DP3751 Adjusting Labour Demand: Multinational versus National Firms- A Cross-European Analysis

Author(s): Giorgio Barba Navaretti , Daniele Checchi , Alessandro Antonio Turrini

Publication Date: February 2003

Keyword(s): multinational firms , labour demand elasticity , employment adjustment costs

JEL(s): F23 , J23

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP3751.asp

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 11 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). MNEs being relatively ‘footloose’, however, this difference tends to vanish as the rigidity of employment regulations rises.