Margins of Multinational Labor Substitution

Abstract

Employment at multinational enterprises (MNEs) responds to wages at the extensive margin, when an MNE enters a foreign location, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric and nonparametric identification. Prior studies rarely found wages to affect MNE employment. We document a complementarity bias when the extensive margin is excluded and detect salient labor substitution at both margins for German manufacturing MNEs. With a one-percent increase in home wages, for instance, MNEs add 2,000 jobs in Eastern Europe at the extensive margin and 4,000 jobs overall; a converse one-percent drop in Eastern European wages removes 730 German MNE jobs.

Investment abroad and labour adjustment at home: evidence from UK multinational firms

“…Harrison and MacMillan (2009) investigate home‐country effects of outward investment and find that for vertical multinationals foreign and domestic (US) employment are complements. Muendler and Becker (2010) examine how multinational employment responds to international wage differentials. Overall they find home and overseas employment to be substitutes.…”

Import Competition and the Great U.S. Employment Sag of the 2000s

“…In related work,Artuc, Chaudhuri, and McLaren (2010) evaluate how costs to workers of moving between sectors dampen the employment response to changes in trade barriers, andMuendler and Becker (2010) and estimate the responsiveness of employment in multinational companies to changes in foreign wages. This work tends to emphasize the elasticity of employment with respect to changes in trade barriers or foreign production costs, rather than producing estimates of aggregate impacts of foreign competition on employment.28 This figure comes from information provided inTable 2ofBernard, Jensen, and Schott (2006).29 This ratio is based on the calculation, 1 − e −1.30×.56×.09 / 1 − e −1.30×.56×.50 = 0.21, where the value −1.30 is the coefficient from column 3 of Table 2 and the value .56 discounts observed changes in import penetration by the partial R-squared of the first stage.…”

Foreign direct investment, heterogeneous workers and employment security: Evidence from Germany

“…The interaction between labour market adjustment and FDI may also depend on the margin of FDI. For example, Muendler and Becker () find that when looking at labour demand by multinational enterprises, domestic employment responds predominantly to outward FDI taking place at the extensive margin. Moreover, with respect to inward FDI, Kosova () finds that a significant crowding‐out of domestic firms occurs only upon entry (and not any more in response to subsequent expansions) of foreign firms.…”

“…For the U.S., they find foreign and domestic labour to be substitutes in the case of horizontal FDI and to be complements in the case of vertical FDI. On the other hand, Muendler and Becker () highlight differences between multinationals' expansions at the extensive and intensive margins, with domestic employment responding predominantly to changes at the extensive margin…”

“…Third, we analyze if the effect of FDI depends on whether it takes place at the extensive margin (newly founded firms or production units and newly acquired firms) or at the intensive margin (investment or expansion in existing affiliates). As recent research suggests, the margin of investment may matter for the employment outcomes of both inward FDI (Kosova ) and outward FDI (Muendler and Becker ). Fourth, we examine post‐displacement transitions in order to find out how much time workers who have lost their job spend in non‐employment and whether those workers go to a faster‐growing or a slower‐growing industry.…”