Adjusting Labor Demand: Multinational Versus National Firms: A Cross-European Analysis

Abstract

This paper provides a cross‐country perspective to the firm‐level analysis of the relation between foreign ownership and labor demand in host countries. We estimate labor demand equations in eleven European countries using dynamic panel data techniques on samples that permit to distinguish the ownership status of firms. We find that the employment adjustment is significantly faster in Multinational's affiliates (MNEs) compared with national firms (NEs), irrespective of the country investigated. As for the wage elasticity of labor demand, MNEs show smaller elasticities and very little variation across countries. Cross‐country correlations show that the relative size of wage elasticities in MNEs on that in NEs is positively related to country‐level indexes of labor market regulation. We interpret the results as follows. MNEs tend to have a more rigid demand for total labor (possibly due to a different skill composition). However, being MNEs relatively “footloose,” this difference tends to vanish as the rigidity of employment regulations rises. (JEL: F23, J23)

Non-union worker representation, foreign owners, and the performance of establishments

“…Andrews et al (2007) confirm for Germany that foreign ownership is associated with increased job insecurity. Finally, Navaretti et al (2003) use data from 11 European countries to show that employment adjustment in foreign-owned firms is faster than in domestic-owned firms. Moreover, foreign-owned firms appear to be able to bypass national labour market regulations.…”

Domestic multinationals, foreign affiliates, and labour demand elasticities

“…This is in contrast to a number of earlier studies, which only consider differences in wage elasticities of labour demand between foreign multinationals and domestic firms and that do not distinguish domestic multinationals from purely domestic firms (e.g., Barba Navaretti et al, 2003, Görg et al, 3 2009). Barba Navaratti et al (2003) hypothesize that foreign firms may be more volatile employers and hence they should be less rigid in their labour demand elasticity when compared to the average domestic firm.…”

“…A general concern about multinational firms in developed countries is that they export activities abroad and substitute employees even in response to small labour cost changes (Horst, 1978;Barba-Navaretti et al, 2003). In other words, their operations may be regarded as highly footloose.…”

Multinational Resilience or Dispensable Jobs? German FDI and Employment in the Czech Republic Around the Great Recession

“…The bulk of studies on that issue, however, comes to the conclusion that foreign ownership does not lead to a lower job security of workers in the offshore firm units (e.g. Andrews et al, 2012;Barba Navaretti et al, 2003;Buch and Lipponer, 2010;Fabbri et al, 2003).…”