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Domestic Multinationals, Foreign Affiliates, and Labour Demand Elasticities

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Author Info

  • Godart, Olivier

    () (Kiel Institute for the World Economy)

  • Görg, Holger

    () (Kiel Institute for the World Economy)

  • Greenaway, David

    () (University of Nottingham)

Abstract

Using information on a panel of multinational firms operating in the United Kingdom from 1996 to 2005, we find that labour demand in domestic multinationals is less sensitive to labour cost changes than in foreign multinationals. This difference in the wage elasticity of labour demand persists even when we control for the skill intensity of firms or their level of intangible assets. This is in line with an interpretation that the provision of headquarter services in domestic multinational firms protects against strong fluctuations in labour demand. Overall, our results suggest that the wage elasticity of labour demand is about 40 percent lower in domestic than in foreign multinationals.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7061.

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Length: 32 pages
Date of creation: Dec 2012
Date of revision:
Publication status: forthcoming in: Review of World Economics, 2013
Handle: RePEc:iza:izadps:dp7061

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Keywords: headquarter services; multinational firms; labour demand elasticity; skill intensity;

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References

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  1. Ronald B. Davies, 2003. "Fragmentation of Headquarter Services and FDI," University of Oregon Economics Department Working Papers 2003-25, University of Oregon Economics Department, revised 01 Sep 2003.
  2. Heyman, Fredrik & Sjöholm, Fredrik & Gustavsson Tingvall, Patrik, 2004. "Is There Really A Foreign Ownership Wage Premium?Evidence From Matched Employer-Employee Data," EIJS Working Paper Series 206, The European Institute of Japanese Studies.
  3. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  4. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
  5. Holger Görg & Michael Henry & Eric Strobl & Frank Walsh, 2009. "Multinational companies, backward linkages, and labour demand elasticities," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 332-348, February.
  6. Helpman, Elhanan, 1985. "Multinational Corporations and Trade Structure," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 443-57, July.
  7. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  8. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  9. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  10. Niven Winchester & David Greenaway & Geoffrey V. Reed, 2006. "Skill Classification and the Effects of Trade on Wage Inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 287-306, July.
  11. Robert E. Lipsey, 2010. "Measuring The Location Of Production In A World Of Intangible Productive Assets, Fdi, And Intrafirm Trade," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages S99-S110, 06.
  12. Head, Keith & Ries, John, 2002. "Offshore production and skill upgrading by Japanese manufacturing firms," Journal of International Economics, Elsevier, vol. 58(1), pages 81-105, October.
  13. Chiara Criscuolo & Ralf Martin, 2009. "Multinationals and U.S. Productivity Leadership: Evidence from Great Britain," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 263-281, May.
  14. Katariina Nilsson Hakkala & Fredrik Heyman & Fredrik Sjöholm, 2010. "Multinationals, skills, and wage elasticities," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(2), pages 263-280, June.
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