Stelcner, 1983; Lam and Levison, 1992; Psacharopoulos and Velez, 1992; Yamada, 1996], and secondly, on the stylised facts that labour market is segmented along the lines of moderntraditional sectors [Harris and Todaro, 1970], formal-informal sectors [Tokman, 1983; Castells and Portes, 1989], public-private sectors [Lindauer and Sabot, 1983; Macedo, 1985; Fields and Wan, 1989; Teal, 1996], and foreign-national ownership companies [Morrison, 1994; Teal, 1996]. In addition, the effects of restrictive labour legislation [Thomas and Valleé, 1996, Marshall, 1996; Rama, 1995, 1997; Carneiro, 1997], minimum wages [Morrison, 1994], and trade unions [Teal, 1996; Arbache 1999; Arbache and Carneiro, 1999] are also believed to affect wage dispersion, while competitive theories and segmentation explained by efficiency wage models have received less attention as a source of wage variance.

The empirical literature has shown that wage differentials are a pervasive phenomena in market economies, and are strongly associated with the industry the worker is affiliated to, which is the critical issue in the dual labour market theory from Doeringer and Piore [1971]. There are three stylised facts that challenge the traditional theories of wage differentials: (i) temporal stability of wage structure; (ii) similarity of wage structures between countries in different stages of economic development; (iii) certain industries pay high wages to all workers, while other industries pay low-wages to all workers for given occupations and human capital characteristics. The next paragraphs present theories that attempt to shed light on these issues.

The introduction of new technologies in an economy can be expected to have effects on the demand for labour, as firms using a higher level of technology may be more prone to using skilled labour more intensively than unskilled ...