Foreign takeovers boost wages

Foreign companies boost workers' wages when they take over British companies, according to new research that demolishes fears that overseas acquisitions are bad for the British workforce.

But while pay rises by as much as 13 per cent as a result of a US-driven deal, there is no gain when the successful bidders are from continental Europe.

The research, published this week at the Royal Economic Society's annual conference, comes as BAA, the British airports company, appears to be caught in a takeover tussle between a US company and a European business. Ferrovial of Spain and Goldman Sachs and GE have been linked to takeover bids

Two economists at Nottingham University, Holger Gorg and Sourafel Girma, studied 336 foreign acquisitions between 1980 and 1994, including 228 in the high-tech electronics sector and others in the low-tech food sector. They found that wages of skilled workers rose by 2.6 per cent in the first year after the takeover. However, this was outstripped by a 7.5 per cent jump for the unskilled.

"There is no evidence that foreign direct investment exacerbates income inequality, as unskilled wages appear to change by more than the average skilled wage," they said.

In the first two years after a US takeover, skilled workers saw their earnings increase by 8 per cent. Unskilled workers did even better as their pay went up by 13 per cent.

"In stark contrast, no evidence is found for any causal effect on wages, skilled or unskilled, following acquisition by EU based multinationals," the researchers said.

Acquisition by multinationals from the rest of the world led to a rise in unskilled wages in the first two years - 4.4 per cent and 6.8 per cent - following the takeover.

The researchers said a key issue was whether the takeover wage premium, in particular for US acquisitions, was desirable.

They said that if the higher wage reflected the fact that the firm's assets were being better used, then it was a desirable.

However, they warned that if wages rose because "better" workers were poached after the takeover, then there might be no net positive effect as rival firms would be left with a skills or labour shortage.

- INDEPENDENT