The Effect of FDI on Job Security

Abstract

Novel linked employer-employee data for multinational enterprises and their global workforces show that multinational enterprises that expand abroad retain more domestic jobs than competitors without foreign expansions. Propensity-score estimation demonstrates that the foreign expansion itself is a dominant explanatory factor for reduced worker separation rates. Bounding, concomitant variable tests, and further robustness checks show competing hypotheses to be less plausible. The finding is consistent with the hypothesis that, given global wage differences, a prevention of enterprises from outward FDI would lead to more domestic job losses. FDI raises domestic-worker retention more pronouncedly among highly educated workers.

The effects at home of initiating production abroad: evidence from matched French firms

“…In studies concomitant to the present one, Barba Navaretti et al (2010) for France and Italy, and Debeare et al (2010) for Korea analyse the causal effects of becoming a multinational whilst distinguishing between high-and low-income investment locations. 2 Becker and Mündler (2008), based on linked employer-employee data, use propensity score matching techniques to show that foreign expansion induces German MNEs to retain more domestic jobs than their domestic competitors. Noteworthily, these studies are all restricted to the manufacturing sector.…”

Cross-Border Investment, Heterogeneous Workers, and Employment Security - Evidence from Germany

“…Our results imply that the positive effects of Becker and Muendler (2008) at the firm level cannot be generalized to the industry level. One explanation for this may be that large multinational firms reduce their demand for products from domestic firms (in the same industry) as they expand abroad, thus reducing labour demand in the affected firms.…”

“…The results concerning outward FDI are at odds with Becker and Muendler (2008), who find positive effects of FDI expansions abroad on the retention of domestic workers in multinational enterprises.…”

“…Becker and Muendler (2008) investigate this issue using linked employer-employee data for German multinationals. 5 Comparing jobs in FDI-expanding firms to those in non-expanding firms via matching techniques, they find that FDI expansions abroad lead to lower job separation rates at home.…”

Does German Foreign Direct Investment Lead to Job Losses at Home?

“…For France they find a positive effect on the size of domestic activity. The same methodology is used on employeremployee data by Becker and Muendler (2007) Marin (2004) uses Austrian and German firm-level data from 1997 ± 2001, collected through surveys, and finds that Eastern Enlargement leads to small job losses in both countries. The argument put forward is that jobs in Eastern Europe do not compete with jobs in Austria and Germany in the case of vertical investments.…”