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Domestic Multinationals, Foreign Affiliates, and Labour Demand Elasticities

  • Godart, Olivier

    ()

    (Kiel Institute for the World Economy)

  • Görg, Holger

    ()

    (Kiel Institute for the World Economy)

  • Greenaway, David

    ()

    (University of Nottingham)

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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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: published in: Review of World Economics, 2013, 149 (4), 611-630
Handle: RePEc:iza:izadps:dp7061
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