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

Giorgio Barba Navaretti (), Daniele Checchi and Alessandro Turrini

Journal of the European Economic Association, 2003, vol. 1, issue 2-3, 708-719

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) Copyright (c) 2003 The European Economic Association.

Date: 2003
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