Introduction
Alhakimi and Peoples in their article “Foreign Direct Investment and Domestic Wages in the USA” from 2009 examine how foreign direct investment affects wages in the United States. The correlation between the two has been examined in a variety of articles with similar titles. In recent years, this question has been given additional attention, and the article analyzes these developments. This paper will provide a summary of the article.
Summary
The article begins with an introduction to the role of foreign direct investment in the United States over the 20th century. The authors connect foreign direct investment with the development of higher domestic wages. However, they state that the wage gains are not guaranteed by it, and in some cases, foreign workers and tactics of foreign companies can negotiate lower wages for domestic employees (Alhakimi and Peoples 47).
The paper then transitions into describing the recent research on how foreign direct investment affects the risk of domestically owned business with its economic impact. The authors state that FDI is often connected with greater productivity. The firm-specific skills that workers develop are also associated with higher premiums that companies pay to keep skilled workers from leaving. Various elements that are not considered in the examined studies are also pointed out such as the presence of union workers (Alhakimi and Peoples 49).
Information on earning specification and data is examined in the next section. The authors examine information on workers from the 1991 Current Population Survey – Outgoing Rotation Group files. These files allow them to consider elements that were not examined in the papers they analyzed earlier. This and other data are presented in a table of “Selected Mean Industry and Worker Characteristics by FDI Activity Level (Alhakimi and Peoples 52). Various elements are examined on their validity as an instrument of wage estimation with tariff rates being one of the more valid ones.
Subsequently, the authors examine the wage results they gained from the estimating equation. Results are likewise presented in a table with such variables as part-time employment, sales numbers, clerical status, and a variety of others that may affect wages (Alhakimi and Peoples 55). The authors believe that the table shows that industries with a high presence of foreign direct investment activity that has a distinct focus on capital and a monopolistic approach to business can be used to explain the high wages provided to employees of foreign companies (Alhakimi and Peoples 57). In the final section, they provide a conclusion to the paper with a thought that these findings can be used in the future to enhance wage estimation and further studies on this topic (Alhakimi and Peoples 63).
Conclusion
Foreign direct investment and its effects on domestic wages is a complex topic of examination. The complication comes from the great number of variables that need examination during the wage estimation process. Previous research on the topic is insufficient specifically due to its lack of attention to detail of this nature. By incorporating these elements, the authors come to a more clearly defined conclusion on why wages increase when foreign investors provide direct funding into a given industry. Their research into this topic allows for future research to be more detailed and become a foundation for more accurate studies.
Work Cited
Alhakimi, Saif, and James Peoples. Foreign Direct Investment and Domestic Wages in the USA. Vol. 77, no. 1, 2009, pp. 47–64.