Work

Margins of Multinational Labor Substitution

Year: 2009

Type: article

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.

Source: American Economic Review

DOI: 10.1257/aer.100.5.1999

Authors: Marc-Andreas Muendler, Sascha O Becker

Institutions: National Bureau of Economic Research, Ifo Institute for Economic Research, University of California San Diego, University of Warwick, Monash University

Language: English

Topic: International Business and FDI

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

Funders: Fritz Thyssen Stiftung, Economic and Social Research Council