Understanding the Unwritten Rules of the Game: Government Work Experience and Salary Premiums in Foreign MNC Subsidiaries

Understanding government institutions in a host country is crucial for MNC subsidiaries. This is challenging, as host-country institutions not only relate to formal institutions, such as laws and regulations, but also to informal institutions, like traditions and beliefs. We study the hiring of employees with government work experience as a channel through which foreign MNC subsidiaries can better understand host-country institutions. Government work represents a context in which employees have opportunities to accumulate knowledge about how formal and informal institutions shape government procedures, and to develop political connections. Drawing from strategic human capital theory, we hypothesize that foreign MNC subsidiaries pay these employees salary premiums vis-à-vis domestic firms because they expect them to offer unique value. We find support for this hypothesis using data for 9,698 former government employees in Denmark. Salary premiums increase with government saliency in the industry and with seniority in the government. Our results shed light on how certain types of human capital can create value for foreign MNC subsidiaries and inform career choices of government officials. They suggest that future research should explore other types of host-country work experiences that could create value for foreign MNC subsidiaries when they are hiring.