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Multinational Corporations, Wages and Employment: Do Adjustment Costs Matter?

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  • Giovanni S. F. Bruno

    (Bocconi University)

  • Anna M. Falzoni

    (University of Bergamo)

Abstract

This paper investigates the extent to which expansion of international production by US multinational reduces labor demand at home and at other foreign locations. The few existing empirical studies on this subject maintain, along with firm’s cost minimizing behavior, perfectly variable inputs. In our view, this constitute s a strong restriction, which may seriously bias the short run cross-price elasticity estimates. We offer simple examples in which this is actually the case. We suggest an alternative approach to the problem, which explicitly considers for the presence of adjustment costs. A dynamic model of the firm is applied to estimate short-run and long-run cross-price elasticities between home and foreign labor. We find evidence of significant adjustment costs for employment in Latin American and Canadian affiliates, We also find that, in some instances, due to the presence of slow input adjustments, the complementarity/substitution relationship between employment in different international locations is reversed from the short to the long-run.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 130.

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Date of creation: 01 Sep 1999
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Handle: RePEc:csl:devewp:130

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Cited by:
  1. Stefano Federico & Gaetano Alfredo Minerva, 2008. "Outward FDI and Local Employment Growth in Italy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 295-324, July.
  2. Barba Navaretti, Giorgio & Castellani, Davide & Disdier, Anne-Célia, 2006. "How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy," CEPR Discussion Papers 5765, C.E.P.R. Discussion Papers.
  3. Ludo Cuyvers & Michel Dumont & Glenn Rayp & Katrien Stevens, 2005. "Home Employment Effects of EU Firms’ Activities in Central and Eastern European Countries," Open Economies Review, Springer, vol. 16(2), pages 153-174, April.
  4. Sotiris Blanas, 2012. "Intra-Firm Trade and Employment in US Manufacturing," FIW Working Paper series 077, FIW.
  5. Konings, Jozef & Murphy, Alan, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data," CEPR Discussion Papers 2972, C.E.P.R. Discussion Papers.
  6. Jaan Masso & Urmas Varblane & Priit Vahter, 2007. "The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy," William Davidson Institute Working Papers Series wp873, William Davidson Institute at the University of Michigan.
  7. Jozef Konings & Alan Murphy, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from Firm Level Panel Data," LICOS Discussion Papers 10001, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  8. Stefano Federico & Gaetano Alfredo Minerva, 2005. "Fear of Relocation? Assessing the Impact of Italy’s FDI on Local Employment," Working Papers 102, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
  9. Konings, Jozef & Murphy, Alan, 2005. "Do Multinational Enterprises Relocate Employment to Low Wage Regions? Evidence from European Multinationals," Research Technical Papers 1/RT/05, Central Bank of Ireland.
  10. L. Cuyvers & M. Dumont & G. Rayp & K. Stevens, 2002. "Home Employment Effects of EU Firms' Activities in Central and Eastern European Countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/158, Ghent University, Faculty of Economics and Business Administration.
  11. Davide Castellani & Ilaria Mariotti & Lucia Piscitello, 2006. "Outward investments and skill upgrading. Evidence from the Italian case," KITeS Working Papers 185, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2006.
  12. Barba Navaretti, Giorgio & Castellani, Davide, 2004. "Investments Abroad and Performance at Home: Evidence from Italian Multinationals," CEPR Discussion Papers 4284, C.E.P.R. Discussion Papers.

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