Multinationals, skills, and wage elasticities

Abstract

The increase in foreign direct investments raises concerns about labor market consequences in many countries. It is feared that multinational firms are inclined to shift jobs abroad and increase job volatility. We use firm-level data to examine if multinationality and foreign ownership affect the wage elasticity of labor demand. Unlike previous studies, we distinguish the effect on different skill groups of employees. We find no general difference in wage elasticity between foreign and domestic firms but the wage elasticity is higher in multinational firms than in national firms, in particular for medium-skilled workers.

Domestic Multinationals, Foreign Affiliates, and Labour Demand Elasticities

“…This may be partly explained by the fact that they compare foreign firms with all domestic firms, and do not distinguish the latter into multinationals and non-multinationals. Görg et al (2009) in a study using firm level data for Ireland find clear evidence that labour demand elasticity is higher in foreign than in domestic firms, a finding in line with Nilsson Hakkala et al (2010). However, Görg et al (2009) can also not say anything about labour demand elasticities in domestic multinationals vis-à-vis that of foreign firms.…”

“…There are a number of papers that look at differences in labour demand elasticities between multinationals and non-multinationals or in foreign and domestic firms. In a recent contribution, Nilsson Hakkala et al (2010) look at such differences between multinationals and non-multinationals using firm level data for Sweden. They find that wage elasticities are higher in multinationals than in domestic firms, in line with the perception that multinationals are more footloose.…”

“…Nilson Hakkala et al (2010) define a multinational firm as domestic firms with affiliates abroad (domestic multinational) or foreign affiliates of multinationals headquartered abroad (foreign multinational). 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, 2009).…”

Domestic multinationals, foreign affiliates, and labour demand elasticities

“…In a recent contribution, Nilsson Hakkala et al (2010) look at such differences between multinationals and non-multinationals using firm level data for Sweden. They find that wage elasticities are higher in multinationals than in domestic firms, in line with the perception that multinationals are more footloose.…”

“…Nilson Hakkala et al (2010) define a multinational firm as domestic firms with affiliates abroad (domestic multinational) or foreign affiliates of multinationals headquartered abroad (foreign multinational). 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).…”