Why multinational investment is raising factory wages without raising output

Chery officially took over Nissan's Rosslyn plant on 3 July, retaining all 692 existing employees and promising nearly 3,000 more jobs as production ramps up. At the handover, Deputy President Paul Mashatile framed the deal around people rather than machinery: ‘It is critical to invest in training, apprenticeships and technical education’ , he said, with the aim of putting local engineers and technicians at the forefront of the industry's future. Rosslyn is one example of something happening across South African manufacturing more broadly. When a multinational moves into a region, it needs skilled workers. So do the domestic firms already there. If the multinational pays more, a domestic firm has two choices: match the wage or lose the worker. Matching it costs money. It doesn't raise the firm's output. For the worker, that's a real wage gain. For the firm competing to keep them, it's a cost with no output gain to offset it. The evidence The wage-productivity squeeze isn't hypothetical. An average of 676 foreign multinationals operated in South African manufacturing every year between 2013 and 2018 , tracked alongside tens of thousands of domestic firms through SARS and Treasury payroll and customs data. Multinational investment pushes wages up at these firms without a matching rise in what they produce. That's not just correlation. The pattern tracks multinational investment that expanded for reasons that have nothing to do with conditions inside any specific South African town —global shifts, not local ones. In areas where multinationals already had a strong presence, global expansions pushed up wages at domestic firms but had no effect on their output. Where competition for skilled workers is especially intense, wages at domestic firms rise by 2.9% while output per worker moves by less than 1%, too small a change to be statistically meaningful. Wage costs end up rising by around 2% relative to output per worker, closing more than 5% of the wage–productivity gap,