Adjusting Labour Demand: Multinational vs. National Firms. A Cross-European Analysis
Centro Studi Luca d'Agliano Development Studies Working Paper No. 168
20 Pages Posted: 23 Jan 2003
Date Written: November 2002
This paper provides a cross-country perspective to the firm-level analysis of the relation between foreign ownership and labour demand. We estimate labour 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 MNEs' affiliates, irrespective of the country investigated. As for the wage elasticity of labour demand, MNEs show smaller elasticities compared with national firms, and very little variation across countries. Cross-country correlations show that the relative value of wage elasticities in MNEs on that in NEs is positively related to country-level indexes of labour market regulation (employment protection, union presence,...). We interpret the results as follows. MNEs tend to have a more rigid demand for total labour (possibly due to a different skill composition). However, being MNEs relatively "footloose", this difference tends to vanish as the rigidity of employment regulations rises.
Keywords: multinational firms, labour demand elasticity, employment adjustment costs
JEL Classification: F23, J23
Suggested Citation: Suggested Citation