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Margins of Multinational Labor Substitution

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Author Info
Marc-Andreas Muendler (University of California, San Diego)
Sascha Becker (University of Munich)

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Abstract

Multinational labor demand responds to wage differentials at the extensive margin, when a multinational enterprise (MNE) expands into foreign locations, and at the intensive margin, when an MNE operates existing affiliates across locations. We derive conditions for parametric and nonparamtric identification of an MNE model to infer elasticities of labor substitution at both margins, controlling for location selectivity. Prior studies rarely found foreign wages or operations to affect employment. Our strategy detects salient adjustments for German MNEs. With a one-percent increase in German wages, German MNEs add 2,000 manufacturing jobs in Eastern Europe at the extensive margins and 4,000 jobs overall; a converse one-percent drop in Eastern European wages is associated with an overall withdrawal of 730 MNE jobs from Germany.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 2006-04R.

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Date of creation: 01 Dec 2006
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Handle: RePEc:cdl:ucsdec:2006-04r

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Keywords: Multinational enterprise location choice multiple sample selectivity labor demand translob cost function nonparametric estimation

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ann E. Harrison & Margaret S. McMillan, 2006. "Outsourcing Jobs? Multinationals and US Employment," NBER Working Papers 12372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Marc-Andreas Muendler & Sascha Becker, 2006. "Margins of Multinational Labor Substitution," University of California at San Diego, Economics Working Paper Series 2006-04R, Department of Economics, UC San Diego. [Downloadable!]
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  3. Sascha O. Becker & Marc Andreas Muendler, 2006. "The Effect of FDI on Job Separation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Sascha Becker & Marc-Andreas Muendler, 2008. "The Effect of FDI on Job Security," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 8(1), pages 1770-1770. [Downloadable!] (restricted)
  5. Robert E. Lipsey, 2006. "Measuring the Impacts of FDI in Central and Eastern Europe," NBER Working Papers 12808, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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