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Margins of Multinational Labor Substitution

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  • Muendler, Marc-Andreas

    (University of California, San Diego)

  • Becker, Sascha O.

    (Monash University)

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 nonparametric identification of an MNE model to infer elasticities of labor substitution at both margins, controlling for location selectivity. Prior studies have rarely found foreign wages or operations to affect employment. Our strategy detects salient adjustments at the extensive margin for German MNEs. With every percentage increase in German wages, German MNEs allocate 2,000 manufacturing jobs to Eastern Europe at the extensive margin and 4,000 jobs overall.

Suggested Citation

  • Muendler, Marc-Andreas & Becker, Sascha O., 2006. "Margins of Multinational Labor Substitution," IZA Discussion Papers 2131, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp2131
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    More about this item

    Keywords

    multinational enterprise; location choice; sample selectivity; labor demand; translog cost function; nonparametric estimation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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